On April 18, 2019, the Financial Crimes Enforcement Network (“FinCEN”) announced its first enforcement action against a peer-to-peer virtual currency exchanger, which also included its first civil monetary penalty against a virtual currency exchanger, for failure to file Currency Transaction Reports (“CTRs”). According to FinCEN’s order, the respondent’s virtual currency exchange operated as an unregistered money service business (“MSB”), had no written policies or procedures for ensuring compliance with the Bank Secrecy Act (“BSA”), and failed to report both suspicious transactions and currency transactions. To settle the enforcement action, the respondent paid a $35,000 civil monetary penalty and agreed to an industry bar that would prohibit him from providing money transmission services or engaging in any other activity that would make him a “money services business” under FinCEN regulations.
Citing its interpretive guidance on virtual currencies issued in March 2013, FinCEN noted that convertible virtual currency exchanges are subject to its jurisdiction. FinCEN also observed a pattern of unlawful activity on the part of the respondent and his exchange. For example, the respondent processed numerous suspicious transactions without ever filing a Suspicious Activity Report (“SAR”), including doing business related to the Silk Road marketplace, as well as servicing customers without taking steps to determine customer identity and whether funds were derived from illegal activity. He also did not file any CTRs on over 200 transactions involving the physical transfer of more than $10,000 in currency. FinCEN reinforced that peer-to-peer exchangers are required to comply with the BSA obligations that apply to MSBs, including registering with FinCEN; developing, implementing, and maintaining an effective anti-money laundering program; filing SARs and CTRs ; and maintaining required books and records.
As we have previously reported, operators of exchanges that engage in transactions involving virtual currency may, in addition to MSB regulation, be subject to oversight by the Securities and Exchange Commission, Commodity Futures Trading Commission and state regulation as money transmitters. This case underscores FinCEN’s commitment to enforcing the MSB regulations and signals that additional FinCEN actions in the crypto space may be forthcoming.