On March 6, 2018, the Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) released its response to Senator Ron Wyden’s (D-OR) request for information relating to FinCEN’s oversight and enforcement of virtual currency activities.  In the letter, FinCEN outlined its intent to regulate certain operators of initial coin offerings (“ICOs”) as money transmitters subject to Bank Secrecy Act (“BSA”) requirements.

Considering FinCEN’s regulatory approach to virtual currencies since 2011, it comes as no surprise that it has decided to apply the BSA and anti-money laundering/combating the financing of terrorism (“AML/CFT”) regulatory compliance framework to ICOs.  FinCEN amended the BSA’s definition of money service businesses (“MSBs”) in 2011 to accommodate virtual currency exchangers and administrators.  In 2013, the agency issued interpretive guidance clarifying that virtual currency exchangers and administrators are considered money transmitters that are required to comply with the BSA and its implementing regulations.¹  In 2014, FinCEN specified that harvesters of virtual currency that engage in activity constituting acceptance and transmission of currency are considered money transmitters and, therefore, must comply with the BSA.

FinCEN’s treatment of ICOs, however, can depend on the “facts and circumstances of each case” and is open to some interpretation.  The agency stated that “[t]he application of AML/CFT obligations to participants in ICOs will depend on the nature of the financial activity involved in any particular ICO.”

FinCEN also stated that it will coordinate enforcement of AML/CFT obligations on ICOs with the Securities Exchange Commission (“SEC”) and the Commodities Futures Trading Commission (“CFTC”).  As a general matter, those that deal in securities and participate in an ICO would implicate SEC authority, while those that broker commodities would fall under CFTC authority.

1. As money transmitters, virtual currency exchangers and administrators are required to, among other things, register with FinCEN as a MSB, develop a written AML compliance program, file suspicious activity and currency transaction reports, and adhere to know-your-customer (“KYC”) requirements in accordance with the BSA.