California and the State of Barter

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California defines money three different ways (not to make things confusing or unclear…)

  1. “Money” means a medium of exchange currently authorized or adopted by a domestic or foreign government.  The term includes a monetary unit of account established by an intergovernmental organization or by agreement between two or more countries. – California Uniform Commercial Code
  2. “Money” means a medium of exchange that is authorized or adopted by the United States or a foreign government. The term includes a monetary unit of account established by an intergovernmental organization or by agreement between two or more governments. – California Financial Code Section 2003(o)
  3. ‘Money’ means a medium of exchange for the payment of obligations or a store of value authorized or adopted by a government or by intergovernmental agreement”. – Cal. Code Civ. Proc. § 676.1(7)

What does this have to do with barter?

California is considering making significant changes to their money transfer laws, and the definition of money has everything to do with whether the barter industry inside California will have an easier or a more difficult time doing business there.

Even now, an individual wishing to set up a barter exchange inside the state of California can do so without applying for any kind of special license or permission from the state except the normal business registration required. Proposed changes to the law, if barter credits are considered money, will make opening a barter exchange a costly and more difficult venture. The new provisions would require the following information along with an application:

(a) Provide the legal name and residential business address of the applicant and any fictitious or trade name used by the applicant in conducting its business.
(b) Provide the date of the applicant’s incorporation or formation and the state or country of incorporation or formation.
(c) Summarize the history of the applicant.
(a) (d) Describe the business of the applicant.
(e) Explain the reason(s) why the applicant wishes to engage in the transmission business.
(f) Provide the name, business address, and telephone number of at least two banking and
two business references.
(g) Provide a list of other states in which the applicant is licensed to engage in money
transmission and any license revocations, suspensions, or other disciplinary action taken against the applicant in another state. Document PRO 03-14 – Invitation text 28
(h) Provide a copy of the applicant’s most recent independent review regarding
compliance with federal anti-money laundering laws, including the U.S. Patriot Act and the Bank Secrecy Act, and the applicant’s response to such review.

Normal barter exchanges engaged in business are exempt from the Patriot Act and the Bank Secrecy Act at this point because they are not considered by FinCEN to be money transfer services (the exception being a barter exchange that offers cash out services or backs their currency by a certain commodity).

If the changes in California take place, and barter exchanges are considered money, then any exchange in California will have to comply with all regulation, state or national, that every other money transfer service has to comply with. See this document for more information: http://www.shajlaw.com/media/reports/MoneyServiceBusinessCompliance.pdf.

There are pages and pages of reports, information, and general difficulty that any money transfer service must comply with to do business in California.

Additionally, the amendment cuts the minimum tangible shareholder’s equity required to be maintained by licensees in half from $500K to $250K, which may be great for people accepting money, but for a new, small barter exchange, equity of that nature may be difficult to show.

Various fees would also be changed, including but not limited to a $5,000 application fee, an annual fee of $2,500, an annual branch office fee of $125, and an annual fee of $25 per branch employee.

If barter exchanges are ruled to fit in to the definition of a money transfer service, there will be no more one-horse small exchanges in the state of California (legally), again. It will simply be too costly and too cumbersome to comply.

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