Washington Cryptocurrency Laws

Relevant Statute

Uniform Money Services Act Chapter 19.230 RCW

“Money” Definition

“Money” means a medium of exchange that is authorized or adopted by the United States or a foreign government or other recognized medium of exchange. “Money” includes a monetary unit of account established by an intergovernmental organization or by agreement between two or more governments.

“Money Transmitter” Definition

18) “Money transmission” means receiving money or its equivalent value (equivalent value includes virtual currency) to transmit, deliver, or instruct to be delivered to another location, inside or outside the United States, by any means including but not limited to by wire, facsimile, or electronic transfer. “Money transmission” includes selling, issuing, or acting as an intermediary for open loop prepaid access and payment instruments, but not closed loop prepaid access. “Money transmission” does not include: The provision solely of connection services to the internet, telecommunications services, or network access; units of value that are issued in affinity or rewards programs that cannot be redeemed for either money or virtual currencies; and units of value that are used solely within online gaming platforms that have no market or application outside of the gaming platforms. (19) “Money transmitter” means a person that is engaged in money transmission.

Additional Definitions

(8) “Currency exchange” means exchanging the money of one government for money of another government, or holding oneself out as able to exchange the money of one government for money of another government. The following persons are not considered currency exchangers: (a) Affiliated businesses that engage in currency exchange for a business purpose other than currency exchange; (b) A person who provides currency exchange services for a person acting primarily for a business, commercial, agricultural, or investment purpose when the currency exchange is incidental to the transaction; (c) A person who deals in coins or a person who deals in money whose value is primarily determined because it is rare, old, or collectible; and (d) A person who in the regular course of business chooses to accept from a customer the currency of a country other than the United States in order to complete the sale of a good or service other than currency exchange, that may include cash back to the customer, and does not otherwise trade in currencies or transmit money for compensation or gain. (30) “Virtual currency” means a digital representation of value used as a medium of exchange, a unit of account, or a store of value, but does not have legal tender status as recognized by the United States government. “Virtual currency” does not include the software or protocols governing the transfer of the digital representation of value or other uses of virtual distributed ledger systems to verify ownership or authenticity in a digital capacity when the virtual currency is not used as a medium of exchange. 19.230.010

Exemptions

This chapter does not apply to: (1) The United States or a department, agency, or instrumentality thereof; (2) The United States postal service or a contractor on behalf of the United States postal service; (3) A state, county, city, or a department, agency, or instrumentality thereof; (4) A financial institution or its subsidiaries, affiliates, and service corporations, or any office of an international banking corporation, branch of a foreign bank, or corporation organized pursuant to the Bank Service Corporation Act (12 U.S.C. Sec. 1861-1867) or a corporation organized under the Edge Act (12 U.S.C. Sec. 611-633); (5) Electronic funds transfer of governmental benefits for a federal, state, county, or governmental agency by a contractor on behalf of the United States or a department, agency, or instrumentality thereof, or a state or governmental subdivision, agency, or instrumentality thereof; (6) A board of trade designated as a contract market under the federal Commodity Exchange Act (7 U.S.C. Sec. 1-25) or a person that, in the ordinary course of business, provides clearance and settlement services for a board of trade to the extent of its operation as, or for, a board of trade; (7) A registered futures commission merchant under the federal commodities laws to the extent of its operation as such a merchant; (8) A person that provides clearance or settlement services under a registration as a clearing agency, or an exemption from that registration granted under the federal securities laws, to the extent of its operation as such a provider; (9) A person: (a) Operating a payment system that provides processing, clearing, or settlement services, between or among persons who are all excluded by this section, in connection with wire transfers, credit card transactions, debit card transactions, prepaid access transactions, automated clearinghouse transfers, or similar funds transfers; (b) Who is a contracted service provider of an entity in subsection (4) of this section that provides processing, clearing, or settlement services in connection with wire transfers, credit card transactions, debit card transactions, prepaid access transactions, automated clearinghouse transfers, or similar funds transfers; or (c) That facilitates payment for goods or services (not including money transmission itself) or bill payment through a clearance and settlement process using bank secrecy act regulated institutions pursuant to a written contract with the payee and either payment to the person facilitating the payment processing satisfies the payor’s obligation to the payee or that obligation is otherwise extinguished; (10) A person registered as a securities broker-dealer or investment advisor under federal or state securities laws to the extent of its operation as such a broker-dealer or investment advisor; (11) An insurance company, title insurance company, or escrow agent to the extent that such an entity is lawfully authorized to conduct business in this state as an insurance company, title insurance company, or escrow agent and to the extent that they engage in money transmission or currency exchange as an ancillary service when conducting insurance, title insurance, or escrow activity; (12) The issuance, sale, use, redemption, or exchange of closed loop prepaid access or of payment instruments by a person licensed under chapter 31.45 RCW; (13) An attorney, to the extent that the attorney is lawfully authorized to practice law in this state and to the extent that the attorney engages in money transmission or currency exchange as an ancillary service to the practice of law; (14) A seller or issuer of prepaid access when the funds are covered by federal deposit insurance immediately upon sale or issue; (15) A person that transmits wages, salaries, or employee benefits on behalf of employers when the money transmission or currency exchange is an ancillary service in a suite of services that may include, but is not limited to, the following: Facilitate the payment of payroll taxes to state and federal agencies, make payments relating to employee benefit plans, make distribution of other authorized deductions from an employees’ wages or salaries, or transmit other funds on behalf of an employer in connection with transactions related to employees; or (16) The lawful business of bookkeeping or accounting to the extent the money transmission or currency exchange is an ancillary service. 19.230.020

