ICOs Need To Register As Money Transmitters – FinCEN
The Financial Crimes Enforcement Network (FinCEN), a bureau within the US Department of the Treasury, has published a letter that indicates initial coin offerings (ICO) qualify as money transmitters, and as such, must be registered.
In the letter, which was sent to US Senator Ron Wyden in January, FinCEN’s assistant secretary for legislative affairs Drew Maloney confirmed that existing laws apply to ICOs. He said that that anti-money laundering/combating the financing of terrorism (AML/CFT) requirements apply to money services business (MSB) developers and exchangers, which should include ICOs.
“A developer that sells convertible virtual currency, including in the form of ICO coins or tokens, in exchange for another type of value that substitutes for currency is a money transmitter and must comply with AML/CFT requirements that apply to this type of MSB,” the letter reads. “An exchange that sells ICO coins or tokens, or exchanges them for other virtual currency, fiat currency, or other value that subsitutes for currency, would typically also be a money transmitter.”
Coincenter, the first site to publish the letter, said this was “a highly consequential interpretation.” Coin Center director of research Peter Van Valkenburgh said any group or individual developer who both sold newly created tokens to buyers (i.e. had an ICO) involving US residents and failed to register with FinCEN as a money transmitter, and perform the associated compliance KYC/AML obligations, can be charged under a federal felony criminal statute, 18 U.S.C § 1960, with unlicensed money transmission.
“If found guilty one could face up to five years in prison. Criminal liability may also extend to employees of, and investors in, the business that sold the tokens,” Van Valkenburgh said.
He also questioned whether it was appropriate for FinCEN to make this clarification in interpretation through a letter to a member of congress, rather than a public rulemaking or new legislation.
FinCEN, however, stressed that ICO arrangements vary. To the extent that an ICO is structured in a way that it involves an offering or sale of securities or derivatives, certain participants in the ICO could fall under the authority of the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC). In such a case, the AML/CFT requirements imposed by SEC or CFTC regulations would apply to such ICO participants.
“FinCEN is working closely with the [SEC] and the [CFTC] to clarify and enforce the AML/CFT obligations of businesses engaged in ICOs activities that implicate the regulatory authorities of these agencies,” Maloney said.
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