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Evan Abrams counsels multinational corporations, financial institutions, and individuals on various international regulatory and compliance matters. He assists foreign and domestic companies in navigating national security reviews by the Committee on Foreign Investment in the United States (CFIUS). He has represented companies in industries including semiconductors, metals, and digital security. Evan’s anti-money laundering (AML) practice focuses on helping financial institutions comply with federal and state AML rules, particularly money transmitters and entities involved in creating, exchanging, or dealing in cryptocurrencies and tokens. Evan counsels clients in a variety of export controls and sanctions matters related to the Export Administration Regulations (EAR), International Traffic in Arms Regulations (ITAR), and various sanctions programs under US and international law. In addition, Evan routinely assists clients on anti-corruption investigations and enforcement actions.

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On September 16, 2020, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) published an advanced notice of proposed rulemaking (ANPRM) seeking comments on regulatory changes to enhance the effectiveness of anti-money laundering compliance programs of regulated financial institutions. As described in FinCEN’s press release, the ANPRM presents an opportunity for financial institutions to provide comments on “a wide range of questions pertaining to potential regulatory amendments under the Bank Secrecy Act (BSA).” While FinCEN has published a number of rules in recent years through formal notice and comment procedures, the rules have been fairly targeted to issues such as customer due diligence. FinCEN has also issued a number of guidance documents, including guidance applying FinCEN’s rules to certain entities in the blockchain industry, but did not accept public comments from industry at the time. Therefore, the publication of the ANPRM presents a relatively rare opportunity for regulated entities to be heard on a range of AML programmatic and compliance issues.

Continue Reading FinCEN Seeks Comments on Effectiveness of AML Programs, Presenting Rare Opportunity for FinTech and Blockchain Companies

As regulators from across the US government continue to grapple with the rapid expansion of financial technology (FinTech) and digital assets, the Office of the Comptroller of the Currency (OCC) has adopted a welcoming position toward such technology and taken three recent steps with the potential to significantly benefit industry. First, the OCC is planning to propose a new national bank charter for payments companies, including those dealing with digital assets, that may allow such companies to obtain a single national license rather than licenses in each state in which they operate. Second, on July 22, 2020, the OCC issued an interpretive letter clarifying that national banks and federal savings associations may provide cryptocurrency custody solutions on behalf of their customers. Third, on June 4, 2020, the OCC issued an advanced notice of proposed rulemaking (ANPR) seeking comments on the digital activities of national banks and federal savings associations. All three developments have the potential for significant, positive impact on industry.

Continue Reading OCC Leans Forward on FinTech and Digital Assets

On June 24, the five-year anniversary of New York’s virtual currency licensing regime known as the BitLicense, the New York Department Financial Services (DFS) published new guidance and FAQs related to approval for use of specific currencies and the licensing process, as well as a proposed conditional licensing framework. The measures offer important insight for companies holding or considering applying for a BitLicense and represent the most significant changes and proposed changes since the regulation’s initial issuance in 2015.

Guidance for Adoption or Listing of Virtual Currencies

Under the BitLicense regime, licensees and approved charter holders under the New York Banking Law (collectively, “VC Entities”) are required include virtual currencies (“coins”) they plan to “list” in their initial application to DFS. Historically, in order to list new assets VC Entities were required to go back to DFS to seek approval. Given the proliferation in coins available over the past five years this became a cumbersome and time-consuming system. In order to remedy this issue, in December of 2019, DFS issued proposed guidance to allow licensees to “offer and use new coins in a timely and prudent manner.” After receiving public comments, DFS has now published final guidance creating “two separate frameworks designed to enhance speed and efficiency in a VC Entity’s adoption or listing of coins.” These two frameworks include (1) “a general framework for a VC Entity’s creation of a firm-specific policy for the adoption or listing of a new coin, without DFS’s prior approval, through the process of self-certification” and (2) “a general framework for the process of Greenlisting coins for wider usage.”

Continue Reading New York Publishes New Guidance and Proposed Changes to BitLicense on Five-Year Anniversary

In his testimony before the Senate Finance Committee, on February 12, Treasury Secretary Steven Mnuchin stated that the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) will soon release new regulations related to cryptocurrency. FinCEN is responsible for issuing and implementing anti-money laundering (AML) and counter-terrorist financing (CTF) regulations applicable to certain US financial institutions. According to Secretary Mnuchin:

We’re spending a lot of time on the issue of cryptocurrencies and digital payment systems …. on pure cryptocurrencies like Bitcoin, and there are others, we want to make sure that these are not used as the equivalent of secret bank accounts. So, we are working with FinCEN, and we will be rolling out new regulations to be very clear on greater transparency so that law enforcement can see where the money is going and that this isn’t used for money laundering.

FinCEN previously issued guidance on virtual currency in 2013 and 2019, which clarify how FinCEN’s existing rules for money services businesses, or MSBs, apply to “administrators,” “exchangers,” and “users” of what the agency calls “convertible virtual currency.” The MSB rules apply to certain persons dealing in fiat currency, convertible virtual currency, and other “value that substitutes for currency,” but does not treat MSBs dealing in convertible virtual currency differently than other types of MSBs. Therefore, if FinCEN were to issue new regulations specifically addressing cryptocurrencies or digital assets more broadly, such regulations would be a first of its kind.

