Money services business

FinCEN’s guidance clarifies the applicability of the BSA to a variety of virtual currency businesses.

By Todd Beauchamp, Charles Weinstein, Loyal T. Horsley, Cameron R. Kates, and Shaun Musuka

On May 9, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued interpretive guidance expanding on previously issued guidance and rulings regarding the application of the Bank Secrecy Act and FinCEN’s implementing regulations (collectively, the BSA) to a variety of business models involving “convertible virtual currency” (CVC).[i]

Background

The BSA is the US’ principal anti-money laundering and counter-terrorism financing (AML) regulatory regime, and is applicable to “financial institutions,” which includes a variety of entities, such as banks and “money services businesses” (MSBs). One type of MSB is a “Money Transmitter,” which includes any person that accepts “currency, funds or other value that substitutes for currency from one person” and transmits such “currency, funds or other value to another location or person by any means.”

The enforcement action serves as a reminder that virtual currency exchangers, regardless of size, must comply with the BSA.

By Todd Beauchamp and Charles Weinstein

The US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) does not care if you are a multinational corporation or an individual operating out of your garage; regardless of size, if you violate the Bank Secrecy Act (BSA), you are fair game for enforcement. The financial services industry was reminded of this recently when FinCEN announced that it had assessed a civil money penalty against an individual for “willfully violating the [BSA’s] registration, program, and reporting requirements.”

The matter involved a single individual, Eric Powers, who solicited purchases and sales of bitcoin on the internet, and completed those transactions with other individuals in person, through the mail, and by wire. FinCEN claimed that Powers’ activity included executing around 160 purchases of bitcoin for approximately US$5 million through in-person cash transactions with individuals he met through a bitcoin forum. In connection with Powers’ virtual currency-related activity, FinCEN asserted that Powers operated as a peer-to-peer (P2P) exchanger of convertible virtual currency, and thus, as a “money transmitter” under the BSA.