Reported by: Katherine A. Lemire

While Congress has repeatedly sought to enhance the anti-money laundering (AML) laws and penalties, federal regulators have played a critical role in updating and enforcing these regulations as they apply to cryptocurrency businesses. States, meanwhile, have also inserted themselves into this regulatory mix.

The legal and regulatory framework of the crypto industry are as follows:

• FinCEN – FinCEN declared in 2013 that “administrators or exchangers” of virtual currency qualify as money services businesses under the Bank Secrecy Act (BSA) and FinCEN regulations. FinCEN has also made clear that AML obligations extend to Decentralized Finance, commonly referred to as DeFi, a blockchain-based form of finance that does not rely on central financial intermediaries such as brokerages, exchanges, or banks.

• SEC – SEC’s Division of Examinations recently made clear that upcoming reviews of broker-dealers engaging in cryptocurrency sales will include a focus on AML compliance. To date, the SEC has focused primarily on crypto as a security and therefore whether there should be compliance with the U.S. Securities Exchange Act and related laws. Indeed, the SEC has focused crypto enforcement firepower primarily in connection with allegations of unregistered sales of securities.

• CFTC – The CFTC has adopted the view that cryptocurrency amounts to a commodity, and therefore, companies that trade cryptocurrency-related swaps fall within its jurisdictional reach.

• State regulators – The New York State Department of Financial Services (DFS) is one of the leading crypto regulators, and New York’s regulatory framework remains the most robust among the states. New York State’s BitLicense regulation, enacted in 2015, requires companies engaging in virtual currency activities in New York to acquire a license from DFS and to implement a robust AML program.

Read full report: https://www.reuters.com/legal/transactional/cryptocurrency-anti-money-laundering-enforcement-2022-09-26/