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FinCEN Provides Guidance on Convertible Virtual Currencies, Issues Advisory on Illicit Activity

joseph.moreno@cwt.com's picture
Commentary by Joseph Moreno

The Financial Crimes Enforcement Network ("FinCEN") provided guidance on the application of Bank Secrecy Act money transmission regulations to business models involving convertible virtual currencies ("CVCs"). FinCEN also issued an advisory to assist financial institutions in identifying and reporting suspicious activity relating to the use of CVC technologies for criminal purposes.

FinCEN said its guidance on CVCs does not introduce any new requirements. The guidance was created to consolidate rules, administrative rulings and guidance issued since 2011 that apply to business models involving CVCs, including peer-to-peer ("P2P") exchangers and cryptocurrency wallet providers.

Separately, FinCEN warned financial institutions of ways in which bad actors may use CVCs for money laundering, sanctions evasion and other illicit activities. FinCEN also identified red flags that typically indicate illicit conduct in darknet marketplaces (i.e., websites that require specific software access), unregistered P2P exchangers, foreign-located money service businesses and CVC kiosks.

FinCEN noted that, when investigating illicit CVC-related conduct and capturing it in a suspicious activity report, it is especially helpful for financial institutions to provide certain information to law enforcement, including:

  • virtual currency wallet addresses;

  • account information;

  • transaction details;

  • relevant transaction history;

  • available login information (including IP addresses);

  • mobile device information (such as device IMEI); and

  • information from the customer’s public online profile and communications.

Commentary

As FinCEN points out, this latest publication is less of a new development and more an aggregation of CVC-related regulations, guidance, and rulings going back nearly a decade. Still, coupled with the latest advisory on illicit activity, the two are extremely useful resources in assisting Bank Secrecy Act-regulated financial institutions in understanding what is expected of them and helping to identify and report suspicious activity. It is also a good opportunity for Money Services Businesses in the CVC to ensure their AML/CFT compliance programs are in line with the latest guidance from the Treasury Department as it relates to this constantly-changing technology.

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