October 4, 2020
Companies regularly engaged with cryptocurrency often meet the criteria to be money services businesses (MSBs) under federal regulation and are required to implement anti-money laundering programs and ensure OFAC sanctions compliance. This article will explore why such businesses are often MSBs under federal law, what kinds of MSBs such businesses are, and the basics of these businesses’ anti-money laundering and OFAC sanctions compliance obligations.
The Blockchain Law Guide provides an overview of the basis for anti-money laundering and OFAC sanctions compliance obligations for businesses dealing regularly in cryptocurrency. Such businesses, The Blockchain Law Guide explains, are “money transmitters,” which are a type of MSB regulated by the Financial Crimes Enforcement Network (FinCEN). The Bank Secrecy Act establishes that an MSB “is subject to the federal anti-money laundering regulations” of FinCEN.
Guidance from FinCEN issued on March, 18, 2013 clarifies when dealing in cryptocurrency makes a “person” a money transmitter. A mere “user” of virtual currency is not an MSB, but “persons satisfying the following criteria, restated from the guidance in The Blockchain Law Guide, are money transmitters and thus MSBs:
The Blockchain Law Guide’s also lays out FinCEN’s requirements for MSB’s anti-money laundering programs, and thus the requirements for many businesses dealing regularly in cryptocurrency. Such programs must be written and “reasonably designed to prevent the MSB from being used to facilitate money laundering and the financing of terrorist activities”. Specifically, such businesses must “incorporate written policies, procedures and internal controls reasonably designed to assure ongoing compliance; (ii) designate an individual compliance officer responsible for assuring day to day compliance with the program and Bank Secrecy Act requirements; (iii) provide training for appropriate personnel, which specifically includes training in the detection of suspicious transactions; and (iv) provide for independent review to monitor and maintain an adequate program.” The Blockchain Law Guide also details money transmitters’ obligations to report suspicious transactions of $2,000 or more in a day, and what qualifies as “suspicious”.
As a final point, the overview explains these businesses OFAC sanctions compliance obligations, including the requirement to “confirm that their customers are not foreign nationals who are on the Specially Designated Nationals and Blocked Entities List (SDN List) of the US Department of the Treasury’s Office of Foreign Assets Control.” Moreover, MSBs are required to “block” or “freeze” “the assets of individuals and companies who are engaging in transactions with (i) countries that are subject to US economic sanctions (“blocked countries”), (ii) certain companies and entities that act as agents for such countries (blocked parties) and (iii) certain individuals that act as agents for such countries (specially designated individuals or SDNs).”
The Blockchain Law Guide rightly observes the importance of compliance programs to help crypto businesses who qualify as MSBs avoid penalties for non-compliance with OFAC and anti-money laundering obligations. I wholeheartedly agree. Any business regularly dealing in cryptocurrency should consult an attorney well-versed in the Bank Secrecy Act, FinCEN regulations, and OFAC sanctions regarding the set-up of anti-money laundering and OFAC sanctions compliance programs.