united-states currency cryptocurrency money-laundering
Legality of Virtual Currency to Purchase Real World Items
<p>A while ago, I saw a company called Listia which would permit users to sign up and attain some amount of Credits. These Credits could then be used to purchase real-world items on the site, such as clothes, computers, etc., and have them shipped to you. When you purchased an item, you would have to pay for shipping with United States Dollars. Additionally, the amount in credits of the item you bought would be deducted from you and added to the seller.</p>

<p>It was a "virtual economy", in a way, permitting users to buy and sell items for free by using so-called Listia Credits. This currency was <em>not</em> a cryptocurrency. It could not be redeemed for cash or legal tender in any way.</p>

<p>I'm wondering what the legality of building such a system is in the United States. According to <a href="https://www.lexology.com/library/detail.aspx?g=a0243a6e-75e2-4dd3-9bb0-72a720837f85" rel="nofollow noreferrer">Lexology.com</a>, </p>

<blockquote>
  <p>In 2013, FinCEN released guidance (the "Guidance") explaining its position on money transmission in the context of virtual currency. An individual or company involved in virtual currency transactions would be considered a money transmitter if (1) it acts as an "exchanger" or "administrator" in the transactions; (2) the virtual currency involved is a "convertible virtual currency" (CVC); and (3) the company facilitates the movement of funds between different persons or locations.</p>
</blockquote>

<p>Pertaining to exchanging/issuing:</p>

<blockquote>
  <p>Importantly for app and game developers, an administrator is an entity that (1) issues a virtual currency and (2) has the authority to redeem the virtual currency. "Issuing" means putting a virtual currency into circulation, for example, by providing users virtual currency for free, in exchange for real currency, or as a promotion. Redeeming means withdrawing the virtual currency from circulation, whether in exchange for in-game/in-app items or features, real-world goods or services, or real currency, or otherwise.</p>
</blockquote>

<p>And more specifically, </p>

<blockquote>
  <p>An administrator would be a money transmitter, however, only if the virtual currency it issues and redeems is a CVC. FinCEN defines a CVC as a virtual currency that either (1) has an equivalent value in real currency or (2) acts as a substitute for real currency.</p>
</blockquote>

<p>Based on that, would you say that a company like Listia would be considered a "Money Transmitter" and that they are required to implement a BSA/AML program? Would companies building a similar marketplace today be considered as such? Is the information provided in the quotes correct?</p>

<p>Note that Listia now uses the cryptocurrency XNK, prior to this, however, they used Lista Credits, a virtual in-app only currency.</p>

<p>Thank you.</p>

<p>This is a "how things are in practice" answer, not statutory. </p>

<p>The ruling question is whether the virtual currencies <em>are readily exchangeable for USD</em>. </p>

<p>For instance if there is a thriving, open currency exchange where I can convert 1000 World of Warcraft gold into 1 USD and back again anytime I please, then WoW gold takes on the character of a foreign currency, and Blizzard Entertainment finds themselves in the shoes of a money transmitter, <em>and all that implies</em>, including the need to prevent the platform from being used to launder or traffick money.  <strong>That's a big part of why Blizzard works so hard to stop gold selling</strong>, and why features like "WoW Tokens" (buying game time with in-game gold) are so convoluted.</p>

<p><em>Blizzard knows they can't enforce absolutely: gold-for-real-money does indeed happen, but by making a serious effort to stop third-party trading, they keep Treasury off their back.  This is typical of how capricious this field is, and how "laws as written" provide little practical guidance.</em></p>

<p>With in-game virtual currencies, game platform developers want USD to turn into those currencies, and not become USD again.  This solves the "money transmitter" problem.  (It also complies with the <a href="https://memory-alpha.fandom.com/wiki/Rules_of_Acquisition" rel="nofollow noreferrer">First Rule of Acquisition</a>: <em>Once you have their money, never give it back.</em>) </p>

<p>It sounds like before, Listia was managing their program like a "credit card rewards program" or an "airline miles program".  You could redeem for purchases but not USD. (The problem came if the purchases were easily fungible to cash, e.g. Krugerrands, Bally's casino chips, or Visa gift cards).  </p>

<ul>
<li>Very often, this is scammish in that the "great values" are in fact cheap Chinese junk (if they sell iPads those are fairly fungible; selling unresaleable junk moves them even further away from being a money transmitter), and/or</li>
<li>they charge you retail UPS shipping, and handling too, while they <em>pay</em> UPS's best volume discount rate.  </li>
</ul>

<p><strong>There is no substitute for having good legal advice and keeping up with the trends of what is happening in the in-game-currency field. People are always testing the limits; make sure you stay far away from that bleeding edge.</strong> </p>
