On August 1, 2020, Louisiana became the second state, after New York’s BitLicense rule finalized in 2015, to adopt regulations that require licensure for businesses conducting virtual currency transactions in Louisiana (the Virtual Currency Businesses Act or the Act). Louisiana and New York are currently the only states to have a licensing regime specifically for virtual currency businesses. Like the New York Department of Financial Services, the Louisiana Office of Financial Institutions reviews and has the authority to grant the licenses authorizing the virtual currency business in the state.
Defined Terms under the Act
The Act defines the term “Virtual Currency” as “digital representation of value that is used as a meaning or exchange, unit of account, or store of value, and that is not legal tender, whether or not denominated in legal tender.”
Those businesses subject to licensure come under the Act’s definition of “Virtual Currency Business Activity” by engaging in any of the following:
- exchanging, transferring, or storing virtual currency or engaging in virtual currency administration whether directly or through an agreement with a virtual currency control services vendor;
- holding electronic precious metals or electronic certificates representing interests in previous metals on behalf of another person or issuing shares or electronic certificates representing interests in precious metals; or
- exchanging one or more digital representations of value used within one or more online games, game platforms, or family of games for either of the following:
a. virtual currency offered by or on behalf of the same publisher from which the original digital representation of value was received; or
b. legal tender or bank credit outside the online game, game platform, or family of games offered by or on behalf of the same publisher from which the original digital representation of value was received.
The new licensing requirements under the Act extend to any person, wherever located, “who engages in or holds itself out as engaging in the activity with, or on behalf of, a resident [of Louisiana].” The term “resident” includes (i) not only a person who is domiciled in Louisiana, but also (ii) a person who is physically located in the state for more than 180 days within the previous year (365 days); or (iii) a person who has a place of business in the state; or (iv) a legal representative of a person meeting any one (1) of the criteria in (i) – (iii) above. Among other exceptions for persons involved in certain data storage or using virtual currency for personal, family, or household purposes (e.g., purchasing good or services), the Act exempts from licensing a “person whose Virtual Currency business activity with, or on behalf of, residents is reasonably expected to be valued, in the aggregate, on an annual basis, at five thousand dollars [US$5,000.00] or less,…”
However, the Act does not apply to the exchange, transfer, or storage (as such terms are defined under the Act) of virtual currency or to virtual currency administration to the extent that it is governed by acts such as: (1) the Electronic Fund Transfer Act of 1978, (2) the Securities Exchange Act of 1934, (3) the Commodities Exchange Act of 1936, and (4) the Louisiana Securities Law. The exemption from licensure expands further to the following individuals and entities:
- Federal and state agencies;
- Regulated financial institutions;
- Persons or individuals using virtual currency to invest;
- Attorneys providing services;
- Virtual currency services vendors;
- Persons or entities who do not receive compensation from a resident for providing virtual currency products or services or for conducting Virtual Currency Business Activity;
- Attorneys providing escrow services to residents; and
- Securities intermediaries, as defined under R.S. 10:8-102(a)(14).
These exemptions are broader than the requirements for the New York BitLicense, which only exempts individuals and entities from filing for the license where (1) the parties are chartered under the New York Banking Law and are approved by New York’s Superintendent of Financial Services to engage in Virtual Currency Business Activity, and (2) the parties are merchants and consumers that utilize virtual currency solely for the purchase of goods or services, or for investment purposes.
Licensing and Renewal
Under the Act, applicants granted a license must also seek renewal from the Office of Financial Institutions no later than fifteen (15) days before the anniversary date of the issuance of the applicant’s initial license. In order to apply for a license renewal, the applicant must submit (1) the renewal fee and (2) a renewal report consisting of financial statements and important disclosures. Individuals and entities failing to timely apply for renewal may have their licenses suspended or revoked.
The Office of Financial Institutions may take enforcement action against any individual or entity who conducts Virtual Currency Business Activity in the state of Louisiana without a license. Enforcement actions may consist of one or more of the following:
- Cease-and-desist letters;
- Court-appointed receivers;
- Preliminary injunctions; or
- Penalty assessments.
There is a growing trend among states to reconsider “cryptocurrency” activities in terms of “virtual currency” transactions and revise their money transmitter laws to reflect changes in terminology. However, there is no current effort at uniformity among the states to regulate these virtual currency transactions by licensure of those involved in such activities other than the North American Securities Administrators Association’s efforts to control potential crypto-related frauds through its “Operation Cryptosweep” among the various states.