Kenneth A. Blanco, director of the U.S. Financial Crimes Enforcement Network (FinCEN),
has revealed that the agency has seen a surge in filings of
crypto-related Suspicious Activity Reports (SARs). The number of
complaints now exceeds 1,500 per month, according to him.
Blanco’s remarks were made as part of a speech he delivered at the 2018 Chicago-Kent Block Legal Tech Conference August 9.
The director outlined FinCEN’s ongoing role in regulation
and law enforcement for the emerging crypto space, which it coordinates
in tandem with the Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC). He noted that,
“[While] innovation in financial services can be a great thing… we also must be cognizant that financial crime evolves right along with it, or indeed sometimes because of it, creating opportunities for criminals and bad actors, including terrorists and rogue states.”
Blanco emphasized that in order to safeguard the
“incredible innovations” of the fintech frontier, actors’ compliance
with specific regulatory measures is critical, given that “harm can be
done with devastatingly increasing speed, breadth, and obscurity in the
digital world.”
As indicated in FinCEN’s March 2013 guidelines, any
acceptance or transfer of value that substitutes for fiat currency -
including crypto - is considered to be money transmission, and entails
specific regulatory obligations under the U.S. Bank Secrecy Act (BSA).
As money transmission businesses (MSBs), crypto exchanges
are therefore required to report both SARs and Currency Transaction
Reports (CTRs), as well as to comply with anti-money laundering (AML) and countering the financing of terrorism (CFT) frameworks.
Blanco clarified that identical obligations pertain to businesses that provide anonymizing services — often dubbed “mixers” or “tumblers”
— that seek to conceal the source of the transmission of crypto.
Exchanges located outside of the U.S. but that nonetheless do business
in part with residents of the country are also monitored by the agency.
The director gave the example of FinCENs action in 2017 against Russian
crypto exchange BTC-e for flouting AML laws as a case in which SARs had
“played a critical role,” with filings by both banks and other crypto
exchanges providing crucial leads for law enforcement.
He commented that while SARs are increasingly being
submitted, the agency has been “surprised” to see businesses taking
appropriate steps to meet their regulatory requirements “only after they
receive notice [that an examination is forthcoming].” “Let this message
go out clearly today: This does not constitute compliance,” he
stressed.
According to Blanco, FinCEN, BSA examiners and the Internal Revenue Service (IRS) have examined over 30 percent of all registered crypto exchangers and administrators since 2014.
Blanco further devoted attention to initial coin offerings
(ICOs), stressing that while they may fall under overlapping
jurisdictions of different U.S. regulatory agencies, their AML/CFT
obligations remain “absolute.”
At a recent hearing on crypto and ICOs in Washington DC, Coinbase’s Chief Legal and Risk Officer called out
the gamut of American regulators — including the SEC, CFTC, IRS, and
FinCEN — over an extreme “lack of coordination” that he considered to be
negatively impacting innovation.
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