In an August 9, 2018 speech, U.S. Financial Crimes Enforcement Network (FinCEN) Director Kenneth Blanco set out a number of what he termed “some brief benchmarks” in FinCEN’s approach to regulating virtual currency and emerging technology:
- As “virtual currency has the potential to be exploited for money laundering and other illicit finance,” “[c]ompliance with our anti-money laundering (AML) and countering the financing of terrorism (CFT) framework is critical to protecting our financial system and safeguarding the incredible innovations within the FinTech space.”
- FinCEN has provided leadership in AML/CFT regulation and supervision of virtual currency since 2011. Today it works closely with other federal regulatory agencies, including the Securities and Exchange Commission and the Commodity Futures Trading Commission (CFTC), “for coordinated policy development and regulatory approaches, including addressing risks . . . [that] include potential illicit finance and fraud surrounding Initial Coin Offerings (ICOs).”
- FinCEN, and its partners at the SEC and CFTC, “expect businesses involved in ICOs to meet all of their AML/CFT obligations.” That expectation extends to “individuals and entities engaged in the business of accepting and transmitting physical currency or convertible virtual currency from one person to another or to another location”, as well as businesses that provide anonymizing services when they accept and transmit virtual currency. It also extends to “domestic and foreign-located convertible virtual currency money transmitters, even if the foreign located entity has no physical presence in the United States, as long as it does business in whole or substantial part within the United States.”
- Since 2014, FinCEN and the Internal Revenue Service (IRS) have examined more than 30 percent of all registered virtual currency exchangers and administrators, but have focused “on both registered and unregistered exchanges.” Those examinations “have included a wide array of virtual currency businesses: virtual currency trading platforms, administrators, virtual currency kiosk (or ATM) companies, crypto-precious metals dealers, and individual peer-to-peer exchangers.”
- With regard to FinCEN’s 2017 $110 million civil penalty assessed against BTE-e – its first against a foreign-located money services business and its most recent against a virtual-currency business – BTE-e “lacked even basic controls to prevent the use of its services for illicit purposes” and “fail[ed] to establish policies and procedures to handle transactions going through anonymizing services like bitcoin mixers, and offering the anonymity-enhanced cryptocurrency Dash.” In addition, SAR filings and supporting documentation by both banks and other virtual currency exchanges “played a critical role” in the investigation of the case. That information “included beneficial ownership information, additional activity attributed to the exchange of which we were previously unaware, jurisdictional information, and additional financial institutions we could contact for new leads.”
- FinCEN is “sharing experience on cryptocurrency with foreign partners through the Egmont Group of Financial Intelligence Units (FIU) and other international forums.” In addition, FinCEN is “in the process of setting up a virtual currency-focused FinCEN Exchange program with the private sector and law enforcement.” That program is expected to provide a platform “for all of us to engage with industry developments, concerns, and share risks and threats that we are seeing.”
FinCEN has seen a “substantial increase” in virtual currency Suspicious Activity Report (SAR) filings “over the past few years.” It now receives more than 1,500 SARs per month “describing suspicious activity involving virtual currency, with reports coming from both MSBs in the virtual currency industry itself and other financial institutions.”
Dipping Through Geometries 