FinCEN Looks to Rein In Cryptocurrency Transactions

  • Comply with enhanced know-your-customer (KYC) and recordkeeping requirements for any transactions involving unhosted wallets (i.e., self-hosted, self-custodied, or private wallets) exceeding US$3,000, including information about the customer and the counterparty
  • File a Currency Transaction Report with FinCEN within 15 days for any transactions involving unhosted wallets exceeding US$10,000 in a 24-hour period, including information about the customer and the counterparty
  • Report multiple CVC and/or LTDA transactions involving a single person within a 24-hour period if exceeding US $10,000 in aggregate, across all of a bank or MSB’s offices and records, “wherever they may be located,” in order to preclude anonymous virtual currency transactions and illicit “structuring” (breaking large transactions into smaller ones to evade reporting requirements)
  • The Proposal would require companies to keep records of and report certain cryptocurrency transaction information beyond what is currently required for cash transactions.
  • There are significant technical barriers to requiring MSBs to collect KYC information for non-customers using unhosted wallets.
  • MSBs are not completely capable of determining whether a wallet is “hosted” or “unhosted,” and the Proposal may, therefore, force entities to develop a whitelist of “hosted” wallets, or worse, report information about all transactions to comply with the Proposal.
  • MSBs may have no existing ability to obtain and verify the identity of counterparties and persons associated with an unhosted wallet address with which the MSB’s customer wishes to transact.
  • The Proposal will incentivize cryptocurrency users to move away from regulated crypto transaction services and use non-custodial wallets or unregulated services outside the US to carry out transactions.
  • The Proposal could reduce FinCEN visibility and enforcement capability by indirectly reducing transparency of cryptocurrency transactions.
  • The Proposal would create an uneven playing field that will benefit more traditional financial institutions with more resources and established KYC and recordkeeping capabilities.
  • The Proposal could inhibit adoption of cryptocurrencies and stymie development and innovation.
  • The Proposal could cause US-based market participants to move operations and jobs offshore to avoid the requirements.
  • The Proposal could diminish America’s role and competitiveness in the digital asset space, leaving innovation to countries where greater access to blockchain technology is allowed.
  • The Proposal could compromise consumer privacy by requiring the collection of excess data and personally identifiable information.
  • The Proposal could undermine the financial inclusion benefits of the crypto economy.
  • The Proposal could significantly hinder fundraising by nonprofit and non-government organizations.
  • The Proposal is vague and introduces legal uncertainty (e.g., it is unclear whether customer IP addresses or blockchain addresses must be collected and reported along with names and addresses; it is unclear how smart contracts and DeFi platforms would be treated under the Proposal).
  • The Proposal fails to provide economic impact analysis and estimates for the cost of implementing the rule, contrary to common practice in proposed rulemaking.
  • The Proposal’s comment period is inadequate, and indicates a lack of earnestness on the part of the Treasury to engage with cryptocurrency market participants.
  • Finalization of the Proposal without a compliance phase-in period or delay of effectiveness will deny market participants the adequate runway needed to update internal controls, policies, and procedures.

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