- Wyoming is the friendliest state for crypto and blockchain entrepeneurs
- Money transmission regulation usually stops crypto entrepeneurs in their tracks
- Wyoming has come up with an innovative solution to circumvent money transmission laws
The cowboy state is for the cowboy industry
Through the hard work of industry leader and Wyoming Blockchain Task Force member Caitlin Long, Wyoming leads the country as the friendliest state for blockchain and crypto businesses. Why, you might ask? Wyoming has passed crypto and blockchain regulation that by far is the most conducive for business in the country. In this article, I am going to highlight some of the specific legislations passed that make Wyoming the friendliest crypto state. Note that I am not a lawyer and this post is not legal advice.
There's a money transmitter law in my boot
Let’s start out with the bane of every crypto entrepreneur: money transmitter laws. In March 2013, the Financial Crimes Enforcement Network (FinCEN), stated that the regulatory agency would make no distinction between fiat currency and digital currencies, such as bitcoin, regarding money transmission laws.
The consequences of this announcement are that any business that receives bitcoin from one person and sends it to another, or even back to the same person, is likely considered a money transmitter in the eyes of Uncle Sam. Furthermore, FinCEN would go on to clarify that any business that exchanges bitcoin for fiat currency or one digital currency for another is still considered a money transmitter.
Of course, there are some exemptions. For example, if a business accepts and transmit funds from a customer solely for the purpose of purchasing other currencies or commodities for or alongside the customer, that entity is not acting as a money transmitter. To put it in plain English, crypto funds seem to be in the clear, as they accept funds from LPs and then purchase digital assets purely for the purpose of investing those funds in cryptoassets.
That being said, almost all crypto businesses that are not funds somehow are involved in the transferring of crypto between different parties (insane, I know). Thus, nearly every crypto business could be considered a money transmitter. But that isn’t so bad, is it?
You need a license, you need a licnese, everyone needs a license
Wrong. In the United States, not only is there federal regulation surrounding money transmission, but each state issues unique money transmission licenses. Since each state has different money transmission licenses, an entrepreneur has to apply and be approved for fifty different money transmission licenses if they want to service citizens from every state. That is a whole lot of paperwork, which means there will be a whole lot of legal fees!
On the national level, FinCEN is mostly concerned with preventing money-laundering and terrorist financing. In fact, much of this regulation stems from the Patriot Act, which was passed after 9/11 as a way to give the government better tools to fight terrorism.
Thus, in order to register as a money transmitter with FinCEN on the national level, entrepreneurs must undergo risk assessments, appoint a qualified compliance offer, train employees within that compliance program, and undergo regular independent testing and review.
Furthermore, entrepreneurs must also have extensive reporting to FinCEN concerning information about their customers, dubbed KYC or Know Your Customer. Having KYC policies is both costly and labor intensive for an entrepreneur.
Unfortunately for the entrepreneur, applying for fifty different state money transmission licenses is even more onerous than being registered nationally with FinCEN. State regulators often require audited financial statements, personal financial records for all major shareholders, records of occupations for all control persons, lists of all lawsuits/criminal complaints against any control person, third-party background checks, divorce records, and even fingerprints of the control persons.
As you can see, the regulatory deck is clearly stacked against crypto entrepreneurs. So how has Wyoming allayed these issues?
How Wyoming may have solved the money transmission problem
Well, at a state level, Wyoming exempts businesses performing crypto-to-crypto transactions from money transmitter laws. That means an entrepreneur would most likely not have to apply for a money transmission license for receiving or sending digital assets to Wyoming citizens.
While this exemption is a nice gesture, considering the population of Wyoming is a whopping 578,759 people, I don’t think this friendly addendum solves most crypto entrepneurs’ problems when they apply for the other forty-nine states’ money transmission licenses.
That being said, Wyoming did pass a law which allows for the creation of blockchain related SPDIs (special purpose depository institutions). Crypto companies registering as SPDIs are a big deal, since SPDIs are exempt from needing money transmitter licenses, though there are still barriers to registering as an SPDI. SPDIs are required to maintain a minimum capital requirement of $5 million. One way around this $5 million barrier is for entrepreneurs to partner with an unaffiliated SPDI to pool assets. Additionally, SPDIs have to maintain their principal operating headquarters and the primary offices of its CEO in Wyoming.
Wyoming allowing crypto companies to register as SPDIs effectively enables them to get around applying for money transmission licenses in each state, which is probably one of if not the largest regulatory burden crypto entrepreneurs face. With these regulations, and more laws that will be discussed in my next newsletter, Wyoming has cemented itself as the most crypto friendly state.