On April 8, 2026, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) and Office of Foreign Assets Control (OFAC) issued a joint Notice of Proposed Rulemaking (NPRM) to implement the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act). The proposal would create a comprehensive anti‑money‑laundering/countering‑the‑financing‑of‑terrorism (AML/CFT) and sanctions compliance framework for “permitted payment stablecoin issuers” (PPSIs), treating them as financial institutions under the Bank Secrecy Act (BSA). Treasury frames the rule as an effort to support responsible innovation in payment stablecoins while mitigating illicit‑finance risks (see also Treasury’s press release and Fact Sheet).

For our coverage of Treasury’s related Notice of Proposed Rulemaking on state oversight of stablecoin issuers, see our post here.

Statutory Background and Policy Context

The GENIUS Act directs that PPSIs be treated as financial institutions for BSA purposes and comply with federal laws relating to sanctions, money‑laundering prevention, customer identification, and due diligence. It also requires PPSIs to maintain an effective sanctions compliance program.

Treasury’s March 2026 Congressional Report highlights the rapid growth of digital assets, the increasing use of stablecoins in payments, and the ways illicit actors exploit them for fraud, ransomware, sanctions evasion, and money laundering. These findings inform the risk‑based approach reflected in the NPRM.

Primary and Secondary Market Activity

A central concept in the NPRM is the distinction between primary and secondary market activity. Primary market activity refers to direct interactions between a PPSI and a user, such as issuing, redeeming, converting, repurchasing, burning, reissuing, or providing custodial services. Secondary market activity involves transactions between third parties that rely on the PPSI’s smart contract but do not involve the PPSI as a counterparty. This distinction matters because several obligations—including suspicious activity reporting—apply only to primary‑market transactions. This distinction will shape how PPSIs design monitoring, SAR processes, and technical controls, because only primary‑market activity triggers most BSA obligations.

AML/CFT Program Requirements

The NPRM would require PPSIs to establish and maintain a written AML/CFT program that mirrors the core elements required of other financial institutions, with tailoring for stablecoin‑specific risks. PPSIs must implement internal policies, procedures, and controls to identify, assess, and mitigate illicit‑finance risks. Risk assessments must evaluate the PPSI’s business activities, incorporate the national AML/CFT priorities, and be updated promptly when risks change.

PPSIs would also be required to conduct ongoing customer due diligence, including understanding the nature and purpose of customer relationships, developing customer risk profiles, and monitoring for suspicious activity. On a risk basis, PPSIs must maintain and update customer information, including beneficial ownership information for legal‑entity customers.

Independent testing is required to assess whether the PPSI has implemented an effective AML/CFT program. PPSIs must designate a U.S.‑based AML/CFT compliance officer responsible for day‑to‑day compliance. The program must also include ongoing employee training tailored to employee roles and responsibilities and must be approved by the PPSI’s board or equivalent governing body.

The NPRM outlines a supervisory framework under which FinCEN would generally not take enforcement action if a PPSI has established an AML/CFT program and does not exhibit significant or systemic failures. It also describes a notice and consultation process between FinCEN and primary federal payment‑stablecoin regulators for significant supervisory actions. For many issuers, this will require adopting governance, documentation, and testing practices that resemble those of traditional financial institutions—a significant shift for engineering‑driven companies.

Suspicious Activity and Currency Transaction Reporting

PPSIs would be required to file suspicious activity reports (SARs) for any suspicious primary‑market transaction. The NPRM explicitly states that secondary‑market transfers are not, by themselves, considered transactions “by, at, or through” a PPSI for SAR purposes. PPSIs must retain SARs and supporting documentation for five years.

Currency‑transaction reporting (CTR) requirements would apply to transactions in currency exceeding $10,000, though Treasury notes that stablecoin issuers rarely engage in physical‑currency transactions.

Recordkeeping, Travel Rule, and Information Sharing

The NPRM would require PPSIs to comply with the BSA’s Recordkeeping Rule and Travel Rule for transfers of $3,000 or more and would amend the definition of “transmittal order” to expressly include payment stablecoins. PPSIs would also be integrated into the BSA’s information‑sharing framework, including Section 314(a) requests and voluntary Section 314(b) sharing.

Enhanced Due Diligence and Special Measures

The NPRM would apply the BSA’s enhanced due‑diligence requirements for correspondent accounts for foreign financial institutions and private‑banking accounts for non‑U.S. persons. PPSIs would also be subject to special measures under Section 311 of the USA PATRIOT Act, Section 9714(a) of the Combating Russian Money Laundering Act, and 21 U.S.C. 2313a.

Sanctions Compliance Program Requirements

The NPRM reflects a significant change in Treasury’s expectations for PPSIs. PPSIs would be required to maintain a formal sanctions compliance program—something other BSA‑regulated financial institutions are not explicitly required to do. OFAC sanctions remain a strict‑liability regime, but Treasury is elevating sanctions compliance to the same programmatic level as AML/CFT. Examiners would look not only at whether a PPSI violated sanctions, but at whether its program is designed, resourced, and operating in line with OFAC’s risk‑based expectations. A strong program would meaningfully mitigate enforcement exposure, while gaps or weak controls could carry greater consequences given the statutory mandate.

OFAC proposes requiring PPSIs to maintain an effective sanctions compliance program incorporating five core elements: senior‑management commitment; holistic risk assessments; risk‑based internal controls, including technical capabilities; independent testing and auditing; and risk‑based training. These elements align with OFAC’s existing guidance and reflect the GENIUS Act’s mandate that PPSIs comply with all federal sanctions laws applicable to financial institutions.

