If someone were to sell bitcoins on localbitcoins.com in exchange for paypal my cash cards, which were then deposited into paypal. Is that legal as long as any taxable gains received in the transaction are paid? If the amount is under $500 per day and $4000 per month would there be any requirement to know the customer or comply with anti-money laundering laws?
It depends what country you are in and how good your lawyer is. In the United States, technically, that fits the description of operating as a money transmitter. There is no minimum volume for these operations. There are local and federal laws regarding it. However, many times when charges have been pressed, the defendants have won their cases. They don't always get the money that was seized though, and they spend a lot more defending themselves.