On October 11, 2019, the Financial Crimes Enforcement Network (FinCEN), the US anti-money laundering (AML) agency, along with the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) (collectively, the “Agencies”) issued a joint statement on digital assets activities (“Statement”), reminding the businesses under their jurisdictions that digital assets activities may be subject to AML obligations under the primary US AML statute known as the “Bank Secrecy Act”(BSA).
The BSA authorizes the Secretary of the Treasury to designate various businesses as “financial institutions” and to impose a variety of AML requirements on those businesses, such as compliance programs, customer identification programs and suspicious transaction reporting.
The Agencies note that while digital assets activity is referred to by a variety of terms, such as “virtual currency,” “cryptocurrency,” and “digital tokens,” it is the facts and circumstances of the specific digital assets activity that will determine whether a business engaged in such activity would be considered to be a “financial institution” under the BSA.
Money services businesses (such as money transmitters), securities broker dealers, mutual funds, futures commission merchants, and introducing brokers, are designated as “financial institutions” under the BSA and subject to most if not all of its regulatory requirements. These businesses that also engage in digital assets activities need to keep aware of their potential BSA AML obligations.
Each of the Agencies provided additional comments:
CFTC: The AML requirements under the BSA that apply to futures commission merchants and introducing brokers are not limited to activities in which digital assets qualify as commodities or used as derivatives; they also apply to activities that are not subject to regulation under federal commodity laws.
SEC: The AML obligations of broker-dealers in securities and mutual funds that engage in digital assets activities are not limited in their application to only those activities involving digital assets considered to be “securities” under federal securities laws.
FinCEN: FinCEN has long had guidance in place regarding when businesses engaged in digital assets activity are considered money transmitters under the BSA. FinCEN referred readers to its May 2019 guidance, “Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies,” which is a useful summary of all the guidance involving virtual currencies issued by FinCEN over the past several years. FinCEN emphasized that if a business is engaging in activities that would qualify as money transmission under FinCEN regulations, but the business also is subject to regulation by the CFTC or SEC, then the CFTC and the SEC AML regulations would apply, which impose additional AML obligations, such as customer identification regulations, on their regulated entities.