Happy New Year! But while 2018 is still (just barely) with us, let’s take a look back.
2018 has been a very busy year in the world of money laundering and AML/BSA. We are highlighting 12 of our most-read blog posts, which address many of the key issues we’ve examined this year.
Kenneth Blanco, the Director of the Financial Crimes Enforcement Network (“FinCEN”), discussed last week several issues involving virtual currency during an address before the “2018 Chicago-Kent Block (Legal) Tech Conference” at the Chicago-Kent College of Law at Illinois Institute of Technology. Although some of his comments retread familiar ground, Blanco did offer some new insights, including the fact that FinCEN now receives over 1,500 Suspicious Activity Reports (“SARs”) a month relating to virtual currency.
Continue Reading FinCEN Director Addresses Virtual Currency and Touts Regulatory Leadership and Value of SAR Filings
The U.S. Department of Justice (“DOJ”) announced last week that it was disbanding the Financial Fraud Enforcement Task Force, established under the Obama Administration. In its place, pursuant to an Executive Order, the DOJ plans to establish the Task Force on Market Integrity and Consumer Fraud (“Task Force”). The purpose—according to a DOJ press
In a highly anticipated speech to the New York City Bar White Collar Crime Institute this morning, Deputy Attorney General Rod Rosenstein announced two new Department of Justice (“DOJ”) policies: first, a directive encouraging “coordination among Department
As we previously have blogged, the Financial Crimes Enforcement Network (“FinCEN”) became one of the first regulators to wade into the regulation of cryptocurrency when it released interpretive guidance in March 2013 stating that an administrator or exchanger of virtual currency is a Money Services Business (“MSB”). As a MSB, and according to FinCEN, an administrator or exchanger of virtual currency therefore is a “financial institution” subject to the Bank Secrecy Act (“BSA”) and its various AML-related requirements, unless a limitation or exemption applies. Accordingly, the Department of Justice has prosecuted operators of cryptocurrency exchanges for a failure to register with FinCEN as a MSB, and FinCEN has brought civil enforcement proceedings against such exchanges for alleged failures to maintain adequate AML programs and file required Suspicious Activity Reports (“SARS”), among other alleged BSA violations.
Recently, regulators of all stripes across the globe have been moving swiftly to regulate cryptocurrency in various ways (see here, here, here, here, here, here, here, here, and here). Indeed, the Securities and Exchange Commission (“SEC”) has been very vocal and aggressive in claiming that many if not all Initial Coin Offerings (“ICOs”) involving cryptocurrency represent securities subject to the jurisdiction and supervision of the SEC, and already has filed several enforcement proceedings involving ICOs. Moreover the SEC just yesterday issued a statement that it considers exchanges for cryptocurrency to also be subject to its jurisdiction. Likewise, the U.S. Commodity Futures Trading Commission (“CFTC”) has asserted that cryptocurrencies are commodities subject to its jurisdiction; this week, a federal court agreed with this assertion in a CFTC enforcement action. The CFTC claims that its jurisdiction reaches beyond cryptocurrency derivative products to fraud and manipulation in the underlying cryptocurrency spot markets.
But there is a potential problem with all of these regulators simultaneously rushing in to assert their respective power over cryptocurrency businesses, and it is a tension that does not seem to have attracted much public attention to date. Specifically, BSA regulations pertaining to the definition of a MSB, at 31 C.F.R. § 1010.100(ff)(8)(ii), flatly state that a MSB does not include the following:
A person registered with, and functionally regulated or examined by, the SEC or the CFTC, or a foreign financial agency that engages in financial activities that, if conducted in the United States, would require the foreign financial agency to be registered with the SEC or CFTC[.]
How can certain cryptocurrency businesses be subject to the claimed jurisdictions of FinCEN as well as the recent regulatory newcomers to this area, the SEC and the CFTC?
Continue Reading FinCEN Letter to U.S. Senate Committee on Finance Purports to Thread Needle of Potentially Competing Jurisdictions by Regulators over Cryptocurrencies
On February 23, the Financial Action Task Force (“FATF”) signaled that the inter-governmental body “will step up its efforts in monitoring the use of cryptocurrencies in money laundering.” While the 37-member international body remains without an official policy for implementation, the pronouncement nonetheless demonstrates the heightened Anti-Money Laundering (“AML”) concern from regulators across the globe concerning illicit uses of cryptocurrency.
