Anti-Money Laundering

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On October 11, 2022, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and Financial Crimes Enforcement Network (FinCEN) announced enforcement actions against Bittrex, Inc. (Bittrex), a privately-owned digital asset trading platform based in Bellevue, Washington, for apparent violations of anti-money laundering (AML) laws and of multiple sanctions programs. A settlement of over $24 million was announced by OFAC and a $29 million fine was announced by FinCEN. FinCEN will credit payment of the OFAC settlement amount toward Bittrex’s potential liability with FinCEN, meaning Bittrex will pay just over $29 million in total. Joint enforcement action between OFAC and FinCEN is uncommon—the settlements mark the first instance of parallel enforcement actions by OFAC and FinCEN in the digital asset sector.

The parallel settlements provide insight into certain sanctions and AML risks in the digital asset sector and illustrate how OFAC and FinCEN rules intersect and overlap in part: for example, that OFAC violations can trigger suspicious activity report filing obligations.…

Continue Reading OFAC and FinCEN Announce Enforcement Actions Against Bittrex

On August 1, Robinhood Crypto, LLC (RHC) entered a consent order with the New York State Department of Financial Services (DFS) requiring RHC to pay a $30 million fine for violating (1) New York’s virtual currency regulatory regime known as the BitLicense, (2) a Supervisory Agreement entered with DFS as a condition of its BitLicense, (3) anti-money laundering (AML) requirements applicable to money transmitters, and (4) other requirements related to transaction monitoring, filtering, and cybersecurity. The consent order, which is DFS’s first enforcement action under the BitLicense regime or against a digital currency business, offers several important takeaways for blockchain companies operating or seeking to operate in the state, including (1) the importance of scaling up compliance processes commensurate with business growth, (2) the risks of relying on compliance programs of affiliated entities, (3) the importance of well-developed reporting lines in compliance programs, and (4) the consequences of filing “improper” certifications under DFS’s transaction monitoring and cybersecurity rules.
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Continue Reading DFS’s First Enforcement Action Against a Blockchain Company: Lessons Learned

On March 19, 2021, the Financial Action Task Force (FATF), the global anti-money laundering standards-setting body, released draft guidance to clarify and supplement its 2019 guidance on a Risk-Based-Approach (RBA) to Virtual Assets (VAs) and Virtual Asset Service Providers (VASPs). While FATF’s guidance is not technically binding on member countries, it is broadly followed by such jurisdictions, in part to avoid inclusion on FATF’s lists of jurisdictions with deficiencies in their anti-money laundering (AML) and countering the financing of terrorism (CFT) regimes. For example, FATF’s recommendation that the so-called “travel rule” be applied to VASPs is being widely implemented by jurisdictions around the globe, although the pace of such implementation varies considerably. Therefore, the draft guidance, which incorporates a number of substantial changes and additions, may have a significant impact on industry going forward.

As described in a FATF press release, there are six main areas of focus for the draft guidance:

  1. “clarify the definitions of VA and VASP to make clear that these definitions are expansive and there should not be a case where a relevant financial asset is not covered by the FATF Standards (either as a VA or as a traditional financial asset);
  2. provide guidance on how the FATF Standards apply to so-called stablecoins;
  3. provide additional guidance on the risks and potential risk mitigants for peer-to-peer transactions;
  4. provide updated guidance on the licensing and registration of VASPs;
  5. provide additional guidance for the public and private sectors on the implementation of the ‘travel rule;’ and
  6. include Principles of Information-Sharing and Co-operation Amongst VASP Supervisors.”

Of particular note are the implications for decentralized exchanges (DEXs) and decentralized applications (DApps), peer-to-peer (P2P) transactions, and implementation of the travel rule.…

Continue Reading FATF Releases Draft Guidance on a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers

On January 1, 2021, the United States enacted the National Defense Authorization Act for Fiscal Year 2021 (NDAA) after the US House of Representatives and US Senate voted to override a presidential veto of the law. Included within the NDAA are a significant number of provisions related to anti-money laundering (AML) and countering the financing of terrorism (CFT), including provisions reforming the Bank Secrecy Act (BSA), a collection of statutes underpinning most of the current AML regulatory framework. These amendments, many of which have been under consideration for years, represent the most substantial AML-related reforms enacted since at least the USA PATRIOT Act of 2001. Below, we outline ten of the most significant AML provisions contained in the NDAA. Given the breadth of the reforms, it is particularly important for US “financial institutions” – including money services businesses (MSBs) and other non-traditional financial institutions subject to the BSA – to carefully review the Act to understand how their compliance obligations may have changed or may change in the future as the Act is implemented via regulation.
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Continue Reading Ten Key Takeaways from the NDAA’s AML Reforms

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

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

The Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) has principal responsibility for issuing and enforcing federal anti-money laundering (AML) regulations applicable to US financial institutions, including money services businesses (MSBs) operating as “money transmitters” in the cryptocurrency space.  Followers of cryptocurrency regulation have been eager for additional FinCEN guidance clarifying the agency’s approach to a number of significant industry developments.  FinCEN principally relies upon its 2013 guidance, subsequent administrative ruling letters, and other written correspondence such as the agency’s 2018 letter to Senator Ron Wyden confirming that initial coin offerings (ICOs) fall within FinCEN AML regulations.  However, the rapid pace of development in the blockchain and cryptocurrency sector has left many in the industry with questions regarding how to apply FinCEN’s regulations to new business models and technological advances.

On August 9, 2018, FinCEN Director Kenneth Blanco delivered a speech regarding the agency’s approach to cryptocurrency.  The speech offered helpful clarifications and insights, but also left a number of important questions unanswered. …
Continue Reading 4 Key Takeaways from FinCEN Director’s Speech on Cryptocurrency

On May 21st, Alan Cohn hosted the 217th episode of The Cyberlaw Podcast. We took a deep dive into all things blockchain and cryptocurrency discussing recent regulatory developments and the current state of play of the industry. Jack Hayes discusses the status of regulation surrounding cryptocurrencies including anti-money laundering and sanctions compliance, the Department of…