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The world of cryptocurrency has witnessed remarkable growth in recent years, attracting both retail and institutional investors. It has also made it appealing for Fintech startups to venture into the world of digital finance. But the wave of popularity has also drawn the attention of regulators like the Financial Crimes Enforcement Network (FinCEN) and prompted them to intervene to help shape the regulatory landscape and keep bad actors from using cryptocurrencies for illicit activities like money laundering, human/drug trafficking, terrorist financing, and fraud. FinCEN, a bureau of the U.S. Department of the Treasury, is tasked with combating financial crimes by enforcing anti-money laundering (AML) and counter-terrorist financing (CTF) regulations. These regulations, which have historically applied to traditional financial institutions, now extend to entities involved in virtual currency activities.
A Closer Look
Let us take a closer look at how FinCEN is playing its part in ensuring the safety and soundness of the U.S. financial system from the above-mentioned illicit activities. In recent years, FinCEN has issued various advisories and guidance concerning cryptocurrency transactions to strike a balance between innovation and regulatory compliance. It is important to note that the consequences of failing to abide by FinCEN's rules can have a substantial negative impact on an organization. The following are some of the key concepts FinCEN describes for the purposes of its published advisories and guidance.
1. Definition of Money Transmitters
An important component addressed by FinCEN's guidance pertains to the definition of "money transmitters" in the context of cryptocurrencies. According to FinCEN, individuals or businesses engaged in the exchange, transfer, or transmission of virtual currencies may fall within this classification. This classification requires such entities to have AML and CTF responsibilities, including customer identification and reporting of suspicious activities. So, the first crucial step for an organization involved in the business of cryptocurrency is to determine whether they are a "money transmitter" as defined above, and if so, register with FinCEN. This can be done through FinCEN's Bank Secrecy Act (BSA) E-Filing System.
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