Registration Fees

$1,000 Application Fee $100 Processing Fee

Bond and Insurance Requirements

(1) Each money transmitter licensee shall maintain a surety bond in an amount based on the previous year’s money transmission dollar volume; and the previous year’s payment instrument dollar volume. The minimum surety bond must be at least ten thousand dollars, and not to exceed five hundred fifty thousand dollars. The director may adopt rules to implement this section. (2) The surety bond shall run to the state of Washington as obligee, and shall run to the benefit of the state and any person or persons who suffer loss by reason of a licensee’s or licensee’s authorized delegate’s violation of this chapter or the rules adopted under this chapter. A claimant against a money transmitter licensee may maintain an action on the bond, or the director may maintain an action on behalf of the claimant. (3) The surety bond shall be continuous and may be canceled by the surety upon the surety giving written notice to the director of its intent to cancel the bond. The cancellation is effective thirty days after the notice of cancellation is received by the director or the director’s designee. Whether or not the bond is renewed, continued, replaced, or modified, including increases or decreases in the penal sum, it is considered one continuous obligation, and the surety upon the bond is not liable in an aggregate or cumulative amount exceeding the penal sum set forth on the face of the bond. In no event may the penal sum, or any portion thereof, at two or more points in time, be added together in determining the surety’s liability. (4) A surety bond must cover claims for at least five years after the date of a money transmitter licensee’s violation of this chapter, or at least five years after the date the money transmitter licensee ceases to provide money services in this state, whichever is longer. However, the director may permit the amount of the surety bond to be reduced or eliminated before the expiration of that time to the extent the amount of the licensee’s obligations outstanding in this state are reduced. (5) In the event that a money transmitter licensee does not maintain a surety bond in the amount required under subsection (1) of this section, the director may issue a temporary cease and desist order under RCW 19.230.260. (6) The director may increase the amount of the bond required up to a maximum of one million dollars based on the nature and volume of business activities, the financial health of the company, and other criteria specified by the director in rule. 19.230.050

Bond Alternatives and Additional Insurance Requirements

(1) Each online currency exchanger licensee shall maintain a surety bond in an amount based on the previous year’s currency exchange dollar volume. The minimum surety bond must be at least ten thousand dollars, and not to exceed fifty thousand dollars. The director may adopt rules to implement this section. (2) The surety bond shall run to the state of Washington as obligee, and shall run to the benefit of the state and any person or persons who suffer loss by reason of a licensee’s violation of this chapter or the rules adopted under this chapter. A claimant against the bond may maintain an action on the bond, or the director may maintain an action on behalf of the claimant. (3) The surety bond must be continuous and may be canceled by the surety upon the surety giving written notice to the director of its intent to cancel the bond. The cancellation is effective thirty days after the notice of cancellation is received by the director or the director’s designee. Whether or not the bond is renewed, continued, replaced, or modified, including increases or decreases in the penal sum, it is considered one continuous obligation, and the surety upon the bond is not liable in an aggregate or cumulative amount exceeding the penal sum set forth on the face of the bond. In no event may the penal sum, or any portion thereof, at two or more points in time, be added together in determining the surety’s liability. (4) A surety bond must cover claims for at least one year after the date of an online currency exchanger licensee’s violation of this chapter, or at least one year after the date the online currency exchanger licensee ceases to provide online currency exchange services in this state, whichever is longer. However, the director may permit the amount of the surety bond to be reduced or eliminated before the expiration of that time to the extent the amount of the licensee’s obligations outstanding in this state are reduced. (5) In the event that an online currency exchanger licensee does not maintain a surety bond in the amount required under subsection (1) of this section, the director may issue a temporary cease and desist order under RCW 19.230.260. (6) The director may increase the amount of the bond required up to a maximum of one million dollars based on the nature and volume of the business activities, the financial health of the company, and other criteria specified by the director in rule. 19.230.060

Capital Requirements

A money transmitter licensed under this chapter shall maintain a tangible net worth, determined in accordance with generally accepted accounting principles, as determined in rule by the director. The director shall require a tangible net worth of at least ten thousand dollars and not more than three million dollars. In the event that a licensee’s tangible net worth, as determined in accordance with generally accepted accounting principles, falls below the amount required in rule, the director or the director’s designee may initiate action under RCW 19.230.230 and 19.230.260. The licensee may request a hearing on such an action under chapter 34.05 RCW. 19.230.060

Money Transmission License Required for Crypto Exchange?

Yes

State Comments or Statements

Virtual Currency is included in the statutory definition of “Money Transmission”. Also passed bill adding more stringent regulations for virtual currency, including requiring money transmitter to comply with the same licensing requirements as traditional money transmitters. http://lawfilesext.leg.wa.gov/biennium/2017-18/Pdf/Bill%20Reports/Senate/5031%20SBA%20FI%2017.pdf