Vermont's first digital currency ATM has been ordered closed by state regulators who say the company operating the cash machine is violating state law.
The move by the Department of Financial Regulation has disappointed the tech enthusiasts who used the new currency service.
Blu-Bin, a Burlington-based 3D printing business, is a visible part of the city’s technology scene and geek community. The business made a splash in those circles last fall when it became home to the state’s only Bitcoin ATM.
In January, Gov. Peter Shumlin lauded technology startups across the state in his budget address. He proudly said Burlington was named one of the top “emerging tech hubs in the country last year” and said the “spirit of innovation is alive and well all around our state.”
Shumlin didn’t name Blu-Bin in the Jan. 15 speech. But the small company is made up of young, tech-savvy entrepreneurs creating the types of jobs the governor’s policy proposals are supposed to promote.
Three days before that speech, the state Department of Financial Regulation sent a letter to Blu-Bin and PYC, the owner of the Bitcoin ATM located at Blu-Bin.
“Among other penalties,” the letter said, “operation of a Bitcoin ATM in Vermont without a license could result in a monetary penalty of $1,000 per day. Given your October 25 start date, you are already facing an administrative penalty over $75,000.”
That’s not the only potential punishment. The letter goes on:
“Additionally, knowingly engaging in a money services business without a license carries potential criminal penalties of a $10,000.00 fine plus up to three years in prison.”
"Given your October 25 start date, you are already facing an administrative penalty over $75,000." - Department of Financial Regulation
PYC CEO Emilio Pagan-Yourno admits the company doesn’t have any Vermont-specific licenses. But he says his company is licensed federally through the Financial Crimes Enforcement Network (FinCEN).
“According to FinCEN, I do need to have an MSB [Money Services Business] license, which I do for all 50 states and territories,” Pagan-Yourno said. “And that’s just telling FinCEN that I do provide a service with digital currency according to the new statutes, and Vermont doesn’t have that.”
Pagan-Yourno said no state has regulations specific to digital currencies, although federal law does govern currencies like Bitcoin. He says PYC operates seven Bitcoin ATMs across Vermont, New Hampshire and New York, but only Vermont has raised any regulatory concerns.
“I’m not really sure what Vermont’s trying to get at, because it’s a stretch," he said. "And it’s funny that they singled me out instead of (similar) companies that have been operating in the state since 2012.”
Coinbase, for example, offers a very similar service to PYC, but does its business online.
The PYC service itself is relatively straightforward. Bitcoin users can present a unique QR code -- the square code that can be scanned by smart phones -- to the ATM. The QR code serves in the place of an ATM or debit card at a regular cash machine. The Bitcoin users can then insert U.S. cash to the machine, which PYC converts to Bitcoin and deposits to the user’s digital Bitcoin wallet.
But Riley and Pagan-Yourno both say the state regulators didn’t understand that process when they started threatening the entrepreneurs with major penalties and jail time.
“They didn’t really do their research,” Pagan-Yourno said. “And they’re trying to target smaller digital currency businesses rather than ones that have already been operating for three years now in Vermont.”
Dale Schaft, a spokesman for the Department of Financial Regulation, said the department “can’t comment on any pending issues.”
The letters from the department, which span over a three-month period, warn Blu-Bin and PYC that they may be in violation of the law. But they also seem to show a lack of clarity about what, exactly, the two companies are even doing.
“If we understand your business model correctly,” the first letter states, “PYC needs a money transmission license and Blu-Bin needs to be appointed as an authorized delegate of PYC.”
Blu-Bin CEO Dan Riley said he and a PYC representative had a conference call with state regulators in which the officials tried to get a better grasp on how the system worked.
"They just basically went over what is Bitcoin, they didn't really understand it." - Emilio Pagan-Yourno, PYC CEO
“Tell us what you’re doing, kind of give us a sense of what’s going on,” Riley said, describing the regulators’ approach to the conversation. “If you need more licensing we’ll figure that out, but really we want to know what Bitcoin is and how it might fall under what we’re doing.”
Pagan-Yourno described the call similarly.
“They just basically went over what is Bitcoin, they didn’t really understand it,” he said. “They don’t really understand what I’m doing, to be honest.”
That license and delegation, according to state law, cost upwards of $1,500, a cost Riley says would make the operation prohibitively expensive.
“Obviously we want to comply with any regulatory framework that needs to be complied with,” Riley said. “We’re not trying to run anything under the table, so to speak. But what we’re trying to actually make sure is that this is properly taken care of. Because our understanding has been that the state doesn’t really understand where this falls, so they’re just trying to shove us into a box that we might not fit into.”
Pagan-Yourno of PYC says the state shouldn’t be targeting Blu-Bin to start with, as the company is only a contractor; Blu-Bin gets a small cut of PYC’s profits from the machine in exchange for hosting it.
The ATM, a white metal pedestal on the floor with a touch-screen and a slot for money to go in, sits unplugged next to Blu-Bin’s kiosk in the Church Street Mall. Riley said he has no plans to do away with it, and PYC isn’t planning on submitting a license application any time soon.
“I’m not entertaining that at all,” Pagan-Yourno said. “In actuality, I don’t need a license, so them reaching out for something I don’t need, it doesn’t matter. They can’t fine me on something I don’t need.”
