FinCEN Advisory Emphasizes Importance of U.S.-Iran Sanctions and AML/CFT Compliance for Virtual Currency Businesses

On October 11, 2018, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) released an advisory (the Advisory) intended to help money services businesses (MSBs) and foreign financial institutions better understand how U.S. sanctions on Iran affect their compliance obligations under the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) rules and under the U.S.-Iran sanctions enforced by the U.S. Department of the Treasury’s Office of Foreign Asset Controls (OFAC).[1]

While Iran has historically relied upon, among other things, precious metals, such as gold, to evade sanctions and to market Iranian goods abroad, FinCEN views virtual currency as another commodity that Iranians may rely on to avoid sanctions.  Since 2013, Iranians have participated in more than $3.8 million in bitcoin-denominated transactions annually.  As a result, companies subject to U.S. regulation that participate in the virtual currency markets should pay careful attention to the Advisory.

To confirm the importance of the Advisory, OFAC separately issued the Advisory to all persons who subscribe to OFAC updates and listed the Advisory on its website.  This, together with the discussion of OFAC obligations within the Advisory, demonstrates that FinCEN and OFAC may cooperate on enforcement of these obligations.  As a reminder, U.S. sanctions prohibit U.S. persons and U.S.-owned or -controlled foreign entities from entering into transactions involving Iran, the Government of Iran, or Iranian financial institutions.[2]

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Cryptocurrencies: Matching insurance to risks and exposures

While cryptocurrencies and digital tokens — also known as “digital assets” — have disrupted traditional notions of commerce, capital and investing, there is another asset which any company engaged in this space will need: insurance. Given the rapidly-evolving nature of this new technology and the uncertainties surrounding applicable laws and regulations, it can be challenging to figure out the types of insurance products that should be considered. Any company engaged in this space should ask itself the following questions to help determine which lines of insurance it should consider.

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Blockchain Week in Review – Week of October 8-12, 2018

U.S. Developments

Regulatory Updates

FinCEN Issues Advisory on Illicit Iranian Activities

On October 11, 2018, the U.S. Treasury Department Financial Crimes Enforcement Network (“FinCEN”) issued an advisory to help money services businesses  and foreign financial institutions better understand the U.S. Anti-Money Laundering/Combating the Financing of Terrorism (“AML/CFT”) risks related to Iranian activity.  The report encourages financial institutions to “consider reviewing blockchain ledgers for activity that may originate or terminate in Iran” and “utilize technology created to monitor open blockchains and investigate transactions to or from P2P exchange platforms.”  It also reminds foreign companies that “a non-U.S.-based exchanger or virtual currency provider doing substantial business in the United States is subject to AML/CFT obligations and OFAC jurisdiction.”  The U.S. Treasury Department Office of Foreign Asset Controls (“OFAC”), which administers the U.S. sanctions programs, distributed this advisory on behalf of FinCEN to those who subscribe to OFAC updates.  This shows a level of cooperation between these two agencies, as does the discussion of OFAC jurisdiction in the FinCEN advisory.              Continue Reading

French Data Protection Authority Issues Guidance on Application of Blockchain to the GDPR

The French data protection authority, Commission Nationale de l’Informatique et des Libertés (CNIL), became the first European data protection authority to issue written guidance on the intersection of the use of blockchain technology and the General Data Protection Regulation (GDPR). The CNIL guidance provides welcome clarification on how to tackle some of the inherent tensions between GDPR and blockchain, although the CNIL left open certain important issues that will require deeper analysis and explanation in the future. Continue Reading

Blockchain Week in Review: Week of October 1-5, 2018

U.S. Developments

Federal Bank Regulators Issue Joint Statement on Collaborative BSA/AML Compliance

On October 3, 2018, a group of federal bank regulators and the Financial Crimes Enforcement Network (“FinCEN”) announced in a joint statement that banks and credit unions could collaborate and share resources to manage their Bank Secrecy Act (“BSA”) and anti–money laundering (“AML”) obligations.  Sharing resources through a collaborative arrangement helps banks to meet their BSA/AML compliance obligations by providing access to specialized expertise, at a reduced cost, that may be difficult to obtain in some markets.  The joint statement provides examples and guidance for how banks can manage their obligations more effectively and efficiently.  Nothing in the joint statement alters the four pillars of a bank’s BSA/AML compliance program: (1) a system of internal controls to ensure ongoing compliance; (2) independent testing of BSA/AML compliance; (3) designation of a BSA compliance officer; and (4) training of appropriate personnel.  With appropriate limits, each of these pillars can be addressed through a collaborative arrangement between banks. Continue Reading

SEC and FINRA Target Cryptocurrency Hedge Fund Manager and Broker-Dealers in New Wave of Digital Asset Enforcement Proceedings

The SEC and FINRA recently announced a series of enforcement actions against new types of actors in the digital asset space—private fund managers and broker-dealers. Continue Reading

Blockchain Week in Review – Week of September 24-28

The following summary is available in our sister blog, The Fintech Report.

