On April 18, 2019, the Financial Crimes Enforcement Network (“FinCEN”) announced its first enforcement action against a peer-to-peer virtual currency exchanger. See FinCEN Penalizes Peer-to-Peer Virtual Currency Exchanger for Violations of Anti-Money Laundering Laws, Fin. Crimes Enforcement Network (April 18, 2019) [hereinafter FinCEN Release], https://www.fincen.gov/news/news-releases/fincen-penalizes-peer-peer-virtual-currency-exchanger-violations-anti-money. The enforcement action was against Eric Powers (“Powers”) for violations of the Bank Secrecy Act’s (“BSA”) registration, program, and reporting requirements.
According to the FinCEN Release, Powers “operated as a peer-to-peer exchanger of convertible virtual currency.” Id. FinCEN defines a peer-to-peer exchanger as “a natural person engaged in the business of buying and selling convertible virtual currency, who typically advertises and markets his or her services through classified ads, specifically designed web platform websites, online forums, other social media, and word of mouth.” In re Eric Powers, No. 2019-01, at 3, n.6 (FinCEN 2019) [hereinafter FinCEN Assessment], available at https://www.fincen.gov/sites/default/files/enforcement_action/2019-04-18/Assessment%20Eric%20Powers%20Final%20for%20Posting%2004.18.19_1.pdf. In its Assessment of the Civil Money Penalty, FinCEN noted that Powers “was not simply a ‘user’ of virtual currency (i.e., someone who obtains and uses convertible virtual currency to purchase real or virtual goods or services for his benefit).” Id. at 3. Instead, Powers “advertised his intent to purchase and sell bitcoin on the internet[,] . . . completed transactions by either physically delivering or receiving currency in person, sending or receiving currency through the mail, or coordinating transactions by wire through a depository institution.” FinCEN Release.
People and entities who exchange convertible virtual currency, such as peer-to-peer exchangers like Powers, are considered “money transmitters,” which is a form of money services business, and “financial institutions” under FinCEN’s regulations. FinCEN Assessment at 3; see also 31 C.F.R. §§ 1010.100(ff)(5), (t). Accordingly, they must comply with the BSA’s requirements by, among other things, registering with FinCEN, developing and implementing a written anti-money laundering program, and filing Suspicious Activity Reports and Currency Transaction Reports. See FinCEN Release; FinCEN Assessment at 2.
However, Powers never registered with FinCEN as a money services business and did not have written compliance policies or procedures. FinCEN Release. FinCEN also found that, despite conducting numerous physical transfers of currency and purchases of bitcoin, Powers failed to file a single Currency Transaction Report. Id. Additionally, Powers was involved in multiple suspicious transactions but did not file any Suspicious Activity Reports. Id. Pursuant to the enforcement action, Powers has agreed to pay a $35,000 fine and to be barred from engaging in “money services business” under FinCEN regulations. Id.
In the FinCEN Release, Kenneth A. Blanco (“Blanco”), the Director of FinCEN, stated “[o]bligations under the BSA apply to money transmitters regardless of their size . . . . we will take enforcement action based on what we have publicly stated since our March 2013 Guidance—that exchangers of convertible virtual currency . . . are money transmitters and must register as [money services businesses].” Id. Blanco’s statement suggests we may see similar FinCEN enforcement actions as the prevalence of virtual currencies rises. Therefore, it might be worth taking a look at the March 2013 Guidance (the “Guidance”) Blanco references, which can be found on FinCEN’s website or by clicking here. The Guidance is intended to provide clarity on the application of the BSA to those who create, obtain, distribute, exchange, accept, and/or transmit virtual currencies.