On June 13, 2017, the Illinois Department of Financial and Professional Regulation (“IDFPR”) released guidance outlining its policies with respect to the treatment of digital currencies under the Illinois Transmitters of Money Act (“TOMA”). The guidance document offers a clear distinction between traditional currencies, which it considers “money,” and digital currencies, which it states are not. The guidance will be welcomed by Illinois residents who use and accept digital currencies in commercial transactions.
The TOMA governs the transmission of money within the State of Illinois. The guidance document states that digital currencies are distinct from “money,” which is within the ambit of the TOMA. A “digital currency” is a “digital representation of value” that, among other things, is not legal tender, unlike traditional currencies. It explains that digital currencies have not been “authorized or adopted by a domestic or foreign government as part of its currency” and are therefore not a form of “money”. The guidance document notes that the IDFPR’s definition of “digital currency” excludes closed network loyalty and other points and/or game programs (e.g., Starbucks Stars and World of Warcraft Gold). However, transactions that involve transmission of digital currencies and money may be subject to the TOMA.
The guidance document provides a list of examples of activities that qualify as money transmission and activities that do not. As mentioned above, exchanges involving both digital currency and fiat currency may be subject to the TOMA if the exchange is facilitated through a third party exchange (e.g., an escrow-like intermediary) or through an automated machine that facilitates the exchange by involving a third party intermediary, such as an ATM connected to an established exchange website. Notably, the following are not considered money transmission:
- exchanges of digital currency for money directly between two parties;
- transfers of digital currency by itself;
- exchanges of one digital currency for another;
- a merchant’s accepting digital currency as payment for goods or services;
- an individual’s payment for goods for services with digital currency;
- mining digital currency;
- multi-signature authorization; and
- use of Blockchain 2.0 technologies for non-monetary purposes.
A handful of states have similarly amended their money transmission laws or issued guidance to account for digital currencies, including, among others, New York, Connecticut, New Hampshire, Washington, Texas, Tennessee and North Carolina. Illinois joins those states that are friendlier toward digital currencies, such as Texas and Tennessee, and stands in stark contrast to the comprehensive BitLicense regime implemented in New York. While more states are beginning to incorporate digital currencies into their regulatory regimes, there is no clear trend towards light touch or comprehensive regulation.
If you have any questions regarding the IDFPR’s guidance document please contact Kari S. Larsen (firstname.lastname@example.org) or Michael S. Selig (email@example.com).