Under a U.S. federal law known as the Bank Secrecy Act, financial institutions are required to maintain certain information about customers and share that information. In the event that a related crime is suspected, the institution must share the information with the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Treasury Department. Soaring popularity of cryptocurrency has raised questions surrounding whether and how quickly businesses that conduct transactions using new financial vehicles like bitcoin and altcoins should be required to comply with the Bank Secrecy Act.
For some, the biggest draw to cryptocurrency is the level of secrecy that surrounds the virtual, encrypted transactions. Unfortunately, the ability to anonymously make transactions and store cryptocoins in “wallets” versus banks has also made virtual currency an attractive way for criminals to make illegal purchases and sales and to launder the proceeds of prohibited activities. Due to the uptick in the use of cryptocurrency for criminal purposes, the federal government has taken steps to bring more regulation and visibility to transactions that take place in the crypto world.
The guide that explains the tie-in
In 2013, FinCEN issued a guide clarifying how the BSA relates to entities and individuals who use bitcoin and other cryptocurrencies. The guide referenced decentralized convertible virtual currencies that can be exchanged or act as a substitute for real currency; bitcoin and similar cryptocoins fall within the description. An individual or company’s status in relation to the SBA largely depends on whether the person or business is considered to be a “money transmitter” under federal law. FinCEN’s 2013 guidelines stated the following:
- Those who create virtual currencies and those who use virtual currencies to make purchases are not considered to be money transmitters; therefore, they are not subject to the Bank Secrecy Act
- The Bank Secrecy Act does apply to currency exchangers, people and entities that take virtual decentralized currency from one party and give it to another in exchange for more virtual currency, funds, or real currency
- The two initial statements made in the 2013 guidelines were confusing; therefore, FinCEN updated the guidelines with additional clarifications. Throughout 2014, FinCEN added the following statements to outline who is not subject to the Bank Secrecy Act:
- Individuals and businesses that use bitcoin to for their own purposes, as opposed to using the virtual currency for the benefit of others, are not subject to the Bank Secrecy Act; cryptocurrency miners and mining operations are included in this category.
- Cryptocurrency investment companies that trade virtual currencies for their own account are not required to follow the BSA.
- Cloud mining companies, or entities that rent computer systems for the purpose of mining cryptocurrency, are not subject to the Bank Secrecy Act.
- In addition to further detailing the categories that are not required to comply with the BSA, FinCEN also provided more specifics to its description of entities and individuals who must comply with the legislation. The following guideline additions made in 2014 add clarity in determining who is subject to the BSA.
- Trading platforms that are in the business of matching offers to buy cryptocurrency with offers to sell convertible virtual currency must comply with the Bank Secrecy Act.
- Payment systems in which sellers pay normal or fiat currency to sellers, who receive the proceeds in the form of convertible cryptocurrency, are considered to be money transmitters; therefore, they must comply with the BSA.
Cryptocurrency and criminal investigations
Related criminal charges can be very intimidating
FinCEN’s guidelines regarding the Bank Secrecy Act and cryptocurrency players who are required to comply are critically important when individuals and businesses are being investigated for criminal acts. Companies and individuals who are in the gray area of the law and are uncertain of their status as money transmitters are inevitably unsure of their legal duty to turn over their records to the federal government. People who are accused of crimes may rightfully question whether federal law requires an entity with which they have done business to submit sensitive information to federal investigators who have a very clear interest in obtaining a criminal conviction. The first step for businesses and individuals who find themselves in challenging, uncertain legal situations regarding cryptocurrency and the Bank Secrecy Act is to contact a defense attorney who is experienced in white collar cases that involve virtual currency. The laws that govern cryptocurrency cases are steadily evolving. Therefore, legal issues that arise from virtual currency transactions require the assistance of an attorney who possesses both technical knowledge about how cryptocurrencies work in addition to legal training and experience. Because cryptocuurrency is a very new technology that has given rise to unanticipated legal questions, a successful cryptocurrency defense is even more dependent on your lawyer’s ability compel the judge to rule in your favor. Davitian Law, P.A., a law firm in Fort Lauderdale, Florida, closely monitors this new, ever-changing area of criminal law.