Technical Capabilities and Lawful Orders

The GENIUS Act requires PPSIs to maintain the technological capability to block, freeze, and reject impermissible transactions and to comply with lawful orders, including orders to seize, freeze, burn, or prevent the transfer of payment stablecoins. These expectations apply whenever a PPSI’s smart contract is involved, even in secondary‑market activity, and will require issuers to document how these controls function in practice. Because these controls must function whenever a PPSI’s smart contract is implicated, issuers will need to document how block, freeze, reject, and burn capabilities operate in practice and ensure they can withstand regulatory scrutiny.

Economic Impact

Treasury estimates that approximately 50 PPSIs may be subject to the rule, with first‑year compliance costs of about $1.8 million and ongoing annual costs of roughly $1 million. Government costs are estimated at $5.9 million in the first year, and customer costs at approximately $1.2 million annually. Treasury expects many PPSIs to be money‑services businesses or insured‑depository‑institution subsidiaries already subject to similar requirements, reducing incremental burden.

Key Takeaway

The proposal makes clear that Treasury now expects permitted stablecoin issuers to operate with the same level of AML, sanctions, governance, and technical rigor long required of mature financial institutions. The NPRM signals that PPSIs will need to build compliance into the core of their operating models—risk assessments, beneficial‑ownership collection, primary‑market SAR obligations, enhanced due diligence, and the ability to block, freeze, or burn tokens cannot be bolted on later. These expectations create a high regulatory bar, and not every current or aspiring issuer will be able to meet it. Firms with the capital, staffing, and engineering capacity to stand up a full BSA/OFAC program will be positioned to move forward, while smaller or less‑resourced issuers may struggle to qualify as PPSIs. The practical effect is a market that shifts toward a smaller number of issuers capable of operating under a full federal compliance regime. The framework ultimately favors well‑capitalized issuers and is likely to accelerate consolidation in the stablecoin market.

Next Steps

FinCEN and OFAC are accepting public comments for 60 days following publication in the Federal Register. Treasury seeks input on the clarity of definitions, the feasibility of technical requirements, the tailoring of obligations for PPSIs of different sizes and business models, and the interaction between federal and state regulatory frameworks.

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On March 31, 2026, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued an advisory on sham transactions, highlighting the compliance risks financial institutions must navigate when facilitating international property transactions.

What is a Sham Transaction?

OFAC defines a “Sham Transaction” as one in which a blocked person, typically operating through proxies or intermediaries, effectuates the transfer or concealment of a continuing interest in property, without genuinely extinguishing said interest, in an attempt to evade U.S. sanctions. In other words, sham transactions are those in which an individual appears to relinquish property on paper but remains effectively in control of it.

Who do Sham Transactions Apply To?

OFAC publishes a List of Specially Designated Nationals and Blocked Persons (“SDN List”) that is intended to restrict the access of the named individuals to the American financial system by preventing them from transferring, withdrawing, or otherwise dealing with any property and interests that are within the United States or within the possession or control of a U.S. person and prohibiting U.S. persons from transacting with them.

If an individual is blocked, their assets are frozen, and they are unable to exercise the powers and privileges of their property and interests without authorization from OFAC.

How Do Sham Transactions Operate?

OFAC identifies numerous methods by which blocked persons conceal their property interest, often by manipulating opaque legal structures and working with proxies. The following are some examples of sham transactions:

  • A blocked oligarch transferred ownership of his private jet to a trust, whose sole beneficiary was his unsanctioned wife, while the oligarch continued to use the jet for travel.
  • A blocked person transferred millions of dollars of funds into trusts held for his minor children and then attempted to move these funds through U.S. banks.
  • Following its designation, a company sanctioned for narcotics trafficking was reincorporated under a different name with new nominal owners while continuing the blocked company’s operations.

How Can Financial Institutions Recognize a Sham Transaction?

OFAC’s advisory highlights a non-exhaustive set of red flags that may indicate a sham transaction. The advisory stresses the importance of employing a functional approach, considering the totality of the circumstances, when evaluating a potential sham transaction.

For additional analysis on OFAC guidance, see our related posts here.

The following are some indications financial institutions should be aware of when evaluating a transaction:

  • Commercially Unreasonable Transactions: Transfers of property in which a blocked person once held an interest on terms that are commercially unreasonable or at odds with fair market value may indicate a sham transaction.
  • Transfer to Family Members or Close Associates: Transfers of property to an individual with close personal or professional ties may indicate that the receiving party is acting as a nominal owner and may be acting on behalf of the transferring party.
  • Unclear Purpose: Transfers to an individual with no clear business purpose or relevant expertise with respect to the property at issue may be evidence of a sham transaction.
  • Complex Corporate Structures and High-Risk Jurisdictions: The presence of unnecessarily complex corporate structures, particularly in jurisdictions that lack robust regulatory oversight, may suggest an effort to conceal true ownership interests.
  • Involvement of a Blocked Person: If the circumstances indicate that a blocked person remains involved in the operation of a property, they may hold a concealed interest. The use of evasive or vague responses regarding the extent of a blocked person’s involvement may present further indicia of a concealed interest.
  • Transfer At Time of Designation: If a property or interest is transferred immediately preceding or following a person’s designation by OFAC, the transaction may warrant additional scrutiny.

Guidance for Financial Institutions

If financial institutions become aware that a blocked person once held an interest in property, OFAC recommends reviewing the available information to see if any of the above-listed red flags are present. OFAC acknowledges in its advisory that institutions may encounter legitimate business transactions where this occurs and does not wish to interfere with parties and institutions who seek to comply with OFAC sanctions in good faith.

If institutions become aware that a blocked person retains an interest in property that is held within the United States or is in the possession or control of a U.S. person, the property must be blocked and reported to OFAC.

