83840 Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Proposed Rules 

normal business hours at the office of 

the Operations Support Group, Central 

Service Center, Federal Aviation 

Administration, 10101 Hillwood 

Parkway, Fort Worth, TX 76177. 

Availability and Summary of 

Documents for Incorporation by 

Reference 

This document proposes to amend 

FAA Order 7400.11E, Airspace 

Designations and Reporting Points, 

dated July 21, 2020, and effective 

September 15, 2020. FAA Order 

7400.11E is publicly available as listed 

in the ADDRESSES section of this 

document. FAA Order 7400.11E lists 

Class A, B, C, D, and E airspace areas, 

air traffic service routes, and reporting 

points. 

Background 

NAV CANADA, which operates 

Canada’s civil air navigation service, is 

continuing to implement various 

changes to Canada’s instrument flight 

rules (IFR) navigation infrastructure as 

part of their NAVAID Modernization 

Program to enhance the efficiency of 

operations by taking advantage of 

performance based navigation and 

modern avionic capabilities. The 

changes being implemented by NAV 

CANADA occasionally affect parts of 

U.S. VOR Federal airways that extend 

across the U.S./Canada border into 

Canadian airspace. As a result, the 

removal of V–242 would mirror changes 

that are planned to be made by NAV 

CANADA on the Canadian side of the 

border. 

NAV CANADA is planning the 

decommissioning of the Atikokan, ON, 

Canada, NDB as part of their NAVAID 

Modernization Program. With the 

planned decommissioning of the 

Atikokan NDB, the ground-based 

NAVAID coverage in the area is 

insufficient to enable the continuity of 

V–242. As a result, V–242 would no 

longer be supportable and would be 

removed in its entirety. 

To overcome the loss of the airway, 

instrument flight rules (IFR) traffic 

could use adjacent ATS routes, 

including VOR Federal airways V–133, 

V–300, and V–367, or request air traffic 

control (ATC) radar vectors to fly 

through or circumnavigate the affected 

area. The International Falls, MN, VHF 

Omni-directional Range/Distance 

Measuring Equipment (VOR/DME) 

NAVAID, which is currently the first 

airway point on V–242, will also remain 

in service and continue providing 

positive course guidance and distance 

measuring service to aircraft within 40 

nautical miles of the NAVAID. 

Additionally, IFR pilots equipped with 

RNAV PBN capabilities would also be 

able to navigate point to point using the 

existing fixes that will remain in place 

to support continued operations though 

the affected area. Visual flight rules 

(VFR) pilots who elect to navigate via 

the airways through the affected area 

could also take advantage of the 

adjacent VOR Federal airways or ATC 

services listed previously. 

The Proposal 

The FAA is proposing an amendment 

to Title 14 Code of Federal Regulations 

(14 CFR) part 71 to remove VOR Federal 

airway V–242. The planned 

decommissioning of the Atikokan, ON, 

Canada, NDB has made this action 

necessary. The proposed change is 

outlined below. 

V–242: V–242 currently extends 

between the International Falls, MN, 

VOR/DME and the Atikokan, ON, 

Canada, NDB, excluding that airspace 

within Canada. The FAA proposes to 

remove the airway in its entirety. 

VOR Federal airways are published in 

paragraph 6010(a) of FAA Order 

7400.11E, dated July 21, 2020, and 

effective September 15, 2020, which is 

incorporated by reference in 14 CFR 

71.1. The ATS route listed in this 

document would be subsequently 

published in the Order. 

FAA Order 7400.11, Airspace 

Designations and Reporting Points, is 

published yearly and effective on 

September 15. 

Regulatory Notices and Analyses 

The FAA has determined that this 

proposed regulation only involves an 

established body of technical 

regulations for which frequent and 

routine amendments are necessary to 

keep them operationally current. It, 

therefore: (1) Is not a ‘‘significant 

regulatory action’’ under Executive 

Order 12866; (2) is not a ‘‘significant 

rule’’ under Department of 

Transportation (DOT) Regulatory 

Policies and Procedures (44 FR 11034; 

February 26, 1979); and (3) does not 

warrant preparation of a regulatory 

evaluation as the anticipated impact is 

so minimal. Since this is a routine 

matter that will only affect air traffic 

procedures and air navigation, it is 

certified that this proposed rule, when 

promulgated, will not have a significant 

economic impact on a substantial 

number of small entities under the 

criteria of the Regulatory Flexibility Act. 

Environmental Review 

This proposal will be subject to an 

environmental analysis in accordance 

with FAA Order 1050.1F, 

‘‘Environmental Impacts: Policies and 

Procedures’’ prior to any FAA final 

regulatory action. 

List of Subjects in 14 CFR Part 71 

Airspace, Incorporation by reference, 

Navigation (air). 

