ICOs Likely Subject to Money Transfer Laws: FinCEN

Initial coin offering (ICO) operators have long known that they risked running afoul of US securities laws. However, a newly released letter drafted by an official with the Department of the Treasury suggests that ICOs may also be subject to criminal statutes governing money transfer businesses.

The letter, which was addressed to Senator Ron Wyden (D-OR) and dated Feb. 13 but only released on Tuesday, said that companies that sell “convertible virtual currency” must comply with bank secrecy and know-your-customer guidelines, rules which were put in place to combat money laundering and terrorism financing.

From the letter:

“Generally, under existing regulations and interpretations, a developer that sells convertible virtual currency, including in the form of ICO coins or tokens, in exchange for another type of value that substitutes for currency is a money transmitter and must comply with AML/CFT requirements that apply to this type of MSB [money services business].”

Peter Van Valkenburgh, director of research at Coin Center, wrote in a blog post that he believes this interpretation of the Bank Secrecy Act is “highly consequential” and raises “major licensing problem for ICOs.”

In his view, any ICO that involved US residents (as issuers or investors) and failed to register with the Financial Crimes and Enforcement Network (FinCEN) — a Treasury bureau tasked with preventing and investigating financial crimes — could be charged under 18 U.S.C § 1960, a federal felony criminal statute that carries a maximum sentence of five years in prison. If broadly interpreted, Van Valkenburgh said that this statute could be enforced retroactively and render employees of, and investors in, the business culpable as well.

Bloomberg reports that some ICO operators had already registered with FinCEN, anticipating that money transfer regulations could be applied to them. However, it is likely that most have not.

Meanwhile, ICOs are reportedly facing intense scrutiny from the SEC as well. As CCN.com reported, the agency issued subpoenas to as many as 80 token sales and has asked other ICOs — including the Overstock-sponsored tZero ICO — to voluntarily submit documents about “everything” related to the offerings.

Featured image from Shutterstock.

Last modified: March 4, 2021 5:05 PM

Josiah Wilmoth

Josiah is the former U.S. Editor at CCN.com, where he focused on financial markets. He lives in rural Virginia. Connect with him on LinkedIn or email him directly at josiah.wilmoth(at)ccn.com.