The possibility of using newly launched cryptocurrencies in trade-based financial crime as well as a host of other money laundering and terrorist funding typologies is drawing the attention of agencies charged with detecting and preventing illicit and illegal financing.

One example of this can be seen in the determination of the US treasury department’s Financial Crimes Enforcement Network (FinCEN) that an administrator or exchanger of the tokens used in cryptocurrencies would be defined as a “money transmitter” under its regulations and interpretations.

Under the Bank Secrecy Act (BSA), a money transmitter must register with FinCEN as a money services business and implement a risk-based anti-money-laundering compliance programme.

ICOs explained

FinCEN is therefore watching the increasing number of Initial Coin Offerings (ICOs).

An ICO is an unregulated means by which funds are raised for a new cryptocurrency venture, often used by start-ups to bypass the rigorous and regulated capital raising process required by venture capitalists or banks.

In an ICO campaign, a percentage of the cryptocurrency is sold to early backers of the project in exchange for legal tender or other cryptocurrencies.

KYC requirement

Under the BSA, administrators and exchangers of tokens must have an appropriate AML compliance programme that includes transaction monitoring, reporting and recordkeeping obligations, all of which add up to a sound know-your-customer requirement.

In a letter to the Senate Finance Committee, FinCEN has indicated that the agency is closely monitoring ICO tokens, as well as the developers and trading platforms that are issuing and exchanging ICO tokens, for BSA violations and trends or risks of associated money laundering, terrorist financing and other financial crimes.

Categories: Trade Based Financial crimes News