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FinCEN has published a Notice of Proposed Rulemaking (“NPRM”) that would formalize and expand its whistleblower program, offering potentially substantial financial payouts to whistleblowers reporting certain financial crimes. According to FinCEN’s announcement, this initiative is designed to incentivize and protect individuals who report violations of major financial crime laws—specifically, the Bank Secrecy Act (“BSA”), the International Emergency Economic Powers Act (“IEEPA”), the Trading With the Enemy Act (“TWEA”), and the Foreign Narcotics Kingpin Designation Act (the “Kingpin Act”). Treasury Secretary Scott Bessent has said that through this rule, “Treasury will reward whistleblowers who provide timely, actionable information on fraud, sanctions violations, and other significant illicit finance activity[.]”Under the proposed rule, whistleblowers could be entitled to 10-30 percent of monetary penalties the government collects as a result of whistleblower tips.

The NPRM, which notably requires a 120-day waiting period for whistleblowers involved in certain fiduciary and compliance functions, highlights the importance of investing in robust compliance programs. It signals heightened enforcement interest in financial crimes, and advertises weighty incentives to motivate potential whistleblowers.

Overview and Legal Authority

FinCEN cites to the BSA, as strengthened by the Anti-Money Laundering Act of 2022 and the Anti-Money Laundering Whistleblower Improvement Act of 2022 (codified at 31 U.S.C. § 5323), for its authority to implement the proposed rule. The relevant statutory provision states:

In any covered judicial or administrative action, or related action, the Secretary, under regulations prescribed by the Secretary, in consultation with the Attorney General and subject to subsection (c), shall pay an award or awards to 1 or more whistleblowers who voluntarily provided original information to the employer of the individual, the Secretary, or the Attorney General, as applicable, that led to the successful enforcement of the covered judicial or administrative action, or related action, in an aggregate amount equal to—

(A) not less than 10 percent, in total, of what has been collected of the monetary sanctions imposed in the action or related actions; and

(B) not more than 30 percent, in total, of what has been collected of the monetary sanctions imposed in the action or related actions.

FinCEN established an Office of the Whistleblower, which began receiving whistleblower tips in 2021. This proposed rule would formalize and significantly enhance this program. The proposed rule:

  • Defines key terms, such as “covered action”, “original information”, “voluntary submission”, “monetary sanctions”, and “related action;”
  • Provides for submission through a standardized, secure online form;
  • Outlines requirements to apply for an award;
  • Sets forth eligibility criteria for awards and the process for adjudicating award applications;
  • Details confidentiality and anti-retaliation protections; and
  • Implements a system for appealing adverse determinations, and for barring bad-faith or abuse of the whistleblowing program.

Eligibility Requirements for Whistleblower Award

The rule details four requirements for a whistleblower to be eligible for an award: (1) voluntary submission of original information; (2) the whistleblower is the original source of the original information; (3) the original information led to the successful enforcement of a covered action or related action; and (4) the whistleblower provides certain additional information to Treasury and DOJ upon request.

One key function of the proposed rule is to thoroughly define what qualifies as “original information.” It identifies four elements that must be met for FinCEN to find that a whistleblower provided qualified original information. These elements are:

  • The information must be “derived from the independent knowledge or independent analysis of [the] whistleblower.” In the NPRM, FinCEN explains that independent knowledge does not require the whistleblower to have direct, first-hand knowledge of potential violations. Rather, their knowledge must be obtained from their own experiences, observations, or communications, and not from public sources. On the other hand, independent analysis may be based on information that is generally available or known, as long as the analysis “results in material insights” that are not generally known or available to the public.
  • The information is not already known to Treasury or DOJ.
  • The information is not exclusively derived from an allegation made in a publicly available source, including judicial or administrative hearings.
  • The information is provided to Treasury or DOJ after the enactment of the statutes that established the Whistleblower Program and amended its scope (January 1, 2021 for violations of the BSA, and December 29, 2022 for violations of the IEEPA, TWEA, and the Kingpin Act).

Equally important is the proposed rule’s definition of voluntariness. In the proposed rule, FinCEN explains that a submission is voluntary if it is made before the whistleblower receives any request for information about the subject matter. Thus even an informal request for information would negate the voluntariness requirement.

The proposed rule also defines “covered action” as  “an administrative or judicial action taken by Treasury or DOJ under certain ‘covered statutes’ … the BSA, IEEPA, TWEA, and the Kingpin Act” where monetary sanctions exceed $1,000,000. Notably, the proposed rule grants FinCEN the discretion to treat multiple actions as a single “covered action” if they arise out of substantially the same facts, such that those actions could collectively exceed the $1,000,000 threshold.

Through these regulatory definitions, FinCEN seeks to establish clear standards for the circumstances under which a whistleblower may be entitled to an award, as well as situations in which a whistleblower may be excluded from participation.

One key limitation FinCEN proposes is a 120-day waiting period for whistleblowers involved in fiduciary or compliance roles within an entity. The proposed rule would prevent whistleblowers from receiving an award where their position in certain key roles within an entity—such as serving as a director or trustee, participating in internal compliance processes, or serving as an employee or outside contractor with duties involving audit or compliance responsibilities—is the reason the whistleblower obtained the potentially reportable information, and they report the information within 120 days of learning it. According to FinCEN’s announcement, this waiting period seeks to provide entities an opportunity to address issues or voluntarily disclose information to the government, and to avoid incentives for whistleblowers to undermine effective compliance programs.

Implications

Through this proposed rule, FinCEN clearly seeks to signal renewed, enhanced enforcement of financial crimes, and incentivize whistleblowers to come forward.

In addition to spelling out eligibility criteria, which in theory lessens the uncertainty potential whistleblowers may feel about their opportunity to gain from acting as a whistleblower, the proposed rule contains numerous provisions detailing procedural and operational implementation of the program. These provisions, which, for example, identify a secure portal for submitting information, detail the process for submitting and adjudicating award applications, and spell out confidentiality and anti-retaliation protections, seek to provide even further comfort for potential whistleblowers and establish a robust program for soliciting and processing tips.

