Insights

Leaders_Of_CTC_SEC_FinCEN_Alert_SOCIAL

Financial Regulatory Leaders Highlight Anti-Money Laundering Issues With Digital Asset Transactions

Regulators highlight AML/CFT obligations of financial institutions when engaging in digital asset activities.

On October 11, 2019, the heads of the U.S. Commodity Futures Trading Commission ("CFTC"), the U.S. Securities and Exchange Commission ("SEC"), and the Financial Crimes Enforcement Network ("FinCEN"), issued a joint statement ("Joint Statement") reminding market participants that activities involving digital assets may give rise to anti-money laundering ("AML") and countering the financing of terrorism ("CFT") obligations under the Bank Secrecy Act ("BSA").

The BSA requires covered "financial institutions" to comply with regulations intended to prevent money laundering, including implementing effective AML programs with recordkeeping and reporting requirements, such as suspicious activity reporting. As noted in the Joint Statement, the BSA's definition of "financial institution" is broad enough to include entities that engage in activities involving "digital assets," not just transactions in traditional securities or commodities. Accordingly, traditional BSA financial institutions engaging in virtual currency transactions, such as futures commission merchants, broker-dealers, and money transmitters, have AML/CFT responsibilities regarding those activities.

Market participants should also know their relevant BSA regulator. The Joint Statement notes that this issue depends on, "[t]he nature of the digital asset-related activities." The SEC and CFTC regulate "digital assets" that fall within the definitions of "securities" and "commodities," respectively, while FinCEN regulates "digital assets" that are used in money transmission, among other transactions. Additionally, the Joint Statement emphasized that, "[t]he label or terminology used to describe a digital asset" is not determinative. Rather, "the economic reality and use" of the digital asset "determines [its] general categorization" under the BSA.

The Joint Statement is another clear signal that AML/CFT compliance related to virtual currency transactions remains a regulatory priority, and that the substance of a transaction, not whatever label is attached, will govern. Accordingly, any entity involved with virtual currency transactions should consider whether it is a "financial institution" under the BSA, and the status of its "digital assets" under applicable securities, commodities, and money transmission laws. Market participants should evaluate their AML/CFT compliance programs, and assess whether they reflect best practices in their design and implementation.

Jones Day publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our “Contact Us” form, which can be found on our website at www.jonesday.com. The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the Firm.

 
We use cookies to deliver our online services. Details of the cookies and other tracking technologies we use and instructions on how to disable them are set out in our Cookies Policy. By using this website you consent to our use of cookies.