FinCEN Put Crypto Money Transmitters on Notice Over AML Duties

The U.S. Financial Crimes Enforcement Network used an August 9, 2018 speech to put cryptocurrency businesses on notice that federal anti-money-laundering obligations applied across a wider range of operations than conventional exchanges. Director Kenneth A. Blanco said covered businesses included trading platforms, administrators, cryptocurrency kiosks, crypto-precious-metals dealers and individual peer-to-peer exchangers.

Blanco also supplied a rare measure of the government’s visibility into the sector: FinCEN was receiving more than 1,500 Suspicious Activity Reports, or SARs, per month describing activity involving virtual currency. The reports came from cryptocurrency money services businesses and other financial institutions.

That figure represented regulatory reporting, not 1,500 proven crimes, customers or enforcement cases. FinCEN did not publish the underlying reports, a precise measurement period, asset breakdown or methodology enabling independent reproduction of the monthly count.

Existing rules, newly sharpened warning

The August 9 remarks did not enact a statute or issue a new final rule. Blanco instead explained how FinCEN understood the Bank Secrecy Act and regulations already on the books.

FinCEN’s March 18, 2013 guidance had distinguished ordinary users of convertible virtual currency from administrators and exchangers. A user obtaining virtual currency to buy goods or services was not a money services business merely because of that activity. An administrator or exchanger accepting and transmitting convertible virtual currency, however, could qualify as a money transmitter unless an exemption applied.

Blanco restated the operational test in broader terms: people or entities engaged as a business in accepting and transmitting physical currency or convertible virtual currency from one person to another person or location were subject to the Bank Secrecy Act’s anti-money-laundering and counter-terrorist-financing framework.

That could require registration as a money services business, a risk-based compliance program, recordkeeping and regulatory reports. The precise obligations still depended on the business model and facts; the speech was not a ruling that every developer, holder or blockchain participant was a money transmitter.

Foreign and peer-to-peer businesses were included

FinCEN’s warning extended beyond companies with U.S. headquarters or storefronts. Blanco said the requirements applied to foreign-located convertible-virtual-currency money transmitters doing business wholly or substantially within the United States even if they had no physical U.S. presence.

He also rejected size as a reason for noncompliance. An individual operating a peer-to-peer exchange business and a multinational platform offering many currencies could both fall within FinCEN’s perimeter. The agency said its examinations had covered registered and unregistered exchanges, kiosks and individual exchangers.

FinCEN and Internal Revenue Service examiners had examined more than 30% of registered virtual-currency exchangers and administrators since 2014, according to Blanco. That was an agency-supplied proportion. The speech did not disclose the denominator, examination-completion dates or results for each business, limiting comparisons with the broader industry.

ICOs and information sharing

Blanco separately said businesses involved in initial coin offerings were expected to satisfy applicable anti-money-laundering obligations even when the structure of an offering placed other questions within Securities and Exchange Commission or Commodity Futures Trading Commission jurisdiction. His statement addressed financial-crime compliance; it did not decide whether a particular token was a security or commodity.

The director also announced that FinCEN was establishing a virtual-currency-focused FinCEN Exchange program with industry and law enforcement. The proposed forum was intended to share emerging risks, threats and market developments. The announcement established the agency’s plan, not the program’s eventual participation, output or effectiveness.

What the August 9 record established

The defensible conclusion was institutional rather than market-based. By August 9, 2018, FinCEN regarded cryptocurrency money transmission as an active supervisory and reporting domain, not a policy question awaiting comprehensive new legislation. The monthly SAR count showed meaningful reporting activity, while the examination figure and enforcement warning signaled that businesses could not treat compliance as optional or postpone it until regulators made contact.

No cryptocurrency price, volume or market-capitalization series is used here, and the surviving evidence does not establish that Blanco’s speech caused a market move. Later guidance and enforcement outcomes are outside this event-day account.