As you may recall, we published an article last week in which we discussed about how the Spanish tax authorities stated (in a binding consultation) the VAT exemption of Bitcoin transactions, given that they considered that Bitcoin transactions shall be deemed as financial services. It is true that this consultation clarify the nature of Bitcoin for legal purposes. Nevertheless, there is still a long way to go as regards Bitcoin and its legal status. Hence, other questions may arise, such as the following: Are Bitcoin companies subject under the Spanish Anti-Money Laundering (AML) Act ?
[Note: This post refers to the Spanish regulation related to Anti-Money Laundering]
At first, it is doubtful that the activity of exchange or sale of Bitcoins could be covered within the scope of Spanish Anti-Money Laundering Act, since the subjects bound by the abovementioned Act are included in a closed list (article 2), which does not seems to include this kind of operator.
However, we cannot deal with an issue like this without making an approach to the legal status of this this technological phenomenon.
Bitcoin and its legal status
Is Bitcoin a legal tender?
At first, according to the Virtual Currency report submitted by the Financial Action Task Force (FATF) in June 2014, virtual currencies shall be deemed as “a digital representation of value that can be digitally traded nad functions as a medium of exchange; and/or a unit of account; and/or a store of value, but does not have legal tender status in any jurisdiction”.
From this definition we can conclude that Bitcoin cannot be considered as a legal tender.
What does the Spanish Civil Code say?
Based on the known article published by Pablo Fernández Burgueño (awarded with the Prize to the 2013 Best Legal Post, granted by “Derecho en Red”) we can consider Bitcoin as:
“A private, intangible digital asset, used as unit of account, created by a computer system and used as a common meassurement of value by agreement of the system’s users”
Under the articles 335, 337 and 345 of the Spanish Civil Code, bitcoins are movable, fungible, divisible, unrepeatable assets, which cannot be copied.
What does Common Law say about that?
Bitcoin could be covered, according to the opinion of Javier González Granado (Spanish Notary) by the definition of LETS (Local Exchange Trading Systems), considered in the Anglo-Saxon world as a kind of assets which are used as a common measurement of value in the economic exchange systems (which are cooperative and decentralized), different from legal trend and trust-based.
¿Can Bitcoin be regarded as e-money?
Analyzing the Spanish AML Act, we can argue that the purchase and exchange of bitcoins could be considered as a payment or e-money activity, and therefore, could be covered by the article 2 of the Spanish AML Act related to subjects bound by the aforementioned Act.
Nevertheless, in order to consider virtual currencies as money orders, we should analyze the Law 21/2011 related to e-money, which defines e-money as:
“A monetary value digital and magnetically stored which represent a credit over the issuer, submitted with the purpose of making payment operations” under the article 2.5 of the Law of payment services (Ley 16/2009, de 13 de noviembre, de servicios de pago) and which is accepted by a natural person or a legal entity different from the issuer of the e-money.
Given that in Bitcoin transactions there is no credit granted by the issuer, it cannot be considered as e-money, because the issuer of the abovementioned credit doesn’t exist.
¿What has been said outside Spain with this regard?
Several international and european bodies consider that digital currencies, as Bitcoin, shall not be considered as legal trend, nor e-money, financial intruments, or payment instruments. Among other bodies:
- The European Central Bank: Report of February 2015 related to Virtual Currencies
- European Banking Authority: Opinion on Digital Currencies of 4 July 2014
- FATF (Financial Action Task Force): Report of Junie 2014.
However, even if digital currencies, such as Bitcoin, cannot be considered as legal trend, financial intruments or payment instruments, it may be defined as an electronic intangible asset used as unit of account which may be used in transactions as a mean of payment to the bearer. Consequently, Bitcoin transactions seems to be covered by the article 2 of the Spanish AML Act:
“Persons operating in a proffesional way with assets under the terms stated in the article 38” (transactions related to payments or charge made with the means of payment referred by the article 34.2 of the Spanish AML Act wich ammount to EUR 15.000). Under the article 34.2 of the abovementioned act, those transactions could be covered by the letter c) “Physical means, included electronic means, which are used as a mean of payment to the bearer”.
Given that Bitcoin is used as mean of payment to the bearer, we could consider that the Spanish AML Act would apply under the article 2. However, in a consultation (184/47663) of 3 March 2014 submitted before the Spanish Government with this regard, this question is remains unclear: “in case the Monetary and Financial Authorities consider that Bitcoin is a mean of payment designed to be used as a mean of mayment to the bearer, limitations to payments in cash would apply” (AML restrictions).
Then there is an advance of our next post:
Bitcoin and Anti-Money Laundering
Despite of the consideration that the activities of purchase and exchange may be (or not) subject to Spanish AML regulations, we can confirm, undoubtedly, that a compliance of these AML regulations is necessary for Financial Entities.
That said, to the extent that the purchase and exchange of bitcoins may affect to the financial operative of these Financial Entities (such as bank transfers in order to deposit Euros, credit card payments, etc.) those operators (e.g. exchangers) which purchases and exchanges bitcoins are subject to the Spanish AML Act.
In this context, Juan Llanos, from Bitreserve, stated in a meetup celebrated in Madrid (Spain) on 25th April 2015 that as far as it can be used to transfer value, Bitcoin has born regulated. Individuals may not like this sentence, however, regardless of their preference, this fact is undeniable, so Bitcoin must comply with the Spanish AML Act in several cases.