Digital Currency | Federal Rules and Guidance: Regulatory Enforcement | AML/CFT

Digital Currency | Federal Rules and Guidance: Regulatory Enforcement | AML/CFT

Date Agency / Government Entity Type of Guidance Main Issue(s) Addressed Title Description
4/18/2019 FinCEN Civil Penalty Regulatory Enforcement
– AML/CFT		 In the Matter of Eric Powers, Assessment of Civil Money Penalty
Press Release: FinCEN Penalizes Peer-to-Peer Virtual Currency Exchanger for Violations of Anti- Money Laundering Laws		 FinCEN assessed a $35,350 civil money penalty against Eric Powers for willfully violating the Bank Secrecy Act’s (BSA) registration, program, and reporting requirements, in the first enforcement action against a peer-to-peer exchanger of virtual currency. As “money transmitters”, peer-to-peer exchangers are required to comply with the BSA obligations that apply to money services businesses (MSBs). Powers failed to register as an MSB, had no written policies or procedures for ensuring compliance with the BSA, and failed to file suspicious activity reports (SARs) and currency transaction reports (CTRs).
4/8/2019 DOJ Prison Sentence Regulatory Enforcement
– AML/CFT		 USA v. Campos, Docket No. 3:18- cr-13554 (S.D. Cal. Aug 09, 2018)
Order of Criminal Forfeiture		 Jacob Burrell Campos, who pleaded guilty to operating an unregistered Bitcoin exchange on October 29, 2018, was sentenced to two years in prison and required to forfeit $823,357.
Press Release: Bitcoin Dealer Sentence to Two Years in Prison and Ordered to Forfeit Ill-Gotten Gains
11/15/2018 FinCEN Geographic Targeting Order Regulation – AML/CFT Geographic Targeting Order
Frequently Asked Questions regarding the GTO		 The revised Geographic Targeting Order (GTO) requiring
U.S. title insurance companies to identify the natural persons behind shell companies used in all-cash purchases of residential real property for $300,000 or more in the metropolitan areas of Boston, Chicago, Dallas-Fort Worth, Honolulu, Las Vegas, Los Angeles, Miami, New York City, San Antonio, San Diego, San Francisco, and Seattle, issued on November 15, added virtual currency to the forms of payment required to be reported as part of all-cash purchases.
10/11/2018 FinCEN Advisory Regulation – AML/CFT Advisory on the Iranian Regime’s Illicit and Malign Activities and Attempts to Exploit the Financial System The FinCEN Advisory on the Iranian Regime’s Illicit and Malign Activities and Attempts to Exploit the Financial System, issued prior to the full re- imposition of economic sanctions on Iran on November 5, 2018, included Iran’s use of virtual currency as a potential avenue for sanctions evasion. It advised institutions to consider reviewing blockchain ledgers for activity that may originate or terminate in Iran, and warned that financial institutions and virtual currency providers that have Bank Secrecy act and
U.S. sanctions obligations should be aware of and have appropriate systems to comply with all relevant sanctions requirements and AML/CFT obligations.
9/27/2018 SEC CFTC Enforcement Action Regulation – Securities & Futures
Regulatory Enforcement
– AML/CFT		 SEC: Securities and Exchange Commission v. 1pool Ltd. et al, Docket No. 1:18-cv-02244 (D.D.C. Sept. 27, 2018)
SEC Press Release: SEC Charges Bitcoin- Funded Securities Dealer and CEO
Commodity Futures Trading Commission
v. 1pool Ltd. et al,		 The SEC and the CFTC each announced the filing of charges against 1pool Ltd., registered in the Republic of the Marshall Islands, and its Austria-based CEO. The SEC charged violations of the federal securities laws in connection with security-based swaps funded with bitcoins, seeking permanent injunctions, disgorgement plus interest, and penalties. The CFTC charged engaging in unlawful retail commodity transactions, failing
Docket No. 1:18- cv-02243 (D.D.C. Sept. 27, 2018)
CFTC Press Release: CFTC Charges Trading Platform with Illegal Transactions Margined in Bitcoin, Failing to Implement Procedures to Prevent Money-Laundering, and Failing to Register with the CFTC		 to register as a Futures Commission Merchant, and supervisory violations for failing to implement procedures to prevent money laundering.
