Understanding FinCEN Compliance for Digital Assets and Money Transmission
Author: Destiny Aigbe
October 28, 2024
In the ever-evolving landscape of digital currencies, businesses that engage in transactions involving Convertible Virtual Currency (CVC) must comply with anti-money laundering (AML) obligations set forth by the Financial Crimes Enforcement Network (FinCEN). These businesses are typically classified as money services businesses (MSBs) and must adhere to the Bank Secrecy Act (BSA), which mandates comprehensive compliance measures to prevent money laundering and financial crimes.
Key Requirements for MSBs Handling Digital Assets
Entities subject to the BSA must (i) register with FinCEN, (ii) implement a written AML compliance program, (iii) keep records for certain transactions, and (iv) obtain customer identification information. This comprehensive guidance, consolidated for the first time, underscores the importance of regulatory vigilance in financial activities involving CVC.
Who Qualifies as an MSB?
FinCEN’s definition of an MSB hinges on whether a business conducts money transmission, which includes any activity where currency or its equivalent is accepted from one party and transmitted to another. This broad definition applies to entities exchanging digital assets and fiat currencies, virtual currency kiosks (or ATMs), hosted wallet providers, and Internet casinos. The business’s title or label is irrelevant; it is the substance of the financial activity that determines MSB status.
AML Obligations for CVC Money Transmitters
Entities involved in money transmission must implement an AML program to mitigate risks associated with money laundering, terrorist financing, and other financial crimes. The AML program should include customer due diligence, suspicious activity reporting, and transaction monitoring. FinCEN’s guidance also extends these requirements to decentralized applications (DApps) if they perform money transmission activities.
Special Considerations for ICOs, CVC Wallets, and P2P Exchangers
Initial coin offerings (ICOs) may be considered money transmission if tokens are exchanged for other forms of value. Hosted wallet providers and P2P exchangers are also classified as MSBs if they store, manage, or transmit CVC on behalf of customers. Unhosted wallets, on the other hand, are typically exempt unless they engage in activities that qualify as money transmission.
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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