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What are the FinCEN Guidelines Surrounding Cryptocurrency?

What are the FinCEN Guidelines Surrounding Cryptocurrency?

FinCEN is an agency of the Treasury Department responsible for preventing financial crimes, and they have taken a few steps toward creative effective regulations for cryptocurrency transactions.

FinCEN is the Financial Crimes Enforcement Network, an office of the Treasury Department, primarily concerned with money laundering and other forms of financial fraud domestically and internationally. It is because of FinCEN’s far=reaching authority that major cryptocurrency exchanges who do business with US citizens will generally require identity and bank account verification, and will impose limits on transaction amounts. In 2013, FinCEN issued guidance that anyone engaged in the transmission or exchange of cryptocurrencies may fall under their jurisdiction to regulate Money Service Businesses (MSBs), meaning you may potentially have to register as a Money Transmitter on the Federal and state level if you frequently engage in cryptocurrency transactions.

Since then, regulators and the courts have tussled about how to interpret the guidance and how to enforce it. Financial companies like PayPal have chosen to err on the side of compliance, treating nearly anyone who uses their services to directly buy, sell, or trade bitcoin and other cryptocurrencies as a Money Transmitter, which excludes some customers from some of the protection and assistance that they might otherwise receive per their Terms of Service.

Florida became the first state to prosecute a case against bitcoin traders for operating as unlicensed money transmitters, but the judge in the case ruled in favor of the defendants, stating that bitcoin is not currency. That case is currently being appealed. Some states have adopted various measures to approach to virtual currencies, but suffice it to say that these are still very much works-in-progress. State regulations concerning money transmission tend to focus more on consumer protection than federal regulations do. If an individual or business meets the definition of a money transmitter, they may have to show that they have taken precautions to safeguard user data with internal business controls, among other requirements such as bonding or deposit requirements to show that they can clear the transactions they are facilitating.

Interestingly, FinCEN has taken the stance the bitcoin miners are not required to register as Money Transmitters, but if and when the miners decide to use any significant amount of bitcoin, and it requires transmission and exchange or paying the bitcoins to a conduit third party other than the buyer or seller on the other side of the transaction, they may potentially be defined as a Money Transmitters. Many gray areas remain as of the time of this writing and much of the FinCEN guidance is still open to interpretation. They are likely waiting for further developments before issuing any further guidance. Anti-money laundering regulations are also known as AML.

Keywords: identity theft, Anti-Money Laundering (AML), money transmitter, federal and state registration requirements, Money Service Business (MSB), identity verification,