FinCEN Warns That Virtual Currency Activities Are Subject to Anti-Money Laundering Obligations

FinCEN sent a letter (the Letter) to Senator Ron Wyden (Ranking Member, Committee on Finance) on February 13, 2018, in response to the Senator’s December 14, 2017, request for information “on the oversight and enforcement capabilities” of FinCEN over virtual currency activities. The Letter notes FinCEN’s “desire to promote the positive financial innovations associated with this technology, while protecting our financial system from criminals, hackers, sanctions-evaders, and hostile foreign actors.” The Letter warns that virtual currency exchangers and administrators are likely subject to the Bank Secrecy Act (BSA) and anti-money laundering (AML) regulations adopted by FinCEN, the Securities Exchange Commission and/or the Commodity Futures Trading Commission.

The Letter highlights and reiterates FinCEN’s 2013 guidance that virtual currency exchangers and administrators are money transmitters. The Letter also notes that a money transmitter under current FinCEN regulations and guidance includes:

• A person that “sells convertible virtual currency, including in the form of [initial coin offerings (ICOs)] coins or tokens, in exchange for another type of value that substitutes for currency”; and
• An “exchange that sells ICO coins or tokens, or exchanges them for other virtual currency, fiat currency, or other value that substitutes for currency...”

Accordingly, FinCEN reiterated its position that virtual currency exchangers and administrators must, among other things:

• Register with FinCEN as money service businesses (MSBs);
• Have in place a written AML compliance program, including a customer identification program;
• File all required reports under the BSA, including suspicious activity reports (SARs) and currency transaction reports (CTRs); and
• To the extent they are U.S. persons, comply with financial sanctions obligations required by the Office of Foreign Assets Control.

The Letter also points out that, because of FinCEN’s 2013 guidance, there are approximately 100 virtual currency exchangers and administrators that have registered as MSBs with FinCEN. FinCEN has examined one third of these MSBs and has brought several enforcement actions. In addition, FinCEN is able to use the SARs and CTRs it collects from these MSBs as investigative tools to identify owners of virtual currency.

The Letter highlights that FinCEN, through the information provided in a SAR, may be supplied with the identity of an account owner and, if not, FinCEN may utilize blockchain analysis and network analytic tools to identify a particular person with a bitcoin address, which may also help identify beneficial owners. Although these tools are available to FinCEN, the Letter recognizes that combatting money laundering and the financing of terrorist activities and other illegal acts through the use of virtual currency faces “significant challenges” because most countries do not regulate virtual currency exchangers and administrators.