If you’re a cryptocurrency company in America, chances are you have sought, or should seek, guidance on the Florida Money Transmission License (“MTL”) requirements. Most companies look to avoid this license, as it’s costly, time consuming, and for many cryptocurrency companies, it’s been considered unnecessary. Yet, failure to apply for the license when it is required, can prove to be a costly mistake. Just ask Mr. Espinoza.

Federal Registration as a Money Transmitter. Cryptocurrency companies are often required to register at the federal level, through FinCEN, as a Money Service Business (MSB) under the category of Money Transmitter — because of their service as an exchanger. This registration is normally required of Bitcoin ATM companies, Exchanges, Over the Counter trading desks, and even individuals in the business of selling bitcoin in a peer to peer fashion. The determining factor is usually whether the company exchanges one type of money/currency/virtual currency for another. Banks, non-custodial wallets, and persons registered with the SEC or CFTC are exempt.
The tangible costs of federal registration include primarily the legal and compliance staff’s billable time to prepare the registration documents, and the accompanying required compliance package. The intangible costs include the risk of a Title 31 audit, the requirement to have an MSB bank account, and the social cost of requiring users to provide their personal identity so the company can comply with the Know Your Customer requirements.

Florida Money Transmitter License.

At the state level, there are approximately ten states that require a Money Transmitter License (MTL) for cryptocurrency companies who exchange traditional fiat/government backed currency for cryptocurrency in a two-party transaction. Of those ten, some can be applied for on the Nationwide Multistate Licensing (NMLS) System, and others require mailing the application package directly to the state.
If a company determines they do require a Florida MTL, the application must be done directly to Florida, and not through the streamlined NMLS system. The Company must pay the application fee, obtain a surety bond based on the amount of money transmitted in a year, submit their fingerprints and disclosures pertaining to criminal, civil, and regulatory enforcement litigation, and fill out an Attestation form.
Once licensed by Florida, a licensee must submit certain notices to the Florida Office of Financial Regulation, (OFR) including quarterly reports, audited annual financial statements, a securities device calculation form, and a documentation to increase collateral device (if applicable).[1] The Licensees are also required to maintain a minimum net worth of $100,000, as shown on the financial statements.

2005 FL MTL Enactment. The Florida Money Transmission license, which came into effect in 2005, authorizes the holder to “transmit currency, monetary value,[2] or payment instruments,[3] either by wire, facsimile, electronic transfer, courier, the internet, or through bill payment services or other businesses that facilitate such transfer, within this country or to or from locations outside this country.”[4]

FL MTL Purpose. The stated purpose behind the license is to provide general regulatory powers to the OFR, maintain public confidence in the money transmitter industry, and to deter the use of money transmitters as vehicles for money laundering. Additionally, it was thought that this license would provide an opportunity for money transmitters to effectively serve the convenience and needs of the public and promote economic progress.[5] The OFR creates rules intended to increase efficiency and clarity, and to reduce regulatory costs.

Current Regulatory Understanding. The OFR issued a declaratory statement in 2018 to a Bitcoin ATM provider, where they stated that a license is not required in order to operate a Bitcoin ATM in Florida. The OFR said that Bitcoin ATMs facilitate transfers of cryptocurrency for immediate cash, with no third party involved.
Because Petitioner’s transactions occur directly between Petitioner and a customer, with no third parties involved, and Petitioner has complete control over the transactions, Petitioner is never receiving, “currency, monetary value, or payment instruments for the purpose of transmitting the same”. Consequently, Petitioner is not acting as a “money transmitter”, and licensure for these activities is not required under Chapter 560, Florida Statutes.[6]
This conclusion, however, is a stark contrast to the Espinoza case, which was re-opened by Florida’s Third District Court of Appeal, on January 30, 2019 and found the very same activity does require an MTL.

Florida Blockchain Business Association. In June 2018, Florida appointed a Crypto Czar, tasked with enforcing regulations to protect investors. The Florida Blockchain Business Association (FBBA) was also established in 2018 with the intent to educate public officials and institutions, organize the blockchain and cryptocurrency communities and businesses in Florida, and to ensure smart, industry led regulation is heard in Tallahassee. The FBBA was instrumental in the passing of SB1024 which established the Florida Blockchain Task Force within the Florida Department of Financial Services to explore and develop a master plan for fostering the expansion of the blockchain industry in the state, to recommend policies and state investments to help make this state a leader in blockchain technology, and to issue a report to the Governor and the Legislature. As of this writing, the Task Force has not yet submitted their report as defined and required by the Bill. The FBBA also advocated for HB 1391 which was signed by the Governor in July 2020 and supports the launch of a Fintech sandbox within the Office of Financial Regulation for supporting innovative technology projects, including cryptocurrency and blockchain focused initiatives.[7]

