It recently came to my attention that a certain bitcoin accounting startup located in Utah is currently the subject of an administrative inquiry by that state. Among the alleged violations of Utah law is this company’s use of the term “CPA” in its name without having received a license from the state to operate as a CPA firm.
First, let me emphasize that the infraction I just described is an administrative one. I have no knowledge of any criminal wrongdoing by this company, nor do I have anything other than a passing familiarity with the service they provide (full disclosure: since I provide some of the same services for cryptocurrencies, this company could be considered a competitor of my firm).
Under the American Institute of Certified Public Accountants’ (AICPA) model Uniform Accountancy Act, which has become the law almost everywhere in the United States and its territories, only a licensed CPA may identify himself or herself as such and only a licensed accounting firm can use the designation in its name. Public use of the titles “accountant” and “auditor” are restricted to licensees. Additionally, none of these designations can be publicly used in any way that could lead a potential customer to believe that a person or firm is licensed when they are not.
I bet you wouldn’t have known all that if I hadn’t just told you. I didn’t know before I received my CPA license. While CPAs may be protective of our segment of the financial services industry and the privileges granted by licensure, we are hardly the only ones who are guilty of this. According to one source, “nearly five hundred occupations are licensed by at least one state” and “at least a fifth, and perhaps as much as a third, of the workforce is directly affected by licensing laws.”
What has driven the proliferation of occupational licensure requirements? In most cases, members of the occupations that require a license have asked for it, often as a means of creating barriers to entry by “outsiders.”
One of the best things about cryptocurrencies is that they democratize commerce by making it cheaper, easier, and faster to accept payment from an unknown, untrusted or geographically distant customer. This is such a simple concept and such an obviously essential part of e-commerce that one wonders why it took so long for someone to develop a viable solution like bitcoin.
As an accountant in public practice, I deal with taxes, regulations, and various other administrative requirements at the federal, state and local level on a daily basis, but I understand that most others don’t have the time or interest for it. I often spend time solving problems on behalf of clients who really aren’t guilty of anything other than failing to file a form or pay a fee somewhere. Unfortunately, these mistakes can be very costly, not just in terms of fines and fees, but also from the standpoint of lost business opportunities during a state mandated shutdown.
Bitcoin is exciting for the opportunities it creates, especially in areas where accepting small payments would have been prohibitively expensive or impossible. For example, it is now possible to monetize an extremely simple concept like Bitcoin Megaphone, which is a site that allows users to submit any text-based post to the site’s feed by paying a small amount per character in bitcoin (think Twitter with no character limit). These opportunities have spawned countless startups, small businesses and side gigs by entrepreneurs who whose enthusiasm is only matched by their inexperience.
The moral of this story is to be careful out there. Even if you are a bitcoin-only startup, most of the “old” business rules still apply. Registration, licensing, taxation, product or service liability mitigation, insurance, legal representation, and so forth, all deserve just as much attention in your business plan as refining and marketing your offering. While ignoring some of these may only cause minor, temporary problems, ignoring others (such as anti-money laundering or “know your customer” requirements or “forgetting” to declare your bitcoin income) could result in major fines or land you in prison. Neither ignorance of the laws in your jurisdiction nor willful blindness to the liabilities associated with your business are defenses to prosecution or to a lawsuit.
By planning to be regulated in your bitcoin business, doing the research (or hiring someone to do it for you) and taking action to comply, you will dramatically increase your chances of success. Failing to do your due diligence, ignoring regulations or taxes or deliberately choosing to evade them will at least cost you the opportunity to seek outside investment or financing, but could cost much more. As for the company I cited at the beginning of this post, not knowing their mistake up front will likely cause them some irritation in the near future, including potentially having to re-brand (I wonder how much they paid for that domain name?), but no one will be charged with a crime and the business is likely to stick around. Not everyone has been so fortunate recently.