Roundup of CFTC Resources

Blockchain Week in Review: Week of September 24-28, 2018

U.S. Developments

Cryptocurrency and the Colorado Money Transmitter License Act

On September 20, 2018, following months of consultation with the Colorado Attorney General’s office, Colorado’s Division of Banking released interim guidance interpreting the Colorado Money Transmitters Act and determining whether it applies to transfers of cryptocurrency. If virtual currencies were to be subject to the regulation, facilitating transfers, and therefore cryptocurrency exchanges, would require a license. The Division of Banking determined that cryptocurrency transfers are not the subject of the Colorado Money Transmitters Act because cryptocurrency is not a legal tender. However, a license may be required if legal tender is involved in a cryptocurrency transfer; for example if fiat currency (i.e., legal tender) is bought or sold on an exchange, or if an exchange has the ability to transfer legal tender through a cryptocurrency. The step has been lauded by the virtual currency community for fostering the development and growth of blockchain technology and cryptocurrency exchanges. Continue Reading

Blockchain Week in Review: Week of September 17-21, 2018

U.S. Developments

Hester Peirce Remarks at Cato Institute Conference

Hester Peirce made remarks at the Cato Institute’s Fintech Unbound conference on September 12, 2018. Commissioner Peirce commented that securities regulators are too risk averse, stating that “capital markets are all about taking risk, and queasiness around risk-taking is particularly inapt” and that “a key purpose of financial markets is to permit investors to take risks, commensurate with their own risk appetites and circumstances, to earn returns on their investments.” Continue Reading

Cryptocurrency Derivatives, Funds and Advisers: Key Considerations Under U.S. Commodity Laws (Part 2: The Regulation of Commodities – Quite Substantial, Even If Not Substantive)

This post originally appeared in The Derivatives and Repo Report, and can be accessed here.:

This post is the second in a series that outlines key considerations for investment funds and their advisers regarding the application of the U.S. commodity laws to cryptocurrency derivatives.  In Part 1, we focused on the status of cryptocurrencies as commodities and how that status relates to the jurisdiction of the U.S. Commodity Futures Trading Commission (the “CFTC”). Here, in Part 2, we provide an overview of the regulation of commodities and the commodity markets under the Commodity Exchange Act.

 

Blockchain Week in Review: Week of September 10-14, 2018

The following summary is available in our sister blog, The Fintech Report.

State Bank Regulators and NYDFS to renew litigation against OCC

Blockchain Week in Review: Week of September 10-14, 2018

U.S. Developments

Regulatory Updates

U.S. Judge Says Initial Coin Offerings May Be Covered by Securities Law

On September 11, U.S. District Judge Raymond Dearie ruled that U.S. securities laws may cover an initial coin offering and stated that a reasonable jury should be able to apply the “Howey Test” to determine whether the ICO at issue was a security. The ruling came in criminal prosecution of Maksim Zaslavskiy, a Brooklyn businessman charged with conspiracy and two counts of securities fraud for his role in allegedly defrauding investors in two initial coin offerings.  Zaslavskiy’s attorneys had argued that securities law didn’t apply because the ICOs at issue were currencies, not securities and that federal securities laws are unconstitutionally vague as applied to cryptocurrency. In allowing the criminal charges to proceed, Judge Dearie rejected those arguments. However, acknowledging the early procedural stage of the case, the Court made no ruling on whether the virtual currencies offered by REcoin and DRC were securities under the U.S. Supreme Court’s Howey test. The Court did provide some discussion in the dicta previewing a possible Howey analysis. Additional thoughts on this case can be found in Perkins Coie’s latest client update. In March, another federal judge in Brooklyn ruled that cryptocurrencies could be regulated as commodities by the U.S. Commodity Futures Trading Commission. These cases underscore the importance of fact-specific and contextual analysis when addressing the regulatory treatment of any token or token sale.

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