On May 9, 2019, the Financial Crimes Enforcement Network of the U.S. Department of the Treasury (FinCEN) issued “interpretive guidance” addressing how FinCEN’s money services business (MSB) regulations apply to a variety of business models that use convertible virtual currency (CVC) (2019 FinCEN Guidance). This is the first significant guidance FinCEN has issued regarding the regulatory treatment of virtual currency under the Bank Secrecy Act (BSA) of 1970, as amended, and FinCEN’s implementing regulations thereunder, since its landmark 2013 virtual currency guidance. In that 2013 guidance, FinCEN grouped persons creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies as “users,” “administrators,” or “exchangers,” and concluded (i) a “user” of virtual currency is not an MSB under FinCEN’s regulations and therefore not subject to MSB registration, reporting, and recordkeeping regulations, but (ii) an “administrator” or “exchanger” is an MSB under FinCEN’s regulations, specifically, a money transmitter, unless a limitation to or exemption from the definition of MSB applies to the person.
Although the virtual currency space has evolved significantly over the last six years, the 30 pages of interpretive guidance essentially affirms the core of the 2013 FinCEN Guidance, incorporates the conclusions of several FinCEN letter rulings and other interpretations released by FinCEN since the 2013 guidance, and analyzes over a dozen business models that use CVCs in their day-to-day activities to assess whether each business model triggers FinCEN MSB regulation.
Concurrent with the issuance of the CVC interpretive guidance, FinCEN published an Advisory on Illicit Activity Involving Convertible Virtual Currency to assist financial institutions in identifying and reporting suspicious activity concerning how criminals and other bad actors exploit convertible CVCs for money laundering, sanctions evasion, and other illicit financing purposes, particularly involving darknet marketplaces, peer-to-peer (P2P) exchangers, foreign-located MSBs, and CVC kiosks/ATMs.
Click here to read the full GT Alert for a comprehensive analysis of the 2019 FinCEN Guidance.