Estimate of Legal Expense for Bitcoin ATM Business
- November 22, 2017
Not many Bitcoin ATM business enthusiasts give importance to legal cost, but it is one of the most important expenses. There are many business owners seen giving importance to other areas rather paying sufficient attention to the legal framework. Most are seen concentrating on acquiring suitable Bitcoin ATM machine first, but having sorted out the legal framework is more important. Seek the help of professionals and chalk out the plan how to plan the legal framework.
Regulatory base varies from place to place; it is important that you consult with professionals for a better understanding of legal framework in your place. For instance, Germany bitcoin operators are similar to banks regarding licensing. It is the main reason why Germany is considered to be the white sport on Bitcoin ATM map.
When it comes to US regulations, there are many crucial things potential operators need to look into:
- It is suggested that you start getting legal advice on local regulation. In US lawyers generally charge on hourly basis, and there is a whole list of questions to clarify. Hence, you need to consider the cost of consultation; it is necessary for new Bitcoin ATM operators.
- The most important thing for Bitcoin operators is to register with FinCEN. This process is easy these days as there are online portals available where you can apply in few simple steps. Operators need not pay any money to register, and the whole process takes around an hour. Within 3 to 4 days operator will receive approval confirmation via email and are uploaded to the public search database on FinCEN Portal within few weeks’ time.
- Before you start with the FinCEN application process, the other most important thing is developing a document on KYC or AML compliance policy. This document can be written on your own, but some operators are hiring independent consultants who are specialized in writing such documents as well as for proper analysis based on all information provided. If you are hiring a specialized consultant, the price of documentation will be charged based on the location. There are some operators seen hiring lawyers for writing AML or KYC. Even though it’s not necessary to hire a lawyer but you can do the same at a hefty price, it depends on the location where you are setting up the business. It is important to mention here that compliance policy is not a template spread among various Bitcoin ATM operators. The main purpose of it is to address geographic location where you are operating, taking into consideration criminal and the level of money laundering activities reported in that place. This KYC or AML program should not be sent to FinCEN. As a Bitcoin ATM operator, you will keep it and provide only when FinCEN sends you a request.
- The next most important task is to maintain the compliance policy, often operators ignore this, but it is quite crucial. Annual compliance policy updates cost based on the location, but at times independent audit can count to a good amount. This cost depends on the location as well as the size of the company. For instance price of annual compliance, the policy will be much higher in places like Las Vegas or New York compared to other states.
- Next, the operators need to check the legal status of operating or running a bitcoin ATM service at the state level. Every state or place has its approach, make sure you are aware of its rules from the very start. There are some states which regulate Bitcoin ATM operators as no money transmitters, whereas some are taking a stand that Bitcoin ATM operator falls under the need of having a money transmitter license. It is one good idea to approach all your state regulators and try all means to explain why Bitcoin ATM machine operators are not falling under money transmitter mainly when the customer gets this digital currency directly from the wallet of a Bitcoin operator. Once the state regulator confirms that no state licenses apply, in such case the operator need not go through the whole registration process. However, if the state regulator confirms that money transmitter license is necessary, the registration process may cost few more bucks. In some states surety bond is necessary, and the Bitcoin ATM operator needs to pay 1 to 10% of the bond size. For instance, if the bond size is of $50000, you need to pay a premium of around $500-5000. The Surety bond is necessary so that if in any case, the licensed money transmitter goes under there is money to cover transactions which were not cleared or for any other future promises. Bitcoin ATM operators need to prepare the application in best possible manner. There are lots of information that you need to gather in pieces, and this is what takes enough of your time and effort. So the total cost here considering all aspects may start from around $5000 or more to get the license of running Bitcoin ATM at the state level.
- The next is ongoing compliance review. It is important that you hire a compliance officer who will be assigned to check as well as maintain compliance policy. This involves monitoring transaction activities, do proper training, etc. Salary of this specialist is your expense, and it can be a sum of money based on the location on yearly basis. However, if your setup is big and there is a network of machines to manage it is justified to hire a full-time compliance officer, in small start-ups, there is no need of hiring experts to do full-time work. In such cases hire professionals for around ten hours per week. Another important thing that you need to consider is the sophistication of the software used and the type of Bitcoin ATM vendor, based on which you can hire specialists. Some Bitcoin ATM machines are best in this respect when it comes to providing information related to AML or KYC purposes. According to most operators, though not many seem to follow this rule it is important to have an experienced and dedicated compliance officer. Hiring a compliance officer who is a dedicated person is quite important, who does not get compensation for higher volumes else there will be a conflict of interest.
As you can see, there are many important aspects to consider when it comes to estimating legal costs. There are different types of bitcoin ATM operators in the market, summarizing legal cost at the start as per your need will help immensely. Smaller Bitcoin operators generally go through the basic level registration process and compliance programs. They may operate under the radar to a considerable extent; costs will be upfront and the same amount every year to maintain all operations. For average Bitcoin ATM operators running several machines, the cost may be around $10K up front and $10K every year. However, there are many big Bitcoin ATM operators coming up with a huge number of machines installed in different places around the country. In such cases, the costs were reported to be around $100K at the starting level and around $20-30K annually for maintenance of all operations. Alongside you also need to add the salary of compliance officer, which will be more than $100K yearly.