The Bank Secrecy Act (BSA), officially known as the Currency and Foreign Transactions Reporting Act, was enacted by the United States Congress in 1970 as the first significant legislation to combat money laundering. The Act was designed to deter criminal activity by requiring financial institutions to maintain records of cash purchases and report certain transactions. Crypto Criminal Defense Blog
In 2013, the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury, declared that "administrators or exchangers" of virtual currency qualify as money services businesses (MSBs) under the BSA and FinCEN regulations. According to FinCEN's guidance document, an "exchanger" is defined as a person or entity engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency. An "administrator" is a person or entity engaged as a business in issuing a virtual currency and who has the authority to redeem such currency. Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies
The BSA requires all MSBs, including those that exchange or transmit virtual currencies, to register with FinCEN. This requirement extends to any "person or entity engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency." This means that cryptocurrency intermediaries, such as exchanges and wallet providers, are subject to the same regulatory requirements as traditional financial institutions.
An administrator or exchanger that (1) accepts and transmits a convertible virtual currency or (2) buys or sells convertible virtual currency for any reason is a money transmitter under FinCEN's regulations, unless a limitation to or exemption from the definition applies to the person. FinCEN's regulations define the term "money transmitter" as a person that provides money transmission services, or any other person engaged in the transfer of funds. The term "money transmission services" means "the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means." Application of FinCEN's Regulations to Persons Administering, Exchanging, or Using Virtual Currencies.
In 2020, FinCEN further clarified that the anti-money laundering (AML) requirements placed on other MSBs also applied to "decentralized finance" (DeFi). DeFi refers to blockchain-based finance that removes central authorities like banks and exchanges. This means that DeFi platforms, despite their decentralized nature, are also subject to the BSA's AML and Know Your Customer (KYC) requirements. Illicit Finance Risk Assessment of Decentralized Finance
The implications of these regulations are profound for the cryptocurrency industry. Cryptocurrency intermediaries must now implement robust AML and KYC procedures to comply with the BSA. These procedures include verifying the identity of their customers, monitoring transactions for suspicious activity, and reporting large transactions to FinCEN.
This blog post was prepared with the assistance of ChatGPT-4 AI. Nothing in this post should be considered legal advice or the creation of an attorney-client relationship. This blog is strictly for informational purposes only.