FinCEN is accordingly projecting a substantial increase in the number of whistleblower tips it receives, estimating that it will receive approximately 250 original submissions and 150 supplemental submissions annually within three years of the rule’s effective date. This is a dramatic increase from the approximately 90 submissions it received per year between 2021 and 2024.

As the rule is not yet final (it is subject to a 60-day notice and comment period), some of the details may change. Nonetheless, the proposed framework provides substantial insight into the direction FinCEN is moving, and suggests is quite possible that there will be a notable increase in whistleblower activity following the rule’s implementation.

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As part of the U.S. Department of Treasury’s efforts to modernize the U.S. anti-money laundering regulatory and supervisory framework, the Financial Crimes Enforcement Network (FinCEN) has issued a proposed rule that would reform how financial institutions design and operate their anti-money laundering and countering the financing of terrorism (AML/CFT) programs. Though not a wholesale rebuild of the existing framework, FinCEN and the banking regulators are signaling a new emphasis on an approach that prioritizes risk-based effectiveness over process-driven compliance and establish FinCEN’s central role in AML/CFT supervision among the Federal bank regulators.

The Current Regulatory Landscape for AML/CFT Programs

Under the Bank Secrecy Act (BSA), financial institutions are required to establish AML/CFT programs designed to identify, prevent, and report financial crime. FinCEN, as the administrator of the BSA, plays a principal role in setting program standards and coordinating with federal banking supervisors – including the Federal Reserve, the Federal Reposit Insurance Corporation (FDIC), the Office of the Comptroller of Currency (OCC), and the National Credit Union Administration (NCUA) – who examine the institutions they oversee for compliance.

Historically, institutions’ compliance has been measured in part on whether they are adequately managing their AML / CFL responsibilities, with regulators assessing the design and operation of compliance programs. Much of the reform is aimed at moving away from a framework that critics argue encourages “check-the-box” compliance, focusing instead on achieving meaningful results. As Treasury Secretary Scott Bessent put it, “For too long, Washington has asked financial institutions to measure success by the volume of paperwork rather than their ability to stop illicit finance threats.” Bessent added that, “Our proposal restores common sense with a focus on keeping bad actors out of the financial system, not burying America’s banks in more red tape.”

What’s Driving the Rulemaking?

The proposed rule is part of Treasury’s broader effort to modernize the AML/CFT regulatory and supervisory framework. It also implements key provisions of the Anti-Money Laundering Act of 2020 (AML Act), which, among other things, directed FinCEN and federal regulators to consider that compliance programs should be “risk-based, with more financial institution attention and resources directed toward higher-risk customers and activities…rather than toward lower-risk customers and activities.”

Results Over Process

FinCEN’s Fact Sheet accompanying the proposed rule identifies six key reforms that, taken together, signal a regulatory philosophy focused on outcomes rather than procedural box-checking:

  • Refocusing compliance obligations and expectations on effectiveness by distinguishing between deficiencies stemming from program design (“establishment”) and program implementation (“maintenance”);
  • Reinforcing Treasury’s belief that financial institutions are best positioned to identify and evaluate their money laundering, terrorist financing, and illicit finance risks;
  • Empowering financial institutions to direct more attention and resources toward higher-risk customers and activities;
  • Clarifying expectations related to certain program requirements and functions – including independent testing and audit functions – to ensure that examiners and auditors do not substitute their subjective judgment in place of financial institutions’ risk-based and reasonably designed AML/CFT programs;
  • Affirming FinCEN’s central role in AML/CFT supervision, including through the introduction of a notice and consultation framework between Federal banking supervisors and FinCEN with respect to significant AML/CFT supervisory actions;
  • Incorporating the AML/CFT Priorities in both AML/CFT program requirements and considerations involving significant supervisory or enforcement actions.

Three Areas of Significant Impact

Among these reforms, three are likely to have the most immediate impact on day-to-day compliance.

First, the proposed rule would make FinCEN the gatekeeper for significant supervisory and enforcement actions. Under a new notice and consultation framework, federal banking supervisors would be required to give FinCEN’s Director at least 30 days’ advance written notice before initiating a significant AML/CFT supervisory action under delegated authority. For banks, this suggests that FinCEN – not any single prudential regulator – will increasingly set the tone for AML/CFT supervision. Both the American Bankers Association and Bank Policy Institute   welcomed this development citing FinCEN’s “elevated role” as a step towards “ensur[ing] greater alignment and consistency across agencies.”

Second, the rule would establish that only “significant or systemic failures” to maintain a properly established AML/CFT program would warrant enforcement or significant supervisory action. In practice, this could reduce enforcement risk for institutions with sound programs but experience isolated implementation issues.

Third, the rule would include the four “core pillars” that an AML/CFT program must incorporate pursuant to the BSA: (1) internal policies, procedures, and controls, including risk assessment processes; (2) independent program testing; (3) designation of a U.S.-based compliance officer; and (4) ongoing employee training. By standardizing these requirements across institution types, FinCEN aims to promote consistency and reduce the patchwork of obligations that currently exist.

What’s Next?

FinCEN is accepting public comments for 60 days following publication of the Notice of Proposed Rulemaking in the Federal Register. The federal banking supervisors – the Federal Reserve, FDIC, OCC, and the NCUA – are also expected to issue their own proposed rules in substantive alignment with FinCEN’s proposal. Financial institutions should begin evaluating how these changes may affect their programs and whether to weigh in during the comment period.

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The U.S. Department of the Treasury has issued its first proposed rule under the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, marking a key milestone in federal efforts to regulate payment stablecoins. The Notice of Proposed Rulemaking (NPRM) outlines the principles Treasury will use to assess whether a state’s regulatory regime is “substantially similar” to the federal framework, which determines whether certain stablecoin issuers may be supervised by states rather than the OCC or other federal agencies. Comments on the proposal are due by June 2, 2026.

