FATF VASP guidance parallels FinCEN findings
Similar to the FATF guidance, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) last month also released guidance covering the crypto coinage sector, focusing on some of the more nuanced areas of where AML rules can be tripped.
The core of the FinCEN missive is this: If you use a person-to-person (P2P) crypto exchange and transfer virtual coins into money and back for others as a business, you are a money transmitter and must have a financial crime compliance program.
If you are the administrator of an exchange that allows people to do this, you are likely also a “money services business” for fincrime compliance purposes.
But if you are a person who “infrequently” trades value on a P2P exchange without attempting to make a profit, you haven’t officially tripped AML rules under the U.S. Bank Secrecy Act (BSA) while transacting in the convertible virtual currency (CVC) sector.
FinCEN also detailed “red flags” for crypto exchangers – formal exchanges and platforms that allow individuals to buy and sell with each other – to understand when transactions could be tied to illicit groups or darknet sites, with further transactional tells to help financial institutions uncover that an account is tied to a crypto exchange, but the operation never told the bank.
The guidance came on the heels of a key U.S. penalty in the crypto space in April.
FinCEN in its first foray against a peer-to-peer crypto exchange, fined a tiny, one-person operation $35,000 for buying and selling millions of dollars in Bitcoin over a roughly two-year period for a bevy of individuals with virtually no financial crime compliance program to speak of – including failing to file on any large or risky transactions.
The guidance could have prevented such a failing.
Through 30 pages of guidance, the central prevailing theme is that if you take money, change it into digital coinage, and make money doing it, and the inverse of that scenario, you are likely caught by federal AML rules.
This is true whether you are a formal exchange, individual or attempting to create a new avenue of virtual value – such as initial coin offerings (ICOs) – if you take fiat funds, and exchange it for crypto funds, regardless of the name and value, and vice versa, you would “generally” become a money services business (MSB) for AML purposes, specifically a money transmitter.
As such, that operation, or even that individual, would need to register with FinCEN as a money transmitter and create the four-pronged AML program, including policies and procedures, a compliance officer, AML training and independent auditing, with the addition of more recent formally finalized tangs, a customer risk assessment and transaction monitoring system.
“A natural person operating as a P2P exchanger that engages in money transmission services involving real currency or CVCs must comply with BSA regulations as a money transmitter acting as principal. This is so regardless of the regularity or formality of such transactions or the location from which the person is operating,” according to FinCEN.
To read ACFCS coverage of the FinCEN guidance, click here. To read the FinCEN guidance itself, click here.