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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.

Federal legislators introduce two bills in an attempt to provide the blockchain economy with regulatory certainty.

By Stephen P. Wink, Morgan E. Brubaker, Cameron R. Kates, and Shaun Musuka

US regulators and federal legislators may be heeding the calls of crypto-enthusiasts for legal clarity regarding the status of digital assets and cryptocurrencies (collectively, Tokens). Two weeks ago, the Securities and Exchange Commission (SEC) released an analytical framework for determining when a Token constitutes a security. Last week, US federal legislators followed up by introducing two bills that are designed to “provide regulatory certainty for businesses, entrepreneurs, and regulators in the US’ blockchain economy,” the Token Taxonomy Act of 2019 (H.R. 2144) (TTA) and the Digital Taxonomy Act of 2019 (H.R. 2154) (DTA, and together with the TTA, the Bills).

The SEC provides additional guidance for analyzing whether a digital asset is a security.

By Stephen P. Wink, Cameron R. Kates, and Shaun Musuka

On April 3, 2019, the U.S. Securities and Exchange Commission’s Strategic Hub for Innovation and Financial Technology (the SEC) released a framework (the Framework) for assessing whether a blockchain-issued token or digital asset (each, a Token) constitutes an investment contract. An investment contract is an enumerated type of security subject to US federal securities laws. The Framework does not have the force of law, but rather, provides additional guidance on the factors to consider when applying the Howey test to Tokens. For background regarding the Howey test, please see Latham’s Client Alert. Latham’s read of the Framework suggests two key takeaways. First, it provides added insight into how existing Tokens may be reevaluated over time and may cease to be subject to federal securities laws. Second, it offers the clearest guidance to date that Tokens that are designed and marketed as purely “virtual currency” should not be considered securities.

A new white paper explores jurisdictional conflicts and the regulatory status of digital assets.

By Yvette D. Valdez, J. Ashley Weeks, and Jacqueline M. Rugart

Members of the American Bar Association’s (ABA’s) Derivatives and Futures Law Committee recently published a white paper exploring the US regulatory landscape for digital assets (White Paper), including a 50-state survey and overview of certain non-US crypto regulatory regimes. The White Paper primarily focuses on the jurisdictional overlap between the US Commodity Futures Trading Commission (CFTC) and the US Securities and Exchange Commission (SEC) pertaining to the regulation of digital assets.

Latham & Watkins lawyers previously discussed the intersection of CFTC and SEC regulatory jurisdiction in the crypto context here and here.