The Espinoza Case. In State of Florida v. Michell Abner Espinoza, in 2014, Count 1 charged Espinoza with unlicensed transmission of money when he sold his own Bitcoin to an undercover officer.[8] Espinoza’s argument centered on the notion that Bitcoin is not money under section 560.125, Florida Statutes (2013). The trial court found that neither Bitcoin, nor Espinoza’s conduct required him to register with the State as a money services business.
The State of Florida appealed and lost again, Judge Pooler said, “This court is unwilling to punish a man for selling his property to another,” she explained, “his actions fall under a statute that is so vaguely written that even legal professionals have difficulty finding a singular meaning.”[9] The criminal case was reinstated on January 30, 2019, and the third district court determined that even a person in the business of selling his own Bitcoin for cash is a “money transmitter” and “payment instrument seller” under Florida law and is therefore required to be licensed as a “money services business.”[10]
To reach this conclusion, the Florida appellate court distinguished the text of Florida’s money service business statute from the federal statute because the federal statute includes a third-party requirement, “acceptance of currency, funds or other value that substitutes as currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means.”[11] The Florida statute says “. . . for the purpose of transmitting the same by any means . . .” The third district court of appeals interpreted that to mean no third-party transmission is required. The appellate court appears to have overlooked the plain meaning of the word “transmit” which is defined by Merriam-Webster as “to send or convey from one person or place to another.”

The Updated Money Laundering Act Language. In response to the 2016 Espinoza case, Governor Rick Scott signed House Bill 1379 in June 2017 and expanded the Florida Money Laundering Act, Fla. Stat. § 896.101, to expressly include the laundering of virtual currency, defined as “a medium of exchange in electronic or virtual format that is not a coin or currency of the United States or any other country.”[12] The bill took effect July 1, 2017.
Had Florida intended to regulate virtual currency for the purposes of Money Transmission, it could have updated the language to include explicit reference to virtual currency, as it did with the Money Laundering Act.

Fintech Sandbox. On July 1, 2020, a bill was enacted that created a Financial Technology Sandbox within the OFR. The purpose is stated as a way for a sandbox licensee to make an innovative financial product or service available to consumers as a money transmitter, payment instrument seller, or lender of consumer finance loans. The license process is supposed to be more streamlined compared with the traditional license application.

Conclusion. While Florida has made many attempts to streamline or clarify its Money Transmitter License, as it applies to Bitcoin, there is still a hefty distinction between the OFR’s opinion on the subject, and that of the third district court of appeals. While the OFR has jurisdiction over the MTL, they have not issued any new Declaratory Statements since the 2019 Espinoza case.
If Florida were to actually enforce the Espinoza interpretation, Florida would become one of the few states that requires a company to obtain a separate and costly state license in addition to the FinCEN registration in order to operate as a money service business. Florida could probably look to some other, more favorable regulatory interpretations, like those of Wyoming or Texas.
Wyoming enacted 18 virtual currency and blockchain friendly regulations, including creating its own Chancery Court to hear cases on the matter.[13] The Chancery Court’s primary purpose is to provide a forum for streamlined resolution of commercial, business, and trust cases.
Texas crafted a strong distinction between virtual currency and sovereign currency under the Texas Finance Code, stating, “because neither centralized virtual currencies nor cryptocurrencies are coin and paper money issued by the government of a country, they cannot be considered currencies under the statute.”[14]
When creating thoughtful regulation around this new technology it is important to balance the benefits of fostering innovation against the challenges of adequately protecting consumers. I believe the OFR got it right in their 2018 Final Order to the Bitcoin ATM Company. It would also be great to see Florida enact its own Court of Chancery that could be dedicated to hearing matters related to cryptocurrency.
[1] FLORIDA OFFICE OF FINANCIAL REGULATION https://www.flofr.com/sitePages/MoneyTransmitters.htm
[2] “Monetary value” means “a medium of exchange, whether or not redeemable in currency.” See FLA STAT § 560.103(21). https://www.flsenate.gov/Laws/Statutes/2017/Chapter560/All,
[3] A “payment instrument” is a “check, draft, warrant, money order, travelers check, electronic instrument, or other instrument, payment of money, or monetary value whether or not negotiable.” See FLA. STAT. § 560.103(29). https://www.flsenate.gov/Laws/Statutes/2017/Chapter560/All
[4] FLORIDA OFFICE OF FINANCIAL REGULATION https://www.flofr.com/sitePages/MoneyTransmitters.htm

[5] DREW BREAKSPEAR — Office of Financial Regulation 2017–18 Regulatory Plan https://www.flofr.com/sitePages/documents/2017OFRAnnualRegulatoryPlan.pdf
[6] FLORIDA OFFICE OF FINANCIAL REGULATION Final Order on Petition for Declaratory Statement OFR 2018–480.
[7] FLORIDA SENATE 2019 Legislature https://www.flsenate.gov/Session/Bill/2019/1024/BillText/er/PDF.
[8] See Florida v. Espinoza Case No. F14–2923 (Fla. 11th Cir. July 22, 2016).
[9] Id.
[10] See State v. Espinoza, №3D16–1860 (Fla. 3rd DCA. Jan. 30, 2019).
[11] 31 C.F.R. § 1010.100(ff)(5(i)(A (2014).
[12] H.B. 1379, 119th Reg. Sess. (Fla. 2017).
[13] WYOMING JUDICIAL BRANCH Specialized Business Court https://www.courts.state.wy.us/chancery-court/
[14] Texas Dept. of Banking, Supervisory Memorandum 1037, https://www.dob.texas.gov/public/uploads/files/Laws-Regulations/New-Actions/sm1037.pdf (April 1, 2019, rev.)