Continue Reading Secretary Mnuchin Indicates New Cryptocurrency Regulations are Coming

On November 15, Director Kenneth Blanco of the Financial Crimes Enforcement Network (FinCEN) offered his most extensive remarks on blockchain since the agency’s release of updated guidance in May. Speaking at the Chainalysis Blockchain Symposium, Director Blanco offered a number of insights on FinCEN’s current priorities and industry trends.

Suspicious Activity Reports

According to Director Blanco, since the publication of FinCEN’s guidance in May, the agency has received over 10,000 suspicious activity reports (SARs) related to convertible virtual currency (CVC) with 6,600 of those SARs filed by CVC-related businesses, including exchanges and kiosks. Director Blanco noted that this was a significant increase in SAR volume, particularly from CVC-related businesses, and included SARs from dozens of businesses that had never filed a SAR with FinCEN prior to the publication of the guidance.

Director Blanco also highlighted a couple of trends in SAR reporting. The first is SARs related to “potential unregistered, foreign-located money services businesses (MSBs), specifically, Venezuela-based P2P exchangers.” A foreign-located MSB is required to register with FinCEN if it conducts business in whole or in “substantial part” in the United States. (Determining precisely what constitutes “substantial part” continues to be an area of uncertainty for industry, which Director Blanco did not address.) A second trend was CVC kiosk operators reporting on “activity indicative of scam victims upon identification of new customers who have limited knowledge of convertible virtual currencies, particularly those in vulnerable populations, including the elderly.”

Continue Reading FinCEN Director Offers Most Extensive Remarks on Blockchain Since Agency’s New Guidance

On October 11, the leaders of the Commodities Futures Trading Commission (CFTC), Financial Crimes Enforcement Network (FinCEN), and the Securities and Exchange Commission (SEC) issued a joint statement regarding anti-money laundering (AML) compliance for persons engaged in certain activities involving digital assets. While the statement largely reaffirms known agency guidance and existing regulations, it is noteworthy for a number of reasons.

First, the joint statement, issued from multiple regulators, is the first of its kind in the digital asset space with respect to AML and may indicate an intent of regulators to show that their approach to AML compliance is aligned and to coordinate more closely on AML compliance going forward. While each of the three regulators has published guidance regarding digital assets and has engaged in related enforcement actions, there has not been any public indication to date that such efforts have been coordinated across agencies.

Continue Reading US Regulators Issue Joint Statement on AML Compliance Involving Digital Assets

On April 3, the US Securities and Exchange Commission (SEC) provided important guidance for token issuers. The SEC Division of Corporation Finance issued a No-Action Letter dated April 3 regarding TurnKey Jet, Inc. (the “TurnKey No-Action Letter”) in which the SEC staff confirmed that it would take no action against Turnkey Jet, Inc. (TKJ) for selling tokens without registration. This guidance is most relevant to token issuers who are focused on commercial utility and record-keeping benefits in a centrally controlled network and are willing to minimize or eliminate the profit elements of the token. The TurnKey No-Action Letter, taken together with the Framework for “Investment Contract” Analysis of Digital Assets (“Framework”) issued by the SEC’s Strategic Hub for Innovation and Financial Technology on the same date, offers guidance for structuring the elements of a private, permissioned, centralized blockchain token and network.[1] 
Continue Reading TurnKey Token Gets to Fly: SEC Issues First No-Action Letter for Token Sale

Long awaited guidance from the US Securities and Exchange Commission (SEC) on application of the Howey test to digital assets came on April 3 in the form of a Framework for “Investment Contract” Analysis of Digital Assets (“Framework”) and a No-Action Letter regarding TurnKey Jet, Inc. (the “TurnKey No-Action Letter”). These two documents are best understood as part of a trilogy with the June 2018 Hinman speech.

The Framework offers the clearest indication yet of the SEC staff’s thinking on the Howey test, with the TurnKey No-Action Letter and the Hinman speech providing examples of where a digital asset fails to meet a necessary element of the test. For purposes of clarity, it helps to think of the Howey test as having four elements:  (1) an investment of money (2) in a common enterprise (3) with a reasonable expectation of profits (4) derived from the efforts of others.[1]

The first two prongs are essentially throwaways inasmuch as the Framework devotes only three sentences to them in total. SEC staff note that these prongs are “typically satisfied” in evaluating digital assets. On the other hand, the Framework pays significant attention to the third and fourth elements.
Continue Reading SEC Smooths Out Digital Assets Turbulence With Further Guidance

The Global Blockchain Business Council (GBBC) recently published its 2019 Annual Report, “Beyond the Hype: Building Blockchains for Real World.” The report provides a comprehensive update on the global regulatory landscape surrounding blockchain technology along with an overview of some of the blockchain solutions being built by GBBC members.

Steptoe authored an overall insights piece,

Last month the Texas Department of Banking published an updated supervisory memorandum discussing the application of the state’s money transmitter law to digital assets.  Nearly every state has a money transmitter statute regulating businesses engaged in the transfer of money within that state, but states vary considerably with respect to how their laws apply to digital assets.  A number of states, including Texas, have taken the position that their money transmitter laws apply only to fiat currency and not cryptocurrency.  Such laws might still apply to a cryptocurrency company, for example one that exchanges cryptocurrency for fiat currency, but don’t govern companies that do not offer fiat-based services.
Continue Reading A Regulatory Fork for Stablecoins: Is New Texas Guidance a Sign of Things to Come?