8/9/2018 FinCEN Speech Regulation – AML/CFT Prepared Remarks of FinCEN Director Kenneth A. Blanco, delivered at the 2018 Chicago-Kent Block (Legal) Tech Conference FinCEN Director Kenneth Blanco delivered remarks at a conference that discussed how FinCEN is approaching virtual currency and financial innovation, and the value of Bank Secrecy Act (BSA) filings received from financial institutions, including exchangers in virtual currencies.
Emphasizing FinCEN’s role to protect and secure the U.S. financial system from those who seek to misuse important technological advancements for nefarious purposes, he described FinCEN’s relevant actions over the years, which began with a 2011 final rule amending the definitions and other regulations relating to MSBs providing that money transmission covers the acceptance and transmission of value that substitutes for currency, and continued with FinCEN’s 2013 guidance on the application of FinCEN’s regulations to persons administering, exchanging, or using virtual currencies, and six administrative rulings in
2014-15. FinCEN also is working closely with federal regulatory colleagues including the SEC and CFTC on coordinated policy development addressing risks including potential illicit finance and fraud surrounding ICOs. He stated, “While ICO arrangements vary and, depending on their structure, may be subject to
different authorities, one fact remains absolute: FinCEN, and our partners at the SEC and CFTC, expect businesses involved in ICOs to meet all of their AML/CFT obligations. We remain committed to taking appropriate action when these obligations are not prioritized, and the U.S. financial system is put at risk.”
FinCEN has worked to ensure that virtual currency money services businesses understand and comply with their regulatory obligations through effective supervisory examinations, conducted with the delegated BSA examiners at the IRS. FinCEN and the IRS have examined over 30 percent of all registered virtual currency exchangers and administrators since 2014, including a wide array of virtual currency businesses: virtual currency trading platforms, administrators, virtual currency kiosk (or ATM) companies, crypto-precious metals dealers, and individual peer-to-peer exchangers, focusing on both registered and unregistered exchanges. The goal is to ensure that all virtual currency money transmitters undergo regular, routine compliance examinations.
“We have been surprised to see financial institutions establish an adequate number of compliance staff and take appropriate steps to meet their regulatory requirements only after they receive notice. Let this message go out clearly today: This does not constitute compliance.
Compliance does not begin because you may get caught, or because you are about to be discovered. That is not a culture that protects our national security, our country, and our families. It is not a culture we will tolerate.”
The BTC-e enforcement action,
the first action against a foreign- located MSB and the most recent civil action involving virtual currency, was discussed as an example of FinCEN’s commitment to pursuing those failing to have even basic controls to prevent the use of their services for illicit purposes, and also as significant for the
$12 million civil money penalty against one of BTC-e’s administrators, the largest individual liability penalty FinCEN has assessed to date. FinCEN led the civil investigation and also partnered with law enforcement and Department of Justice colleagues who indicted and shuttered the exchange.
FinCEN will share its experience on cryptocurrency with foreign partners through the Egmont Group of Financial Intelligence Units (FIUs) and other international forums, with Director Blanco leading a special forum of FIU heads.
There has been a substantial increase in virtual currency SAR filings over the past few years, with FinCEN now receiving over 1,500 SARs per month describing suspicious activity involving virtual currency, with reports coming from both MSBs in the virtual currency industry itself and other financial institutions. The industry is developing new techniques for identifying suspicious activity in virtual currency, showing what is possible and giving unique insight into certain financial crimes. By helping identify and investigate this illicit activity, the industry can focus on legitimate applications and innovations, and stamp out negative perceptions of virtual currency as the coinage of the dark web and bad actors.
5/25/2017 Congress Proposed Legislation Regulation – AML/CFT S. 1241, Combating Money Laundering, Terrorist Financing, Bill to strengthen the Bank Secrecy Act and criminal money laundering statutes, including by
and Counterfeiting Act of 2017 amending 18 U.S.C. § 1960 and 31 U.S.C. § 5330 to extend the registration requirement for money transmitters and criminal penalties for unlicensed money transmitting businesses to money services businesses generally.