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Florida Money Transmission after the Espinoza Opinion

Florida Money Transmission after the Espinoza Opinion

On January 30, 2019, the State of Florida appealed forcing Mr. Espinoza to relive the trial for his 2013 and 2014 localbitcoins.com sales to undercover cops. See http://www.3dca.flcourts.org/Opinions/3D16-1860.pdf. The counts against Mr. Espinoza include: Count...

Bitcoin & the FBAR

Bitcoin & the FBAR

I had the opportunity to participate on a Legal Panel with David Silver at the Unconfiscatable, Bitcoin not Blockchain Conference put on by Tone Vays in Las Vegas. It was quite an honor to be part of it; the conference was hands down the best Bitcoin event I’ve...

The Bitmain Lawsuit

The Bitmain Lawsuit

Gor Gevorkyan v. Bitmain, Inc., Bitmain Technologies, Ltd. And DOES 1 to 10 A lawsuit was filed in the Northern District of California against Bitmain on 11/19/2018. See https://www.scribd.com/document/393971649/Bitmain-Class-Action In a brief summary, the Plaintiff...

SEC’s November 16 Comments

Ready or Not, Here They Come, You Can’t Hide, Gonna Find You and Make You Register & Refund First and foremost, today’s expansive press release was made with the following disclaimer: “This statement . . . is not a rule, regulation, or statement of the Securities...

Operation Choke Point

I was skimming the facebook page of a soon-to-be-podcast guest, Kingsley Edwards, and came across a disturbing article describing Operation Choke Point.[1] The name of the Operation struck me as odd and after a few lines of reading, I knew it was the problem facing...

Know Yo Customer

Know Yo Customer

This is not legal advice, just my opinion. I’ve met many brilliant entrepreneurs bravely navigating the alphabet soup of the American crypto regulatory environment. Today’s post is focused on the importance of knowing your customers (“KYC”) if you are a Money Service...

OCC Banking Charter for FinTECH

OCC Banking Charter for FinTECH

Is this The End of State-by-State Money Transmission Licensing? The Office of the Comptroller of the Currency, U.S. Department of Treasury (“OCC”) came out with some big news on Tuesday, July 31, 2018. Now crypto (fintech) companies can apply for special-purposes...

Mr. Terpin v. AT&T

Mr. Terpin v. AT&T

Terpin v. AT&T Inc., AT&T Mobility, LLC, and DOES 1–25 One of the biggest news stories of the week was Michael Terpin (“Mr. Terpin”) suing AT&T after getting his sim-card hijacked. These types of hacks through the phone company are not a new phenomenon,...

Removing a member from an LLC

Removing a member from an LLC

Unfortunately, business relationships don’t always work out as expected, and you may need to remove your partners from their equity ownership / member position in your LLC. Hopefully this process is clearly defined in your Operating Agreement. If not, it can quickly...

Giving Tokens the Hammer

Giving Tokens the Hammer

The 2009 invention of Bitcoin has forever changed financial technology. Through the rise of economic innovation, Cryptocurrency makes it possible for any person or company to create a coin or token linked to their brand—and to give it a plethora of functionality. Some...

CFTC Employees are now allowed to Trade Crypto

CFTC Employees are now allowed to Trade Crypto

Upon first seeing this headline, my thoughts were, “uh oh, things are going to get a lot less productive over at the CFTC!” I remember my first few months of trading, it can be highly addictive!  The important thing here is that we got another layer of clarity to...

Bitcoin & Estate Planning

Bitcoin & Estate Planning

Bitcoin & Estate Planning Agenda: 1. Get a will 2. Make a tax plan 3. Dig some holes in your backyard (or find an executor you trust) Disclaimer – This is not legal or investment advice. T'is the season to be... morbid. Have you thought about what would happen to...

Bitcoin & Taxes

Bitcoin & Taxes

After the recent ruling in the case with Coinbase, Bitcoin Tax has been a hot topic, and I wanted to try my hand at navigating it. This is not legal or tax advice.Only 800-900 Americans reported any bitcoin tax related events between 2013-2015, even-though there were...

What is Bitcoin

What is Bitcoin

What is Bitcoin? Over the past few weeks, as the Bitcoin price has soared, lots of people have been reaching out to ask me, "What is Bitcoin?" It prompted me to start this blog- and while I am a licensed attorney in Florida - I want to preface that this is not legal...

Celebrity Backed ICOs

Celebrity Backed ICOs

Anyone who endorses ICOs or any kind of Cryptocurrency should be careful not to overstep the Securities Laws and potentially be prosecuted for a Pump and Dump scheme. After the recent Senate Hearing on Feb 9, 2018, Securities and Exchange Commission (“SEC”) Chairman...

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