Effective August 1, 2020, Louisiana has adopted a Virtual Currency Business Act. In doing so it becomes the second state after New York to require certain operators of virtual currency businesses to obtain a virtual currency license in order to conduct business in the state.
According to the Act, no one is permitted to engage in a “virtual currency business activity,” or hold itself out as being able to engage in a virtual currency business activity, with or on behalf of any “resident” of Louisiana, irrespective of where the person is located, unless the person is either licensed by the Louisiana Office of Financial Institutions (OFI) or exempt from such licensure. The process for obtaining a virtual currency license is fairly involved, and includes a lengthy application, a minimum net worth standard, payment of an application fee, posting a surety bond, and ongoing supervision by OFI, among other things. OFI is granted broad authority to write administrative rules and conduct enforcement activity as well.
For these purposes, “virtual currency” is defined in the Act as a digital representation of value that is used as a medium of exchange, unit of account, or store of value, and that is not legal tender, whether or not denominated in legal tender. The term does not, however, include either of the following: (i) a transaction in which a merchant grants, as part of an affinity or rewards program, value that cannot be taken from or exchanged with the merchant for legal tender, bank credit, or virtual currency, or (ii) a digital representation of value issued by or on behalf of a publisher and used solely within an online game, game platform, or family of games sold by the same publisher or offered on the same game platform.
Additionally, “virtual currency business activity” under the Act means any of the following:
(a) 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
(b) Holding electronic precious metals or electronic certificates representing interests in precious metals on behalf of another person or issuing shares or electronic certificates representing interests in precious metals; or
(c) 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: (i) virtual currency offered by or on behalf of the same publisher from which the original digital representation of value was received, or (ii) 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.
A “resident” of Louisiana includes not only “persons” domiciled in the state, but also persons physically located in the state for more than 183 days of the previous 165 days and any person who has a place of business in the state. In turn, “person” includes natural persons as well as partnerships, estates, businesses or nonprofit entities, and other legal entities. Curiously, under the Act the term “person” does not include “public corporations,” government, or governmental entities.
By its terms, the Act does not apply to the exchange, transfer or storage of virtual currency or virtual currency administration to the extent the activity is governed by a variety of state and federal laws including Louisiana and federal securities laws, the Electronic Funds Transfer Act of 1978, and the Commodities Exchange Act of 1936. The Act does not provide a blanket exemption for federal money service businesses or entities already holding a Louisiana money transmission license, though it is possible OFI will administratively exempt them. Otherwise, the list of entities exempt from licensure is fairly broad, and includes:
- Federal, state, local and foreign governments and governmental entities;
- Certain regulated financial institutions holding state or federal bank or trust company charters;
- Certain payment processors;
- Certain foreign exchange businesses;
- Certain internet service, data service and enterprise solution providers;
- Persons using virtual currency for the purchase or sale of goods or services, solely on the person’s own behalf for personal, family, household or academic purposes;
- Attorneys and title insurance companies offering escrow services;
- Certain securities intermediaries;
- Certain secured creditors;
- A “virtual currency control services vendor,” defined to include a person that has control of virtual currency solely under an agreement with a person that, on behalf of another person, assumes control of virtual currency;
- A person who does not receive compensation from a resident for providing virtual currency products or services or for conducting virtual currency business activity, or that is engaged in testing products or services with the person’s own funds; and
- Anyone else exempted by OFI.
The Act is perhaps notable not so much for the conduct it covers, but rather the very broad classes of persons and businesses granted exemptions from regulation. Clearly the Louisiana Legislature sought to thread a needle and subject only a narrow band of businesses to regulation under the Act. In this respect it could become a model for other states seeking to tread lightly in the virtual currency space.