Background: The GENIUS Act’s Federal–State Opt-In Model

Passed in July 2025, the GENIUS Act created the first comprehensive federal framework for stablecoin regulation. (See our blog post, here.) It allows “State qualified payment stablecoin issuers,” defined as issuers with up to $10 billion in outstanding issuance, to elect state-level supervision if their state’s regulatory regime is certified as “substantially similar” to the federal approach. The model is intended to balance innovation, flexibility, and uniformity while reducing opportunities for regulatory arbitrage.

Treasury published an Advance Notice of Proposed Rulemaking (ANPRM) in September 2025 to gather stakeholder feedback. The current NPRM reflects that input and begins the formal rulemaking process.

Scope and Structure of the NPRM

The proposed rule would add a new Subchapter C to Title 12 of the CFR, containing:

  • Part 1520: Authority, purpose, and scope
  • Part 1521: Core principles for determining substantial similarity between state and federal regimes

Part 1521 is the key component of the proposal and sets out how Treasury will evaluate whether a state’s regime meets or exceeds the standards required by section 4(a) of the Act.

Defining the Federal Regulatory Framework

A central question addressed by the NPRM is what constitutes the “Federal regulatory framework.” Treasury proposes a definition that extends beyond the statute and includes:

  1. The GENIUS Act
  1. OCC regulations and formal interpretations published in the Federal Register
  1. Treasury regulations and guidance implementing BSA, sanctions, and technological compliance requirements under sections 4(a)(5) and (6)
  1. Federal Reserve Board rules implementing the Act’s anti-tying provisions under section 4(a)(8)

Treasury explains that relying solely on statutory text would leave significant gaps, particularly in prudential areas such as capital, liquidity, and reserve diversification, where implementing detail resides in agency rules. The OCC’s framework serves as the primary baseline for comparison because most state-qualified issuers are nonbanks that would transition to OCC oversight if they exceed the $10 billion threshold.

Uniform Requirements and State-Calibrated Flexibility

The NPRM distinguishes between two categories of requirements:

  • Uniform requirements: Areas where the Act provides no substantive discretion. State regimes must align with the federal framework. Examples include reserve asset requirements, AML/BSA/sanctions programs, and core disclosure and naming restrictions.
  • State-calibrated requirements: Areas where states may tailor standards if the outcomes are at least as robust as the federal model. These include capital requirements, certain governance provisions, and some risk management practices.

Appendix A maps each statutory requirement to one of these categories and provides a practical guide for state regulators.

Federal Law and State Qualified Issuers

Treasury reiterates that state-supervised issuers remain subject to all applicable federal statutory requirements unless the Act expressly provides otherwise. State regimes cannot authorize activities prohibited under federal law, and federal disclosure and naming restrictions apply universally. The goal is to maintain a consistent baseline of protections regardless of supervisory regime.

Principles, Flexibility, and Ongoing Supervision

States may impose requirements beyond the federal baseline as long as they do not conflict with federal law or undermine substantial similarity. Statutes, regulations, and enforceable guidance may all serve as vehicles for compliance.

The NPRM also addresses how future federal legislation or rule changes could interact with state frameworks and seeks comment on definitional issues, classification of requirements, and whether rules for foreign issuers should be incorporated.

Next Steps in the Rulemaking Process

Treasury is seeking comment on all aspects of the proposal, including the scope of the federal regulatory framework, the division of statutory requirements into uniform and state-calibrated categories, the degree of flexibility states should retain, and the practical criteria for assessing substantial similarity. Comments are due June 2, 2026, according to the Federal Register notice.

Outstanding Issues and Policy Implications

Although the NPRM clarifies core structural elements, several practical questions remain:

  1. Supervision and enforcement: The proposal emphasizes supervisory design but is less specific about how Treasury will evaluate the strength or consistency of state enforcement.
  1. Durability of certification: The NPRM does not detail how Treasury will monitor state regimes over time or under what conditions certifications may be revisited or withdrawn.
  1. Regulatory competition: Allowing state-level supervision may encourage innovation but could also create competitive pressures among states. The rigor with which Treasury applies the “meet or exceed” standard will be central to preventing regulatory arbitrage.
  1. Issuer threshold management: The NPRM explains the $10 billion transition point but does not address how Treasury might respond if issuers structure operations to remain within the state-qualified category.

Conclusion

Treasury’s proposed rule provides the first detailed framework for harmonizing state and federal oversight of stablecoin issuers under the GENIUS Act. Its two-tier structure, which combines uniform requirements with calibrated flexibility, reflects an effort to maintain consistent protections while supporting regulatory innovation. Stakeholders should review the proposal closely and consider submitting comments by the June 2, 2026 deadline.

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Recently, a federal judge in the Eastern District of Texas vacated FinCEN’s residential real estate rule (the “Rule”) finding that the agency exceeded its statutory authority under the Bank Secrecy Act (the “BSA”). Flowers Title Companies, LLC v. Bessent, Case No. 6:25-cv-127 (E.D. Tex. Mar. 19, 2026). Since finalization in 2024, the Rule has been subject to litigation in various jurisdictions. The Rule requires the collection and reporting of information to FinCEN in connection with transfers of residential real estate to entities and certain trusts that do not involve financing by a lender subject to anti-money laundering requirements under the BSA.

FinCEN’s website was subsequently updated with an alert indicating that “[i]n light of a federal court decision, reporting persons are not currently required to file real estate reports with FinCEN and are not subject to liability if they fail to do so while the order remains in force.”

While the decision affords reporting persons a reprieve from filing requirements, this is not likely the end for the real estate sector. FinCEN and the Financial Action Task Force (“FATF”) have long recognized anti-money laundering risks posed by the real estate market. We have previously blogged about FATF’s guidance related to the real estate sector here. 