Notably, the FATF’s pronouncement comes on the heels of recent enforcement-related measures taken in various countries. As we previously have blogged, the European Parliament and its executive arm, the European Council, recently agreed to an amendment to the Fourth Anti-Money Laundering Directive to include measures targeting exchange platforms for virtual currencies, such as Bitcoin, as well as prepaid cards. More recently, France’s top financial markets regulator issued a statement that online trading platforms for cryptocurrency derivatives fall under the European Union’s central legislation regulating financial markets. In the U.K., the Parliament’s Treasury Committee announced on February 22 that it has launched a probe to examine both the impact of cryptocurrencies on financial institutions and how best to police the new technology. Meanwhile, South Korea’s ban on anonymous trading of cryptocurrencies—part of the country’s new policies which represent the first AML guidelines for cryptocurrencies among the nations of the FATF—took effect on January 30.
Continue Reading Global Regulators to Maintain AML Pressure on the Cryptocurrency Industry
As the value of bitcoin continues to soar (USD:BTC this past weekend exceeded $19,000.00:1), we thought that now would be a good time to emphasize the need to ensure regulatory compliance with the many federal and state AML rules and regulations, in addition to those segmented across various countries. A caveat: This post is far from exhaustive, and before undertaking any investment in cryptocurrency, it would be wise to consult with an attorney familiar with the rules applicable to the cryptocurrency sector. Due to the nascency of the sector, the practical application of previously existing laws and regulations is rapidly evolving.
To begin, the notion that bitcoin and other digital tokens represent a currency only for criminals has been dispelled. Indeed, there is no question that investment in cryptocurrencies is inherently lawful and increasingly commonplace. In 2017 alone, investment in initial coin offerings, or token sales, has exceeded $1.5 billion; in a similar vein, the value of certain cryptocurrencies now exceeds a number of Fortune 50 companies. Most recently, CBOE and CME, the world’s largest futures exchange, launched bitcoin futures contracts.
With this in mind, and as we have written on this blog before (see here, here, here, here, here, here, here, here, and here), it is clear that regulators are moving aggressively to bring the cryptocurrency sector into the fold of existing rules and regulations. To be sure, applying these rules to the burgeoning sector has been like fitting a square peg in a round hole; a bedrock of the initial cryptocurrency boom was the promise of anonymity for its users. Conversely, identity verification is a bedrock of AML compliance.
Continue Reading Beyond Best Practices: Regulatory Compliance Now a Necessity in the Cryptocurrency Sector
As 2017 winds down, we are taking a look back at the first year of Money Laundering Watch.
We want to thank our many readers around the world who have made Money Laundering Watch such a success since we launched it less than a year ago. The feedback we receive from financial industry professionals, compliance
We are pleased to announce that Ballard Spahr has created a Virtual Currency Team. Our website is here; our team brochure is here.
Virtual currency is poised to revolutionize the way companies and people conduct business. But the development of new products and services is outpacing the regulatory and enforcement landscape, creating challenges
As the world now knows, an indictment against Paul Manafort, Jr., a former campaign chairperson for now-President Donald Trump, and Manafort’s associate, Richard Gates III, was unsealed yesterday. Brought by Special Counsel Robert S. Mueller, the indictment alleges that Manafort and Gates, while working as political consultants and lobbyists, acted as agents of the Government of Ukraine and other foreign entities; failed to properly register and report as such agents; generated tens of millions of dollars from this work; laundered these earnings through various U.S. and foreign entities and bank accounts; and hid these same earnings from the Internal Revenue Service (“IRS”) and the Financial Crimes Enforcement Network (“FinCEN”).
This post will discuss some legal aspects of the specific charges. This post will not delve into any potential political ramifications of the indictment, or speculate as to what the indictment may or may not supposedly reveal regarding the work of the Special Counsel in general. Standing alone, the indictment is a fascinating document for those interested in money laundering and international tax evasion issues, and highlights the potentially powerful overlap of money laundering charges, tax fraud charges, and alleged violations of the Bank Secrecy Act (“BSA”).
In particular, we will discuss: