The U.S. Anti-Money Laundering and Combating the Financing of Terrorism laws: Where will these updates lead the crypto space?
Against great push back from the crypto industry and as the price of Bitcoin (BTC) reached new all-time highs several times during the last couple of months, the United States has updated its cryptocurrency Anti-Money Laundering/Combating the Financing of Terrorism laws.
The Anti-Money Laundering Act of 2020 and the Corporate Transparency Act
Last December, the Senate approved the National Defense Authorization Act and, as part of that legislation, passed the Anti-Money Laundering Act of 2020 and the Corporate Transparency Act.
The Act’s provisions broaden and update the Bank Secrecy Act, or BSA, and the U.S. AML/CFT regime by:
- Codifying existing FinCEN guidance related to digital currencies by expanding and modifying several definitions and provisions within the BSA to encompass “value that substitutes for currency.” Thereby, it requires businesses that operate with cryptocurrency to qualify as money transmitters to register with the Financial Crimes Enforcement Network and establish reporting and recordkeeping requirements for transactions involving certain types of digital currencies as detailed in proposed regulations issued by FINCEN (see below).
- Requiring many smaller companies to disclose beneficial ownership information to FinCEN.
- Prohibiting a person from knowingly concealing or attempting to concealing, falsifying or misrepresenting, from or to a financial institution, a material fact concerning the ownership or control of assets involved in a monetary transaction if “(1) the person or entity who owns or controls the assets is a senior foreign political figure, or any immediate family member or close associate of a senior foreign political figure” and “(2) the aggregate value of the assets involved in 1 or more monetary transactions is not less than $1,000,000.”
- Creating awards to whistleblowers — up to 30% of monetary penalties recovered from an entity where the tip led to penalties over $1 million — who report actionable information about BSA AML/CFT violations.
Proposed AML/CFT cryptocurrency regulations
At the end of last year, the U.S. Treasury Department’s Financial Crimes Enforcement Network also issued proposed regulations looking to subject convertible digital currency or digital asset transactions to similar AML/CFT reporting requirements placed on other financial institutions by the BSA.
The new regulations, if adopted, would require entities covered by AML/CFT, including payments involving “unhosted wallets” (not held by a third-party financial system), to obtain and report the identities of parties engaging in cryptocurrency transactions if the transaction exceeds $3,000.
This information would include:
- The name and address of the financial institution’s customer.
- The type of cryptocurrency used in the transaction.
- The amount of cryptocurrency in the transaction.
- The time of the transaction.
- The assessed value of the transaction, in U.S. dollars, based on the prevailing exchange rate at the time of the transaction.
- Any payment instructions received from the financial institution’s customer.
- The name and physical address of each counterparty to the transaction of the financial institution’s customer.
- Other counterparty information the secretary may prescribe as mandatory on the reporting form.
- Any other information that uniquely identifies the transaction, the accounts and, to the extent reasonably available, the parties involved.
- Any form relating to the transaction that is completed or signed by the financial institution’s customer.
The new regulations will also require banks and money service businesses to report the same information for cryptocurrency transactions above $10,000 to FinCEN 15 days from the date on which a reportable transaction occurs. Structuring transactions to avoid the reporting requirements is strictly prohibited under the proposed rules.
According to an official press release, Secretary Steven Mnuchin explained:
“This rule addresses substantial national security concerns in the CVC [convertible virtual currency] market, and aims to close the gaps that malign actors seek to exploit in the recordkeeping and reporting regime.”
As a result of the COVID-19 pandemic, governments around the world have been forced to focus on integrating blockchain technology into their financial services. As Secretary Mnuchin added:
“The rule, which applies to financial institutions and is consistent with existing requirements, is intended to protect national security, assist law enforcement, and increase transparency while minimizing impact on responsible innovation.”
Separately, FinCEN announced its intention to amend the BSA’s Foreign Bank and Financial Accounts regulations to mandate U.S. individuals and entities to report cryptocurrency as part of their foreign financial accounts if they have more than $10,000 in cryptocurrencies with foreign financial or digital asset service providers.
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