Possibly the largest nuisance for blockchain and cryptocurrency companies in the United States are the mishmash of different Money Transmission Laws to get a Money Transmission License(MTL). Not only are there Federal requirements to be a money transmitter, but each state has its own requirements. A business that wishes to engage in money transmission in the State of Florida (as well as other states) must apply for Money Transmission License (MTL). For this reason larger exchanges are very slow to move to the United States, or when they do they restrict services in certain states. This is exactly what BinanceUS has done in 13 such states.

In order to move Florida forward into the blockchain and crypto realm and allow for innovation, the MTL laws need to be reformed and updated. We are off to a good start with the formation of the Blockchain Task Force in making Florida a fintech friendly state. Getting MTL reform right would make Florida a hub for blockchain related enterprises.

There are two chapters of Florida law that dictate MTL’s. These chapters are 560, Money Service Businesses, and 896, Financial Crimes and Money Laundering.

In legal terms, if you are a business that involves transacting value, you must know whether you are dealing with monetary instruments, payment instruments, or both. According to Florida Law, a payment instrument is defined as a check, draft, warrant, money order, traveler’s check, electronic instrument, or other instrument, or monetary value whether or not negotiable. A Monetary Instrument is defined as coins or currency of the United States or of another country, virtual currency, travelers checks, personal checks, bank checks, money orders, investment securities or negotiable instruments in bearer form or in other form so that title passes upon delivery.

It may seem like payment instrument and monetary instrument are the same thing, but they are not. Further, these two definitions are not contained in the same statute. The definition of Payment Instrument is found in Chapter 560 (Money Transmission) while Monetary Instrument is found in Chapter 896 (Financial Crimes and Money Laundering).

This causes confusion between the two Chapters and therefore between the Judiciary (as seen in the Espinoza court case which is still ongoing), those enforcing the laws, and the general public.

It gets worse. Due to the infamous Espinoza case here in Florida, virtual currency is only mentioned in Chapter 896, and not in Chapter 560. This begs the questions, is virtual currency a monetary instrument or a payment instrument? Is a personal check a monetary instrument or a payment instrument? Is US Currency a Monetary instrument or a payment instrument? Based on the current definitions in the Florida statute, these are all the same.

To solve this problem, we would suggest updating the current language in both statues to match one another, putting both monetary and payment instrument definitions in Chapters 560 and 896. Further, we should update both chapters with definitions surrounding current technology, such as virtual currency. A simple re-write of the definitions to better explain the differences between the terms monetary instrument and payment instrument would go a long way.

We would recommend definitions surrounding the following ideas:

First, a monetary instrument is something that represents itself within a transaction. When someone hands you a US dollar you know that you can take that dollar to a store and buy goods or services without having to modify it in any way. Some virtual currencies fit into this definition — both would be bearer instruments

Second, a payment instrument is something that represents a monetary instrument. Meaning it represents something other than itself in a transaction. When someone hands you a personal check you can not take it to a store and buy goods with it. You must endorse the back and take it to a bank to cash or deposit it. Then you can buy goods with the resulting monetary instrument or issue a new payment instrument. Some virtual currencies like stable coins might fall into this definition.

Defining monetary instrument and payment instrument in this way would do a lot to clear up Florida’s laws, but lets take it a step further.

Money Transmission

What is transmission? Transmission is the act of sending something from one place to another or from one person to another. Therefore, it would seem reasonable that money transmission is the “transmission of money”.

If you were to remove a US dollar bill from your right pocket and place it in your left pocket, this would be the transmission of money. Take that same US dollar and give it to a convenience store clerk in exchange for a beverage from the cooler. This would be money transmission to the clerk and beverage transmission to you. You are obviously buying the beverage, but this demonstrates the need for further clarification.

Since the IRS has determined that virtual currency is property, then you can technically replace the beverage in the above example with virtual currency and have the same result.

However, this would make every person a money transmitter. Instead, this is simply an exchange. The key to correcting this problem is to revise the definition of money transmission.

When you think of money transmitter services you think of a person handing a bill pay service a US dollar so the bill pay service can send it to another person to satisfy an outstanding balance. That bill pay service receives the dollar and places it in their custody. After this has occurred, the transmitter, often referred to as middle men, has a duty to forward the dollar that they now are the custodian of to the intended recipient. This represents a fiduciary duty of the bill pay service as they do not own the dollar that is in their custody.

According to the Federal agency Fincen, money transmission means the acceptance of currency, funds or other value from one location or person AND the transmission of same to another location or person.

In today’s world of the internet location is very difficult to determine as the internet is everywhere and virtual currencies are (unless held in cold storage) out there in the cloud. Therefore, we must focus on the portion that relates to transmission from one person to another person. This part of the definition identifies the need to have a middle person in order to take from one person and send it to another person. This middle person is the transmitter.

Based on the above, it is impossible to be a transmitter when it comes to cloud stored value if there is no third party involved. In other words, if you own virtual currency in your own internet-based wallet and you give it to someone in exchange for a US dollar then you are not in the business of transmission but rather an exchanger.

The federal government has guidance on this matter and has coined the term “exchanger” for this instance. This term will come into play in the later stages of statute correction when different levels of licensure are discussed in upcoming articles.

The problem with the Florida money transmission statute (and most states for that matter) is that the concept of the middle person is not properly defined. Instead, it is inferred by stating that a money transmitter is a business that transmits by any means…including through bill payment services. The simple fix here is to look toward the federal version which adds the words “acceptance of funds or value from one person and the transmission of same to another person”.

Aligning these definitions throughout all statutes both federal and state would go a long way in providing clarity for blockchain and crypto companies.

Reforming and updating Florida’s MTL laws would help build a sturdy foundation for further legal innovation, such as a taxonomy like that of Wyoming.

We are talking evolution not revolution. Start with clarifying definitions already in statute. From there we can take the next step, which is determining the level of licensure needed, if any. With proper insight from the blockchain community, even minor modifications can have a profound affect.


This piece was co-authored by Mark Paolillo, CPA, CGMA, and Samuel Armes, President of the Florida Blockchain Business Association

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