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.”


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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] 
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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.
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