On May 9, 2019, the Financial Crimes Enforcement Network (“FinCEN”) published interpretive guidance to reiterate how FinCEN’s existing regulations relating to money services businesses (“MSBs”) apply to business models involving convertible virtual currencies (“CVCs”). The guidance is the most significant CVC-related guidance that FinCEN has released since its 2013 guidance on the application of money transmission regulations to CVC transactions. The guidance does not establish any new regulatory requirements but, rather, synthesizes FinCEN’s existing framework of regulations, administrative rulings, and guidance since 2011 and applies this framework to common business models involving CVCs.
The guidance largely focuses on the activities (i.e., business models) that will cause a person to be a “money transmitter” under FinCEN’s MSB regulations. For this purpose, a money transmitter is a person who accepts value from one person and transmits value to another location or person by any means. Money transmitters are required to register as MSBs and comply with anti-money laundering (“AML”) requirements, including AML compliance program recordkeeping, monitoring, and reporting requirements.
The regulatory interpretations contained in the guidance may extend only to other business models consisting of the same key facts and circumstances as the business models described in the guidance. Similarly, a person who is engaged in more than one type of business model may be subject to more than one type of regulatory obligation or exemption.
Some of the business models described in the guidance include:
FinCEN issued the interpretive guidance in conjunction with a separate advisory to help financial institutions identify and report suspicious activity involving virtual currency transactions. The advisory document warns that bad actors are increasingly using CVCs for money laundering, sanctions evasion, and other illicit financing purposes. The advisory highlights prominent typologies associated with such illicit activity, and provides a list of 30 “red flags” that MSBs and other financial institutions should watch for in evaluating potential suspicious activity. Finally, the advisory reminds financial institutions of their legal obligation to file suspicious activity reports (“SARs”), and identifies the types of information that are most helpful to law enforcement to be included in SARs.
The release of the FinCEN guidance and advisory were followed by a May 13 speech by Sigal Mandelker, the Treasury Department’s Under Secretary for Terrorism and Financial Intelligence, who is responsible for overseeing FinCEN regarding the AML and sanctions risks associated with virtual currency. Mandelker described how bad actors, including nations like Iran, North Korea, and Russia, are turning to virtual currencies as a method to evade economic sanctions. Similarly, terrorist organizations are using bitcoin to solicit donations from terrorist sympathizers. Mandelker praised FinCEN for its role in protecting national security and the virtual currency industry through its regulations and enforcement actions, including the release of the guidance and advisory.
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