The Proposed Amendment 

In consideration of the foregoing, the 

Federal Aviation Administration 

proposes to amend 14 CFR part 71 as 

follows: 

PART 71—DESIGNATION OF CLASS A, 

B, C, D, AND E AIRSPACE AREAS; AIR 

TRAFFIC SERVICE ROUTES; AND 

REPORTING POINTS 

■ 1. The authority citation for part 71 

continues to read as follows: 

Authority: 49 U.S.C. 106(f), 106(g); 40103, 

40113, 40120; E.O. 10854, 24 FR 9565, 3 CFR, 

1959–1963 Comp., p. 389. 

§ 71.1 [Amended] 

■ 2. The incorporation by reference in 

14 CFR 71.1 of FAA Order 7400.11E, 

Airspace Designations and Reporting 

Points, dated July 21, 2020, and 

effective September 15, 2020, is 

amended as follows: 

Paragraph 6010(a) Domestic VOR Federal 

Airways. 

* * * * * 

V–242 [Removed] 

* * * * * 

Issued in Washington, DC, on December 

16, 2020. 

George Gonzalez, 

Acting Manager, Rules and Regulations 

Group. 

[FR Doc. 2020–28164 Filed 12–22–20; 8:45 am] 

BILLING CODE 4910–13–P 

DEPARTMENT OF THE TREASURY 

Financial Crimes Enforcement Network 

31 CFR Parts 1010, 1020, and 1022 

RIN 1506–AB47 

Requirements for Certain Transactions 

Involving Convertible Virtual Currency 

or Digital Assets 

AGENCY: Financial Crimes Enforcement 

Network (‘‘FinCEN’’), Treasury. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: FinCEN is issuing this notice 

of proposed rulemaking to seek public 

comments on a proposal to require 

banks and money service businesses 

(‘‘MSBs’’) to submit reports, keep 

records, and verify the identity of 

customers in relation to transactions 

involving convertible virtual currency 


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Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Proposed Rules 83841 

1Although the formal comment period concludes 

15 days after filing at the Federal Register, FinCEN 

will endeavor to consider any material comments 

received after the deadline as well. 

2See, e.g., United States. v. Cazes, No. 1:17CR– 

00144, Indictment ¶ 2 (E.D. Ca. filed June 1, 2017) 

(alleging that ‘‘AlphaBay [was] a dark-web 

marketplace designed to enable users to buy and 

sell illegal goods, including controlled substances, 

stolen and fraudulent identification documents and 

access devices, counterfeit goods, malware and 

other computer hacking tools, firearms, and toxic 

chemicals . . . AlphaBay required its users to 

transact in digital currencies, including Bitcoin, 

Monero, and Ethereum.’’); Dep’t of the Treasury 

Press Release—Remarks of Sigal Mandelker, Under 

Secretary for Terrorism and Financial Intelligence 

(May 13, 2019), https://home.treasury.gov/news/ 

press-releases/sm687; Press Release, Dep’t of 

Justice, ‘‘Two Chinese Nationals Charged with 

Laundering Over $100 Million in Cryptocurrency 

from Exchange Hack’’ at pp. 1 (Mar. 2, 2020) 

(‘‘North Korea continues to attack the growing 

worldwide ecosystem of virtual currency as a 

means to bypass the sanctions imposed on it by the 

United States and the United Nations Security 

Council.’’), https://www.justice.gov/opa/pr/twochinese-nationals-charged-laundering-over-100- 

million-cryptocurrency-exchange-hack. For 

vulnerabilities of digital assets to securities fraud, 

see SEC—Investor Alert: Ponzi Schemes Using 

Virtual Currencies, SEC Pub. No. 153 (7/13), https:// 

www.sec.gov/investor/alerts/ia_

virtualcurrencies.pdf (accessed June 23, 2020); 

CFTC—Investor Alert: Watch Out for Fraudulent 

Digital Asset and ‘‘Crypto’’ Trading websites, 

https://www.cftc.gov/LearnAndProtect/ 

AdvisoriesAndArticles/watch_out_for_digital_

fraud.html (accessed Aug. 28, 2020); U.S. Dep’t of 

Justice, ‘‘Report of the Attorney General’s CyberDigital Task Force, Cryptocurrency: An 

Enforcement Framework,’’ (Oct. 8, 2020), https://

www.justice.gov/ag/page/file/1326061/download. 

3 In 2019, ransomware demands reached $25 

billion globally, and FinCEN observed an increase 

in the average amount involved in ransomware 

incidents of $280,000 from 2018 to 2019. See 

Emsisoft, ‘‘Report: The Cost of Ransomware in 

2020. A Country-by-Country Analysis’’ (Feb. 2020), 

https://blog.emsisoft.com/en/35583/report-the-costof-ransomware-in-2020-a-country-by-countryanalysis/ (accessed Dec. 1, 2020); FinCEN Advisory, 

FIN–2020–A006, ‘‘Advisory on Ransomware and 

the Use of the Financial System to Facilitate 

Ransom Payments’’ (Oct. 2020), https://

www.fincen.gov/sites/default/files/advisory/2020- 

10-01/Advisory%20Ransomware

%20FINAL%20508.pdf. See also G7 Finance 

Ministers and Central Bank Governors’ Statement 

on Digital Payments, Ransomware Annex to G7 

Statement (Oct. 13, 2020) (‘‘[Ransomware] [a]ttacks 

have intensified in the last two years[.]’’), https:// 

home.treasury.gov/system/files/136/G7- 

Ransomware-Annex-10132020_Final.pdf. 

