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William Byrnes (Texas A&M) tax & compliance articles

Application of Anti Money Laundering Regulations to Virtual Currencies like BITCOIN

Posted by William Byrnes on February 1, 2014


The Financial Crimes Enforcement Network (FinCEN) on Thursday published two administrative rulings, providing additional information on whether a person’s conduct related to convertible virtual currency brings them within the Bank Secrecy Act’s (BSA) definition of a money transmitter. The first ruling states that, to the extent a user creates or “mines” a convertible virtual currency solely for a user’s own purposes, the user is not a money transmitter under the BSA. The second states that a company purchasing and selling convertible virtual currency as an investment exclusively for the company’s benefit is not a money transmitter.

The rulings further interpret FinCEN’s March 18, 2013 Guidance Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies to address these business models. The Financial Crimes Enforcement Network (“FinCEN”) issued the March 18, 2013 interpretive guidance to clarify the applicability of the regulations implementing the Bank Secrecy Act (“BSA”) to persons creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies.

Currency vs. Virtual Currency

FinCEN’s regulations define currency (also referred to as “real” currency) as “the coin and paper money of the United States or of any other country that [i] is designated as legal tender and that [ii] circulates and [iii] is customarily used and accepted as a medium of exchange in the country of issuance.” In contrast to real currency, “virtual” currency is a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency. In particular, virtual currency does not have legal tender status in any jurisdiction. This guidance addresses “convertible” virtual currency. This type of virtual currency either has an equivalent value in real currency, or acts as a substitute for real currency.

FIN-2014-R001: Application of FinCEN’s Regulations to Virtual Currency Mining Operations (http://www.fincen.gov/news_room/rp/rulings/pdf/FIN-2014-R001.pdf)

FIN-2014-R002: Application of FinCEN’s Regulations to Virtual Currency Software Development and Certain Investment Activity (http://www.fincen.gov/news_room/rp/rulings/pdf/FIN-2014-R002.pdf)

book cover

LexisNexis’ Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide – This eBook is designed to provide the reader with accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources. The eBook is organized around five main themes: 1. Money Laundering Risk and Compliance; 2. The Law of Anti-Money Laundering and Compliance; 3. Criminal and Civil Forfeiture; 4. Compliance and 5. International Cooperation.

Each chapter is made up of five parts. Part I, “Introduction,” begins with the analysis of money laundering risks and compliance with the recommendations of the Financial Action Task Force (FATF), and then concludes with the country’s rating based on the International Narcotics Control Strategy Report (INCSR) of the U.S. State Department.  Part II, “Anti-Money Laundering and Combating Terrorist Financing (AML/CTF)” and Part III, “Criminal and Civil Forfeiture,” evaluate the judicial and legislative structures of the country. Given the increasing global dimension of AML/CTF activities, these sections give special attention to how a country has created statutes, decisions, policies and the judicial enforcement procedures needed to combat money laundering and terrorist financing. Part IV, “Compliance,” examines the most critical processes for the prevention and detection of money laundering and terrorist financing. This section reflects on the practical elements that should be in place so that financial institutions can comply with AML/CTF requirements; these are categorized into the development and implementation of internal controls, policies and procedures. Part V, “International Cooperation,” reviews the compilation of international laws and treaties between countries working together to combat money laundering and terrorist financing.

As these unlawful activities can occur in any given country, it is important to identify the international participants who are cooperating to develop methods to obstruct these criminal activities. – See more at: http://www.lexisnexis.com/store/catalog/booktemplate/productdetail.jsp;jsessionid=0AE5A4DFFE9101B2B8254B9E9191D6C7.psc1706_lnstore_001?pageName=relatedProducts&catId=&prodId=prod-us-ebook-01701-epub#sthash.prR4HmVX.dpuf

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