By Jon Matonis
Sunday, June 23, 2013
Directly following last month’s Bitcoin 2013 conference event in San
Jose, CA that brought decent revenue into the state, California’s
Department of Financial Institutions decided to issue a cease and desist
warning to conference organizer Bitcoin Foundation for allegedly
engaging in the business of money transmission without a license or proper authorization.
If found to be in violation of California Financial Code, penalties
can be severe ranging from $1,000 to $2,500 per violation per day plus
criminal prosecution which could result in fines and/or imprisonment.
Additionally, it is a felony violation of federal law to engage in the
business of money transmission without the appropriate state license or
failure to register with the U.S. Treasury Department. Convictions under
the federal statute are punishable by up to 5 years in prison and a
The Bitcoin Foundation is a nonprofit corporation
registered in Washington, D.C. with mailing address in Seattle, WA. As a
nonprofit, its mission is to standardize and promote the open source
Bitcoin protocol and it receives generous support from individuals and
corporations to advance those objectives. The foundation also boasts
significant international membership.
One activity that the foundation does not engage in is the owning,
controlling, or conducting of money transmission business. Furthermore,
that activity would also be against the original charter of the
foundation. As general counsel for the Bitcoin Foundation, Patrick Murck
has lead responsibility for corresponding with the California
Department of Financial Institutions.
At this stage, it’s difficult to tell whether or not it was a general
blanket action and if other bitcoin-related entities received cease and
desist letters from California. If Bitcoin Foundation was not the only
recipient, then expect other companies to come forward in the days and
The issued letter was signed by State of California Senior Counsel
Paul T. Crayton and the letter was copied to Department of Financial
Institutions Deputy Commissioner Robert Venchiarutti, who also serves on
the Board of Directors of the Money Transmitter Regulators Association, ironically a national nonprofit organization dedicated to the efficient and effective regulation of the money transmission industry.
Recently, the State of Illinois also issued
a cease and desist letter to mobile payments processor Square for
failing to have the proper licensing in accordance with the state’s
Transmitters of Money Act. Prepaid card provider NetSpend and six other
payments companies also received Illinois cease and desist orders. If this practice grows among states, it could have a potentially significant “chilling effect”
on financial services innovation, especially upon lawful businesses
that are designing infrastructure to support and grow the Bitcoin
technology. Freedom of choice in currencies is probably the most
important free speech issue of our time.
For similar but not wholly unrelated reasons, the Electronic Frontier
Foundation and several law school clinics established the collaborative
archive Chilling Effects Clearinghouse in 2001 to protect lawful online activity from harassing legal threats related to intellectual property.
Harkening back to the saga
of FaceCash and Aaron Greenspan, this new far-reaching action from
California’s financial regulator apparently now scoops up nonprofit
scientific and educational organizations. California, the cradle of
technological innovation and home to the inspiring Silicon Valley
venture capital community, is now focusing its sights on the futuristic
The cease and desist order is included below: