FinCEN Regulations: When Businesses Dealing in Convertible Virtual Currencies (CVC) Are Considered Money Transmitters
Author: Destiny Aigbe
November 7, 2024
With FinCEN’s heightened focus on the Convertible Virtual Currency (CVC) space, businesses that deal with CVC must carefully assess their regulatory obligations. A company can fall under Money Services Business (MSB) rules if its activities meet the threshold of “money transmission,” a designation requiring adherence to a strict Bank Secrecy Act (BSA) compliance framework. This includes anti-money laundering (AML) programs, customer identification requirements, and transaction reporting.
WHO IS A MONEY TRANSMITTER?
According to FinCEN, a business engaged in the transfer of “currency, funds, or other value that substitutes for currency” falls under money transmission if it transfers value between people or locations. Businesses that administer or exchange virtual currencies, including those engaging in Initial Coin Offerings (ICOs) or offering wallets and ATMs, may qualify as money transmitters.
Key factors determining money transmitter status include:
- Nature of Transactions: If a business accepts and transmits CVC or any other form of currency or substitutes for currency, it must register as an MSB.
- Exemptions: Exemptions include entities merely providing network access, delivery services, or facilitating peer-to-peer (P2P) unhosted wallet transactions without holding direct control over CVCs.
COMPLIANCE REQUIREMENTS FOR CVC MONEY TRANSMITTERS
An MSB dealing in CVC must comply with BSA regulations, including:
- Registration with FinCEN: Within 180 days of engaging in CVC transmission.
- AML Program: Implement a comprehensive AML program with policies for customer identification, suspicious activity reporting (SAR), currency transaction reports (CTR), and records maintenance.
- Funds Transfer and Travel Rules: CVC transactions of $3,000 or more trigger Funds Travel Rule requirements, demanding information about the transmitter and recipient.
CONSIDERATIONS FOR DIFFERENT BUSINESS MODELS
- CVC Wallet Providers: Hosted wallets that control users’ CVCs fall under MSB regulations, whereas unhosted wallets without third-party control are typically exempt.
- Decentralized Apps (DApps): A DApp developer is not automatically an MSB unless they engage in money transmission.
- Anonymous CVC Transactions: Using anonymizing technology does not exempt businesses from FinCEN regulations if they are otherwise engaged in money transmission.
For more information, read the complete guidelines on the FinCEN website or consult legal expert at The Law Offices of Destiny Aigbe PLLC in CVC compliance to ensure your business aligns with regulatory requirements.
About the Author
Destiny Aigbe
Managing Partner
Aigbe Law PLLC | Dark Alpha Capital
A Corporate and Securities Law Firm
With a robust foundation in law and finance, Destiny Aigbe has carved a distinguished career, underpinned by his pivotal role in orchestrating and managing complex transactions that have propelled companies to significant growth and market prominence. As a seasoned attorney and strategic advisor, Destiny has been instrumental in facilitating over $75 million in capital raises, demonstrating a keen acumen for securing funding and fostering investor confidence.
Destiny's leadership in the execution of six successful public listings, through meticulously structured reverse mergers and registration statements, showcases his adeptness in navigating the intricacies of the public markets and his capacity to guide companies through transformative growth phases. His involvement in five mergers as an operator further illustrates his versatile skill set, extending beyond legal expertise to include hands-on management and operational strategy, though these ventures did not involve funding.
Destiny's professional journey is marked by a commitment to excellence and a diverse range of experiences, from representing a wide spectrum of clients including public and private companies, and investment firms, to holding significant roles within the US government. His tenure with the US Department of State and the National Institutes of Health highlights his adaptability and his contribution to the advancement of entrepreneurial ventures in sectors like biotechnology and nanotechnology through strategic funding initiatives.
An alumnus of Vanderbilt University Law School, Destiny focused on Finance and Mergers & Acquisitions, further honing his expertise with a certificate in Law and Business. His foundational education in Finance was obtained with honors from the University of Maryland's Robert H. Smith School of Business, which laid the groundwork for his subsequent achievements in investment banking and legal practice.
Residing in the Washington, D.C. area, Destiny Aigbe continues to leverage his extensive experience and insightful leadership to drive innovation, growth, and success for his clients and the ventures he is involved with.
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