5/25/2017 DOJ Press Release Regulatory Enforcement
– AML/CFT		 Former Shreveport chiropractor, son sentenced for operating illegal bitcoin exchange business After pleading guilty to conspiracy to operate an unlicensed money services business, a defendant who had operated an unlicensed Bitcoin exchange received a 46 month prison sentence, and a co- defendant who also pleaded guilty to drug conspiracy for agreeing to distribute controlled dangerous substances received a 106 month prison sentence.
5/2/2017 DOJ Press Release Regulatory Enforcement
– AML/CFT		 Nixa Man Pleads Guilty to Illegal Bitcoin Exchange Guilty plea to charges of conducting an illegal money transmitting business by exchanging Bitcoin for cash without a license.
2/24/2016 DOJ Press Release Regulatory Enforcement
– AML/CFT		 Withdrawal of Finding and Notice of Proposed Rulemaking Regarding Liberty Reserve S.A. Withdrawal of the USA PATRIOT Act Section 311 finding that Liberty Reserve was a financial institution of primary money laundering concern and of the proposed rulemaking seeking to impose the fifth special measure under Section
311. FinCEN determined that Liberty Reserve was no longer a primary money laundering concern warranting the implementation of a Section 311 special measure after law enforcement action mitigating the money laundering risks associated with Liberty  Reserve.
5/6/2015 FinCEN Speech Regulatory Enforcement
– AML/CFT		 Remarks by Jennifer Shasky Calvery, Director, Financial Crimes Enforcement Network, at the West Coast AML Forum This speech was given one day after FinCEN announced its enforcement action against Ripple Labs, the first such  action against a digital currency business. Director Calvery emphasized that digital currency exchangers and administrators qualify as money services businesses, and that such businesses must comply with the BSA and its corresponding
regulations, including registering with FinCEN and implementing a reputable AML program — tasks Ripple Labs failed to accomplish.
5/5/2015 FinCEN Civil Enforcement Action Regulatory Enforcement
– AML/CFT		 FinCEN Fines Ripple Labs, Inc. in First Civil Enforcement Action Against a Virtual Currency Exchanger Ripple Labs, Inc. and its subsidiary XRP II, LLC, which provided virtual currency exchange services using its own virtual currency called XRP, agreed to a $700,000 civil monetary penalty for violating the Bank Secrecy Act, after a joint enforcement action by FinCEN and the U.S. Attorney’s Office for the Northern District of California. Ripple Labs acted as a virtual currency exchange, which constituted acting as a money transmitter, without registering as a Money Services Business (MSB) or establishing and maintaining an AML program, and XRP registered as an MSB when it took over this activity but failed to have an effective AML program.
5/28/2013 FinCEN Section 311 Finding Regulatory Enforcement
– AML/CFT		 Notice of Finding That Liberty Reserve S.A. Is a Financial Institution of Primary Money Laundering Concern Finding under Section 311 of the USA PATRIOT Act that Liberty Reserve S.A., a virtual currency money transfer system registered in Costa Rica, was a financial institution of primary money laundering concern.
Operating in New York since 2001, Liberty Reserve moved its registration to Costa Rica in 2006 to avoid AML requirements and the reach of
U.S. authorities. Liberty Reserve designed its money transfer system for anonymity and to facilitate money laundering, and it was extensively used by criminals to store, transfer and launder illicit proceeds. It was not designed for legitimate use, and there was no evidence that it was used in Costa Rica for any business purpose, legitimate or otherwise.
5/28/2013 FinCEN Section 311 Notice of Proposed Rulemaking Regulatory Enforcement
– AML/CFT		 Imposition of Special Measure against Liberty Reserve S.A. as a Financial Notice of proposed rulemaking to propose the imposition of a USA PATRIOT Act Section 311 special measure against Liberty
Institution of Primary Money Laundering Concern Reserve, a financial institution of primary money laundering concern. It proposed to impose the fifth special measure, prohibiting covered financial institutions from establishing, maintaining, administering or managing in the United States any correspondent account for or on behalf of a foreign bank if such correspondent account is being used to process transactions involving Liberty Reserve.