Recently, Compliance and Enforcement Officer of the U.S. Department of Treasury – FinCEN, Kevin O’Connor, spoke at a panel discussion organized by the Chamber of Digital Commerce regarding crypto-regulations and legislations.
During the discussion, O’Connor said that businesses engaged in activities conducted via convertible virtual currencies were covered under FinCEN’s money transmission rules. He also stated that this means that they are required to maintain an AML program designed to prevent the business from being used for money laundering or terrorist financing, while imposing reporting and record-keeping requirements.
The FinCEN officer also drew attention to FATF’s interpretive note to recommendation 15, noting that it looks a lot like the United States’ framework. He said that this was very much intentional and that their major concern is with regards to jurisdictional arbitrage from exchanges.
“[This is] where exchanges try to find the path of least resistance to establish their business, and then potentially facilitate illicit activity. One of our goals at Treasury and FinCEN has been to build up capacity for our international partners, to help them get ready and impose some kind of regulatory regime, so you have more consistency across these countries and are able to push out illicit activity by having strong regulatory framework elsewhere.”
O’Connor also spoke of how companies were trying to apply a certain degree of regulatory arbitrage by classifying themselves differently to avoid certain domestic regulatory requirements. Bringing up the statement which FinCEN had released in conjunction with the SEC and CFTC, he said that there is no way to apply a different regulatory standard to get away from having anti-money laundering protocols imposed.
“US government agencies talk to each other about this all the time. We’re very clear about where we stand and we collaborate before we do something and make statements like this. You may be classified as a security, you may be classified as a commodity, your activity may be money transmission. Regardless of where you fall in those categories, you’re going to have AML obligations.”
O’Connor also mentioned that there was a misconception when talking about public/private partnership in this space. He claimed that tens of thousands of suspicious activity reports have been filed, and that over half of them had been filed by exchanges themselves.
“[They report] different indicators, wallet addresses and variable cyber indicators that we can use either for our own investigations, or provide to law enforcement to support investigations like the Welcome to Video case.”
During the discussion, he maintained that anonymity-enhanced cryptocurrencies impair tracing in this space, citing how FinCEN, in conjunction with law-enforcement, fined BTC-e $110 million dollars for not having appropriate money laundering controls in place to offer anonymity-enhanced features.
“Our message to exchanges that offer these kinds of cryptocurrencies is that you have to have controls in place to mitigate the risks associated with these anonymity enhanced features. Exchanges that offer Monero can’t answer the question of who is the person on the other end of that Monero transaction. That’s a significant problem. If you can’t answer the question, you can’t tell me that person is not Kim Jong-un or a North Korean actor.”