Flowers Title Companies, LLC v. Bessent

The Plaintiffs challenged the Rule under the Administrative Procedures Act (“APA”), claiming that the Rule exceeded FinCEN’s statutory authority under the BSA. Plaintiffs alternatively claimed that if the BSA does authorize the Rule, then the BSA violates the “nondelegation doctrine” of the Commerce Clause, exceeds Congress’s enumerated powers, and violates the Fourth Amendment.

FinCEN relied on following two provisions of the BSA as justification of their authority to promulgate the Rule:

31 U.S.C. § 5318(g)(1)

Section 5318(g)(1) of the BSA states that FinCEN “may require financial institution, and any director, officer, employee, or agent of any financial institution, to report any suspicious transaction relevant to a possible violation of law or regulation.” FinCEN argues that non-financed transfers of residential real estate are a type of suspicious transaction that requires reporting.

The Court held that FinCEN failed to show how non-financed residential real estate transactions were categorically suspicious pursuant to 31 U.S.C. § 5319(g)(1). The Court acknowledged that there may be bad actors conducting suspicious non-financed real estate transactions, but that does not make them categorically suspicious, and FinCEN failed to provide sufficient evidence showing otherwise.

31 U.S.C. § 5318(a)(2)

Section 5318(a)(2) of the BSA states that FinCEN may “require a class of domestic financial institutions or nonfinancial trades or businesses to maintain appropriate procedures, including the collection and reporting of certain information[.]” The Court held that 31 USC § 5318(a)(2) does not provide FinCEN with the appropriate authority to adopt the Rule, but instead gives FinCEN the authority to require financial institutions to maintain procedures to comply with the BSA. 

The decision in Flowers differs from a recent Florida case where the Margistrate Judge’s Report and Recommendation concluded that FinCEN’s motion for summary judgment should be granted and that the Rule was statutorily authorized by the BSA. Fid. Nat’l Fin., Inc. v. Bessent, case No. 3:25-cv-554 (M.D. Fla. Dec. 9, 2025). FinCEN relied on similar statutory provisions as justification of the Rule.

At the time of the writing of this blog post, FinCEN had not filed a notice of appeal.

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MBaer Merchant Bank AG (“MBaer”) was recently designated a “primary money laundering concern” by the U.S. Department of the Treasury’s Financing Crimes Enforcement Network (“FinCEN”) pursuant to Section 311 of the PATRIOT Act.  

The Consequences

FinCen detailed its allegations against MBaer on February 26, 2026, in its Notice of Proposed Rulemaking (“NPRM”) where it proposed measures that, if implemented, would effectively ban MBaer from the U.S. financial system.  Specifically, the measures would:

  • Prevent U.S. financial institutions from opening or maintaining correspondent accounts for or on behalf of MBaer,
  • Require U.S. financial institutions to take reasonable steps not to process transactions if the transactions that involve MBaer,
  • Implement due diligence requirements that would guard against accounts being used to process MBaer transactions.  This would require that a covered financial institution notify any foreign correspondent account that MBaer cannot use the correspondent account and take reasonable steps to identify any use of its foreign accounts by MBaer, and
  • Require U.S. financial institutions to document compliance with the notifications requirement.

FinCEN is acting under Section 311 of the PATRIOT Act, which grants the Treasury Secretary the authority to impose “special measures” against a foreign financial institution if the Secretary finds the institution is a “primary money laundering concern.”

FinCEN’s proposal, special measure five, represents the most restrictive action available under Section 311. When imposed, it can effectively bar a foreign financial institution from accessing the U.S. dollar and the broader U.S. financial system. For institutions that depend on these channels, the consequences can be significant.  (See additional posts on FinCEN’s Section 311 actions linked here).

The Justification

FinCEN alleges this extreme measure is warranted here because MBaer has assisted with Venezuelan state-sponsored corruption; assisted with Russian and Iranian money laundering and has facilitated terrorist financing.

Indeed, FinCEN concluded that, “MBaer maintained a higher-risk customer base without implementing sufficiently mitigating controls that would prohibit such customers from engaging in illicit activities, and in some cases, deliberately acted to facilitate those illicit activities.”  For example, a former MBaer Vice Chairperson of the Board was accused of using MBaer to “launder proceeds of Venezuelan corruption[.]”  MBaer also attempted to conceal that it had retained Russian clients, despite Russia related sanctions.  MBaer is also accused of providing access to the U.S. financial system for persons “providing material support to Iran-related money laundering and terrorist financing efforts, including support to Iranian foreign terrorist organizations[.]”

FinCEN believes the fifth special measure will:

  • Close MBaer’s access to the U.S. financial system,
  • Inhibit MBaer’s ability to act as an illicit finance facilitator, and
  • Raise awareness of the ways illicit actors circumvent money laundering controls and international sanctions.

FinCEN considered less extreme measures to impose against MBaer but concluded that anything other than a complete prohibition would be ineffective.

The Impact

FinCEN’s proposed prohibition against MBaer may signal a willingness by the Trump Administration to sanction financial institutions to protect its foreign policy interests. Foreign financial institutions should be aware of President Trump’s regulatory expectations if they want to maintain their ability to access and participate in the U.S. financial system and should be particularly wary of doing business with those that the U.S. deems to be adverse to its national security interests.

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On March 10, 2026, FinCEN issued a renewed and expanded Geographic Targeting Order (GTO) imposing enhanced reporting and recordkeeping requirements on certain money services businesses (MSBs) operating along the Southwest border. According to FinCEN, the action is intended to support law enforcement efforts to disrupt money laundering and bulk‑cash movement tied to Mexico‑based drug cartels and other criminal networks. The new GTO is effective March 7, 2026, through September 2, 2026, and expands the geographic footprint of prior orders issued in March and September 2025.

Access the new GTO here. Read FinCEN’s press release here. This is a topic on which we previously have blogged extensively.

