FinCEN Releases Letter Threatening U.S. Crypto Businesses; SEC Requires Exchanges To Register

Today FinCEN released a letter to  Senator Ron Wyden (D-OR) expressing how they interpret current  applicable laws and regulations, noting that in their eyes token  retailers (exchanges and ICOs) are money transmitters, CoinCenter.org reported. 

 “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,” FinCEN  wrote. 

Without a doubt, this is a highly consequential statement. To sum this  up, any group or individual developer who both (A) sold newly created  tokens to buyers (i.e. had an ICO) involving U.S. residents and  (B) 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, a person or group 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. 

It is incredibly difficult to decipher FinCEN’s interpretation. Only one  endnote is given to explain the agency’s legal reasoning: 

“See, FIN-2013-G001 (explaining that convertible virtual  currency administrators and exchangers are money transmitters under the  BSA), and FIN-2014-R001, Application of FinCEN’s Regulations to Virtual  Currency Mining Operations, January 30, 2014 (explaining that persons  that create units of virtual currency, such as miners, and use them in  the business of accepting and transmitting value are also money  transmitters).” 

 What this endnote does not tell us, however, is whether FinCEN  classifies these sellers as “exchanges” or “administrators,” two  distinct types of money transmitter identified by the 2013 guidance. 

 CoinCenter brings up two good points on this issue: 

 “There are compelling reasons why a developer selling a token is not an  administrator: they cannot both issue and redeem the tokens that they  sell, like a Bitcoin miner they merely put them into circulation and  cannot claw them back (assuming they have sold an actual decentralized  token and not some promise of future tokens). There are also good  reasons why a developer selling a token is not an exchanger. They may  sell but they do not do so as a business dedicated to exchange; they  sell as one individual or entity would sell any valuable investment or  commodity to another person, for their own purposes rather than to  provide third-party money transmission services between two customers or  people,” CoinCenter wrote. 

This comes as the regulatory environment in the U.S. is beginning to  heat up.  Last month, J. Christopher Giancarlo, chairman of the  Commodity Futures Trading Commission, and Jay Clayton, his counterpart  at the Securities and Exchange Commission (SEC), testified on Capitol Hill.  Both stated during the hearing that they were  “open” to federal regulation of cryptocurrency exchanges. 

Currently, cryptocurrency brokerages in the U.S. have generally  registered as “money-transmission services,” which are regulated at the  state level and do not fall under the direct purview of either the SEC  or the Commodity Futures Trading Commission (CFTC). 

Meanwhile, the U.S. Securities and Exchange Commission (SEC) recently launched  a probe into cryptocurrency businesses by issuing subpoenas and  information requests to advisers and technology companies active in the  United States’ cryptocurrency market. 

In more recent news for the SEC, the U.S. regulator has just announced  that it will require digital asset exchanges to register with the  agency, CNBC reported. 

This news has caused Bitcoin to plunge by as much as 10% since the news  broke. There is no word on what the SEC, FinCEN or any other regulatory  agency will do against decentralized exchanges. 

Bitcoin is currently trading at [FIAT: $9,803.56] down -9.10% at the time of this report according to Coin Market Cap. 

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