On November 18, Reuters reported on remarks that the Director of the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) Kenneth Blanco made at a November 15 conference in New York. In his remarks, Blanco stated that the federal government will “strictly enforce” a regulation under the Bank Secrecy Act “that requires cryptocurrency firms engaged in money service businesses such as digital asset exchanges and wallet service providers to share information about their customers.”
The so-called “travel rule,” which has been in effect for more than 20 years, “requires cryptocurrency exchanges to verify their customers’ identities, identify the original parties and beneficiaries of transfers $3,000 or higher, and transmit that information to counterparties if they exist.” According to Reuters, Director Blanco stated that the rule “applies to CVCs (convertible virtual currencies) and we expect that you will comply period.” To emphasize the point, he added, “That’s what our expectation is. You will comply. I don’t know what the shock is. This is nothing new.”
Blanco also reportedly commented that the travel rule “is the most commonly cited violation with regard to money service businesses [MSBs] engaged in virtual currencies.” On a related note, he stated that FinCEN “has been conducting examinations that include compliance with the . . . rule since 2014.”
N.B.: Some in the cryptocurrency industry have professed surprise at Director Blanco’s remarks, in view of guidance that FinCEN issued in May 2019 regarding CVCs. The Reuters report indicated that some in the cryptocurrency industry interpreted that guidance to mean that the travel rule did not apply to them.
Admittedly, the May 2019 guidance nowhere mentions the travel rule by name, and nowhere specifically states that CVCs are subject to the travel rule. On the other hand, the BSA regulations thereunder have long defined MSBs as a “financial institution” responsible for BSA compliance, including the travel rule. In addition, since 2010 FinCEN’s public position has been that any transmitter’s “financial institution” must comply with the travel rule.
While some in the crypto industry may have parsed the May 2019 guidance too closely, it should be no surprise to those familiar with the BSA that a CVC registered as and operating an MSB falls within the travel rule’s requirements. In any event, Director Blanco has removed any doubt about the industry’s need to comply with the rule.