Scope of the Expanded Order

The GTO requires MSBs located in designated counties and ZIP codes in Arizona, California, New Mexico, and Texas to report cash transactions between $1,000 and $10,000. These reports must be filed on a Currency Transaction Report (CTR) within 30 days, an extension from the standard 15‑day CTR deadline. The GTO also requires MSBs to verify customer identity consistent with 31 C.F.R. § 1010.312 and to retain all related records for five years.

The Federal Register notice explains that FinCEN has determined additional reporting and recordkeeping requirements under this GTO are necessary to fulfill the objectives of the Bank Secrecy Act (BSA) and prevent attempts to evade its rules. The GTO also makes clear that it does not alter existing BSA obligations, including CTR and SAR filing requirements, but encourages voluntary SAR filings where activity appears designed to evade the new $1,000 threshold.

Expanded Coverage Area:

  • Arizona: Maricopa, Pima, Santa Cruz, and Yuma Counties
  • California: ZIP codes in Imperial County (92231, 92249, 92281, 92283) and San Diego County (91910, 92101, 92113, 92117, 92126, 92154, 92173)
  • New Mexico: Bernalillo, Doña Ana, and San Juan Counties
  • Texas: Cameron, El Paso, Hidalgo, Maverick, and Webb Counties

As with prior iterations, MSBs subject to ongoing injunctions remain temporarily exempt.

Why This Is Happening

FinCEN’s expanded GTO is part of a broader strategy to disrupt money laundering and other financial crimes tied to drug cartels and criminal organizations operating along the Southwest border. The agency views these enhanced reporting requirements as a practical way to give law enforcement better visibility into cash‑heavy transactions in areas known for elevated risk.

The Treasury Department has emphasized that addressing cartel‑related money flows remains a top priority. According to Treasury Secretary Scott Bessent, these efforts reflect the Administration’s commitment to removing drug‑trafficking profits from the U.S. financial system and equipping law enforcement with more timely information to target those responsible.

FinCEN anticipates that collecting more detailed transaction data through this order will help investigators uncover new leads and strengthen future prosecutions involving suspicious cash movements in vulnerable regions.

How This GTO Differs from Prior Orders

Compared to earlier Southwest border GTOs, the 2026 expansion introduces several notable updates. The most visible change is geographic: by adding Bernalillo, Doña Ana, and San Juan Counties in New Mexico, along with Maricopa and Pima Counties in Arizona, FinCEN has broadened its focus beyond the areas covered in past orders. Expanding the covered region likely reflects evolving patterns in cash movement or emerging law‑enforcement concerns along the border.

FinCEN’s explanation for the update also references cartel‑related financial flows more directly than in some previous orders. The agency links the expansion to risks associated with fentanyl trafficking and criminal organizations based in Mexico, offering a level of specificity that suggests these issues remain central to ongoing investigations.

Operationally, the GTO maintains the core reporting requirements of past iterations but places additional emphasis on communication and oversight. MSBs are now explicitly required to distribute the GTO to all business locations operating within affected counties or ZIP codes and to ensure that senior leadership is informed. This reinforces FinCEN’s continued focus on supervisory responsibility. For businesses with multiple locations or representatives in the covered areas, this may require renewed attention to consistent implementation, comprehensive training, and thorough documentation of compliance across all operations.

Key Requirements for MSBs

The GTO imposes several obligations on covered businesses, including:

  • Filing CTRs within 30 days for cash transactions between $1,000 and $10,000
  • Verifying customer identity in line with 31 C.F.R. § 1010.312
  • Retaining related records for five years after the GTO’s effective period ends
  • Ensuring that all business locations in the covered areas, and senior leadership, are informed about the requirements
  • Overseeing compliance across all levels of staff

FinCEN also advises MSBs to disregard any system warnings about transactions being “below $10,000” when submitting CTRs required under this GTO.

Compliance Period and Enforcement Considerations

MSBs newly captured by the expanded geographic scope have until April 6, 2026, to begin filing reports. All other covered MSBs must comply immediately.

Takeaways for Financial Institutions and Compliance Teams

The expanded GTO reflects FinCEN’s continued focus on Southwest border cash flows and its willingness to use GTO authority to obtain transaction‑level data outside the standard CTR regime. For MSBs, the GTO presents both operational and supervisory challenges:

  • Increased reporting volume for low‑dollar cash transactions
  • Heightened scrutiny of structuring and evasion indicators
  • Expanded agent‑level oversight obligations
  • Potential need to adjust onboarding, training, and monitoring workflows

For financial institutions more broadly, the GTO offers insight into FinCEN’s current risk priorities and may foreshadow future rulemaking or enforcement activity related to cash‑intensive MSB operations.

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At ETHDenver 2026, SEC Chairman Paul S. Atkins and Commissioner Hester M. Peirce outlined the agency’s current thinking on investor protection, innovation, and regulatory adaptation for cryptocurrencies and tokenized assets. Their conversation reflected both ongoing SEC priorities and the broader challenges that financial regulators face as technology continues to reshape capital markets.

Prioritizing Investor Protection

The SEC remains firmly committed to its central mission of investor protection. Atkins and Peirce highlighted that ensuring transparency is paramount—investors must have access to critical information needed for informed decisions. While crypto market volatility often grabs headlines, commissioners clarified that their focus is not on prices but on fair disclosure and empowering investors with reliable data. They emphasized the limits of regulatory intervention in market sentiment or valuations while underscoring the importance of providing fair access to information.

Fostering Innovation through Experimentation

The conversation signaled a growing openness at the SEC toward innovative approaches in finance, especially related to digital assets and tokenization. Commissioners discussed potential mechanisms like an “innovation exemption,” which could allow firms to experiment with novel technologies—including decentralized or automated trading platforms—within clear boundaries for limited periods. Pilot programs under such exemptions would keep risks manageable by imposing controls such as transaction volume limits. This approach allows emerging technologies to be tested safely, potentially informing future regulatory frameworks without compromising investor protection.

