CONCORD — State and federal governments have issued conflicting advice about the need to register ATMs that facilitate the exchange of cash and cryptocurrency, according to records filed in a money-laundering case against Free Keene activist Ian Freeman.
In 2017, the New Hampshire Banking Department informed at least one merchant that his bitcoin kiosk does not require a state license. State banking officials say they issue many similar no-action letters each year.
But the U.S. Treasury Department sees it another way. In 2018 its law enforcement arm informed Shire Cryptocoin that exchanges involving cryptocurrency were money-transmitting operations that needed to be properly registered.
The conflicting advice surfaced last week in U.S. District Court. The defense lawyer representing Freeman entered the two documents into the court record shortly before debating with prosecutors whether Freeman, 40, should be released on bail before trial.
“There’s problems (with the case), that’s all I’ve got to say,” said Mark Sisti, Freeman’s defense lawyer, in a brief interview. “This is not a slam-dunk case. It’s a unique situation that needs to be addressed.”
Sisti has said that Freeman is eager to bring his case to trial.
At such a trial, Freeman may likely testify that he believed he wasn’t doing anything wrong and point to conflicting advice from state and federal authorities.
Sisti also filed a 2017 letter from lawyers for the Freeman-led Shire Free Church. They say the church is not required to be registered as a money transmitter under either state or federal law.
Later this week, federal Judge Joseph Laplante is expected to decide on parameters for the pretrial release of Freeman.
The biggest issue appears to be cash bail. Prosecutors have called for $200,000. Sisti is asking for $100,000.
Freeman and five other Keene residents face federal charges of wire fraud and money laundering. Indictments allege they used donations to Keene-area churches that the five controlled to shield $10 million worth of dollar-bitcoin exchanges for scam artists and drug dealers.
In part, illegal exchanges took place at the virtual currency automated teller machines, or kiosks, located throughout New Hampshire, according to the indictments.
A spokesman for the lead prosecutor in the case, assistant U.S. attorney Georgiana MacDonald, said the office does not comment on pending cases and referred a reporter to the indictments.
The state banking commissioner acknowledged that the state and federal government look at cryptocurrency regulations in different ways.
Banking Commissioner Gerald Little said state and federal regulators have different approaches for other financial services as well. One example is check-cashing businesses, which the federal government regulates and state government doesn’t.
“There’s two levels here, state and federal,” said Little, who stressed he was talking in general and not about the Freeman case. “You can’t say ‘I complied with state law, so I must have complied with federal law.’ That’s not necessarily the case. You should speak to an attorney.”
According to a heavily redacted no-action letter that the state banking department issued in 2017, a merchant was not required to have his bitcoin machine licensed or registered with the state as a money transmitter.
The machine in question allowed users to exchange cash for bitcoins or vice versa. It did not hold dollars or bitcoin on account, nor did it transfer the money to someone else.
“It’s no different from a vending machine that sells snacks. You push two buttons and out comes your candy bar,” Little said.
But he said every situation is different, and someone with a kiosk should contact the banking department to determine if registration or licensure is necessary.
Western Union is the most famous money transmitter, allowing someone in New Hampshire to wire money to another person almost anywhere around the world.
The New Hampshire Banking Department licenses nearly 2,780 money-transmitters in the state, everyone from corporate supermarkets to neighborhood bodegas, according to the agency’s website.
A kiosk that facilitates cash-bitcoin exchange for the user does not fall into that category, according to state banking officials.
But in 2018, an arm of the U.S. Treasury Department told Shire Cryptocurrency that most virtual currency exchanges meet the definition of money transmitters.
Cryptocurrency exchanges must register with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and provide reports to law enforcement to avoid concerns about money-laundering and terrorist financing, the letter reads.
Only 28 New Hampshire money service businesses have registered with FinCEN, according to its website. Most are small neighborhood markets in Manchester and Nashua, but one registrant included the Free State Project Inc.
An email sent to a contact listed for the Free State Project was not returned.
Little said New Hampshire last looked at cryptocurrency in 2015, when the Legislature decided that cryptocurrency-only transmissions from one person to another did not have to be regulated.
He said it would make sense for the Legislature to revisit the issue as cryptocurrency becomes more accepted. As more people use cryptocurrency, they want to know that transmissions are safe, he said.
Ten years ago, the emerging industry balked at regulation, saying its product differed from government-issued money and shouldn’t be heavily regulated as such, he said.
“Now that there’s more acceptance of cryptocurrency,” Little said. “All of a sudden they’re coming to us and saying ‘we wanted to be treated like real money.’”