The Financial Crimes Enforcement Network (FinCEN) is the U.S. Treasury Department bureau charged with monitoring financial transactions in order to combat domestic and international money laundering, terrorist financing, and other financial crimes.
Under FinCEN’s Bank Secrecy Act/Anti-Money Laundering regulations, money transmitters and other money service businesses are required to develop anti-money laundering/countering the financing of terrorism (AML/CFT) policies, including know your customer and suspicious activity reporting (SAR) procedures.
The advent of blockchain and the ensuing crypto currency business boom have posed significant challenges for FinCEN and other financial service regulators. See FinCen Advisory.
In order to help address those challenges, FinCen issued Guidance (FIN-2019-G001) on May 9 regarding the Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies (CVC). The Guidance is intended to “remind persons subject to the Bank Secrecy Act (BSA) how FinCEN regulations relating to money services businesses (MSBs) apply to certain business models involving money transmission denominated in value that substitutes for currency, specifically, convertible virtual currencies.”
While the Guidance does not purport to establish any new regulatory requirements, it consolidates current FinCEN regulations, rulings and guidance and gives specific examples as to how the current FinCEN requirements apply to certain current and emerging virtual currency business models.
The Guidance first confirms that money transmission involving virtual currencies, including CVC, are subject to the AML program, recordkeeping, monitoring and reporting requirements ) applicable to money transmitters generally,including SARs and Currency Transaction Reports.
The Guidance then goes on to set forth specific examples of how the BSA regulations apply to common business models involving the transmission of CVC, including: [1]peer-to-peer exchangers; [2] hosted, unhosted and multiple-signature CVC wallet providers; [3] CVC kiosks; [4] DApps ( money transmission services provided through decentralized applications); [5] anonymity-enhanced CVC transactions; [6] CVC payment processors; and [7] internet casinos.
The Guidance concludes with a description of specific business models involving CVC transactions that may qualify for exemption from the definition of money transmission. These business models include CVC trading platforms, Initial Coin Offerings, CVC creators, mining pools and cloud miners.