As an example, Atkins pointed to tokenization as holding significant promise for modernizing financial markets—potentially streamlining settlement cycles, enhancing collateral management efficiency, improving proxy voting processes, and supporting portfolio management innovations. The SEC appears prepared for these changes if they enhance system resilience or yield better outcomes for investors; however, commissioners stress careful development of new technologies alongside flexible but consistent oversight.

Advancing Regulatory Clarity & Interagency Coordination

To address uncertainties around digital asset regulation, the SEC has issued no-action letters, exemptive orders, guidance documents, and convened industry roundtables covering topics from custody solutions to DeFi protocols and privacy issues. The Commission is also collaborating more closely with other agencies—including joint efforts with the Commodity Futures Trading Commission (CFTC)—to harmonize rulemaking where asset classes straddle traditional finance and new digital ecosystems. These coordinated initiatives are designed to provide clearer guidance as innovation accelerates across market sectors.

Balancing Caution with Opportunity

Pragmatic caution underscores the commission’s optimism regarding financial technology advances; regulators acknowledge risks like disruptive shocks or unforeseen regulatory gaps even as they encourage gradual adoption of new tools. By fostering incremental adoption rather than picking technological winners directly, the agency aims to create an environment where responsible experimentation can thrive while minimizing negative side effects.

Adapting Anti-Money Laundering Oversight

New compliance technologies such as zero-knowledge proofs have potential implications for anti-money laundering (AML) efforts within crypto markets—they may enable firms to meet legal obligations without sacrificing user privacy entirely. The SEC indicated openness toward pilot exemptions that preserve essential controls (e.g., whitelisting), thereby helping reduce compliance costs while maintaining effective oversight over illicit activity risks—a balanced approach between personal privacy rights and robust AML enforcement.

Emerging Signals for the SEC’s Digital‑Asset Rulemaking Agenda

Beyond the broader themes, the ETHDenver remarks also offered a clearer view of the specific regulatory initiatives the SEC is considering. Atkins outlined a prospective set of priorities—including guidance on the lifecycle of token‑based investment contracts, pilot programs for limited on‑chain trading of tokenized securities, and joint SEC–CFTC rulemaking under the expanded “Project Crypto.” Peirce emphasized that any progress will be incremental, likely beginning with targeted relief, no‑action positions, and updates to functions such as transfer‑agent recordkeeping and broker‑dealer custody. For industry participants, the signal is that the SEC is exploring ways to permit controlled experimentation while grounding digital‑asset activity in longstanding securities‑law principles, including disclosure, market integrity, and AML and sanctions compliance. Although none of these items constitute policy, their specificity suggests the Commission is actively shaping a more durable, technology‑neutral framework for tokenized markets.

Conclusion: Responsible Evolution Through Collaboration

As presented by Atkins and Peirce at ETHDenver 2026: The SEC remains dedicated first and foremost to protecting investors but is increasingly coupling this mandate with support for measured experimentation in capital markets innovation. Today’s strategy emphasizes clarity across rulemaking bodies—incremental testing—and robust collaboration among regulators in response to rapid change brought by cryptocurrencies and tokenized assets alike. Ultimately, the commission upholds its dual responsibility: enabling responsible industry progress while safeguarding core principles of market integrity. If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch.  Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.

On February 13, 2025, FinCEN issued an order granting exceptive relief for covered financial institutions from certain Customer Due Diligence (“CDD”) requirements for new account openings. The exceptive relief is part of deregulation efforts, consistent with Executive Order 14192, “Unleashing Prosperity Through Deregulation,” and Section 6403(d) of the Corporate Transparency Act (the “CTA”).

What’s Covered by the Exceptive Relief?

The CDD rule requires covered financial institutions to identify and verify the beneficial owners of legal entity customers at account opening. Under the exceptive relief, FinCEN will now require covered financial institutions to obtain and verify the beneficial owners of legal entity customers:

  1. When a legal entity customer first opens an account;
  2. Any time the covered financial institution has knowledge that would reasonably call into question the reliability of beneficial ownership information that was previously provided; and
  3. As necessary for on-going CDD compliance. 

Covered financial institutions must still adhere to other Bank Secrecy Act/Anti-Money Laundering requirements, including all other CDD requirements.

Nothing precludes a covered financial institution from continuing the practice of collecting or verifying beneficial ownership at each new account opening or following the institution’s own risk-based policies and procedures. FinCEN highlights that it is “within the discretion of the covered financial institution” whether to avail themselves of this exceptive relief.

FinCEN’s Previous Guidance and Exceptive Relief Efforts

FinCEN noted that the exceptive relief was due, in part, to the industry’s reactions to previous relief efforts. Ultimately leading FinCEN to provide this broader relief.

FinCEN has previously issued guidance, allowing covered financial institutions to utilize previous beneficial ownership forms or information obtained from legal entity customers at new account openings, provided that the customer certified or confirmed that the information was still accurate and the financial institution had no knowledge calling into question the accuracy of the information. In addition, FinCEN previously provided exceptive relief to legal entity customers who open new accounts as a result of: a certificate of deposit rollover; a renewal, modification, or extension of a loan where there was no underwriting requirement or approval; a renewal, modification, or extension of a commercial line of credit or credit card account that does not require underwriting review and approval; or a renewal of a safe deposit box rental. This current exceptive relief supplements FinCEN’s previous guidance and exceptive relief.

Looking Ahead at the CDD Rule

The CTA promised revisions to the CDD rule to account for the changes made by the beneficial ownership information and access rules. FinCEN’s current rulemaking agenda lists a notice of proposed rulemaking slated for this Spring. Given the changes to the scope of the CTA, it is unclear how the CDD rule will be revised.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch.  Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.