It is my understanding that bitpay is a "third party payment processor" which is EXEMPT from "money transmitter licensing"
Essentially Bitpay has a contract with their clients, the merchant and when a consumer sends bitcoin to bitpay and bitcoin converts that to cash and sends it to the merchant, the consumer is "legally" sending "other value that substitutes for currency" directly to the merchant. There for bitpay is not a "money transmitter."
But is it not possible for a drug dealer to sell drugs for btc then buy a couple of lamborghinis at a dealership for btc and sell them for dollars. In that scenario isn't BitPay enabling money laundering?
That's a good question. I'm certainly no legal expert, but my take is that it is no different than that same drug-dealer buying his Lamborghini in cash. In Canada (where I'm from) a drug-dealer could do this, but the car-dealership would need to report the transaction to FINTRAC (our version FinCEN). So regardless of whether the drug dealer purchases the car in cash or in bitcoin, the dealership knows who the buyer is and reports the transaction. BitPay is just facilitating the transaction between buyer and seller; they are outside the scope of any reporting requirements.