In December 2017, ETHNews reported that Senator Ron Wyden (OR-D) asked the US Treasury Department's Financial Crimes Enforcement Network (FinCEN) about its oversight and enforcement efforts related to virtual currency. Today, FinCEN's response to the senator was published, though it was dated February 13, 2018.
The major takeaway is this: Depending on the nature of the financial activity as well as the product or service associated with an initial coin offering (ICO), if any, and the structure of the ICO, developers may be classified as money transmitters and thus be subject to the anti-money laundering (AML) and combating the financing of terrorism (CFT) requirements that apply to money services businesses (MSBs) under the Bank Secrecy Act (BSA).
FinCEN explains that this broadly applies to "convertible virtual currency," which "either has an equivalent value in real currency, or acts as a substitute for real currency," according to 2013 guidance from the bureau. Importantly, the bureau acknowledges that contingent on the particulars of a project, regulatory authority over an ICO might belong to the US Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC).
Here is FinCEN's explanation in its own words:
"The application of AML/CFT obligations to participants in ICOs will depend on the nature of the financial activity involved in any particular ICO. This is a matter of the facts and circumstances of each case."
The letter goes on to explain, "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. An exchange that sells ICO coins or tokens, or exchanges them for other virtual currency, fiat currency, or other value that substitutes for currency, would typically also be a money transmitter."
The bureau continues: "However, ICO arrangements vary. To the extent that an ICO is structured in a way that it involves an offering or sale of securities or derivatives, certain participants in the ICO could fall under the authority of the SEC, which regulates brokers and dealers in securities, or under the authority of the CFTC, which regulates merchants and brokers in commodities. In such a case, the AML/CFT requirements imposed by SEC or CFTC regulations would apply to such ICO participants. Treasury expects businesses involved in ICOs to meet the BSA obligations that apply to them."
In its letter, FinCEN notes that virtual currency exchangers and administrators have "been subject to the BSA's money transmitter requirements since 2011." The bureau also touches upon the "significant challenges to investigating foreign virtual currency businesses," due to the relative absence of international oversight.
FinCEN did not immediately respond to a request for comment. The letter in its entirety can be seen below.