4 G7 Finance Ministers and Central Bank 

Governors’ Statement on Digital Payments (Oct. 13, 

2020), https://home.treasury.gov/news/pressreleases/sm1152. In ransomware attacks, victims 

are often compelled to obtain and send CVC to an 

account or address designated by the perpetrator of 

the attack. This activity can occur through regulated 

financial institutions. For example, across 2017 and 

2018, FinCEN observed at least seventeen separate 

transactions over $10,000 conducted between U.S. 

financial institutions and unhosted wallets 

affiliated with the Lazarus Group, a malign actor 

engaged in efforts to steal and extort CVC as a 

means of generating and laundering large amounts 

of revenue for the North Korean regime. Generally, 

FinCEN has observed that, following initial receipt 

of the funds, the perpetrator may then engage in 

multiple transactions between unhosted wallets 

before exchanging the CVC for fiat currency. See 

also Joe Tidy, ‘‘How hackers extorted $1.14m from 

University of California, San Francisco,’’ (June 29, 

2020), https://www.bbc.com/news/technology53214783 (detailing ransomware attack against 

COVID–19 researchers); Dep’t of the Treasury Press 

Release—Remarks of Sigal Mandelker, Under 

Secretary for Terrorism and Financial Intelligence 

(May 13, 2019), https://home.treasury.gov/news/ 

press-releases/sm687. 

(‘‘CVC’’) or digital assets with legal 

tender status (‘‘legal tender digital 

assets’’ or ‘‘LTDA’’) held in unhosted 

wallets (as defined below), or held in 

wallets hosted in a jurisdiction 

identified by FinCEN. FinCEN is 

proposing to adopt these requirements 

pursuant to the Bank Secrecy Act 

(‘‘BSA’’). To effectuate certain of these 

proposed requirements, FinCEN 

proposes to prescribe by regulation that 

CVC and LTDA are ‘‘monetary 

instruments’’ for purposes of the BSA. 

However, FinCEN is not proposing to 

modify the regulatory definition of 

‘‘monetary instruments’’ or otherwise 

alter existing BSA regulatory 

requirements applicable to ‘‘monetary 

instruments’’ in FinCEN’s regulations, 

including the existing currency 

transaction reporting (‘‘CTR’’) 

requirement and the existing 

transportation of currency or monetary 

instruments reporting requirement. 

DATES: Written comments on this 

proposed rule may be submitted on or 

before January 4, 2021. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

• Federal E-rulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

Refer to Docket Number FINCEN–2020– 

0020 and the specific RIN number 

1506–AB47 the comment applies to. 

• Mail: Policy Division, Financial 

Crimes Enforcement Network, P.O. Box 

39, Vienna, VA 22183. Refer to Docket 

Number FINCEN–2020–0020 and the 

specific RIN number. 

FOR FURTHER INFORMATION CONTACT: The 

FinCEN Regulatory Support Section at 

1–800–767–2825 or electronically at 

frc@fincen.gov. 

SUPPLEMENTARY INFORMATION: 

I. Executive Summary 

Through this proposed rule, FinCEN 

is seeking to address the illicit finance 

threat created by one segment of the 

CVC market and the anticipated growth 

in LTDAs based on similar 

technological principles. FinCEN 

proposes to address this threat by 

establishing a new reporting 

requirement with respect to certain 

transactions in CVC or LTDA, that is 

similar to the existing currency 

transaction reporting requirement, and 

by establishing a new recordkeeping 

requirement for certain CVC/LTDA 

transactions, that is similar to the 

recordkeeping and travel rule 

regulations pertaining to funds transfers 

and transmittals of funds. 

FinCEN is providing a 15-day period 

for public comments with respect to this 

proposed rule. FinCEN has determined 

that such a comment period is 

appropriate for several reasons.1

First, FinCEN assesses that there are 

significant national security imperatives 

that necessitate an efficient process for 

proposal and implementation of this 

rule. As explained further below, U.S. 

authorities have found that malign 

actors are increasingly using CVC to 

facilitate international terrorist 

financing, weapons proliferation, 

sanctions evasion, and transnational 

money laundering, as well as to buy and 

sell controlled substances, stolen and 

fraudulent identification documents and 

access devices, counterfeit goods, 

malware and other computer hacking 

tools, firearms, and toxic chemicals.2 In 

addition, ransomware attacks and 

associated demands for payment, which 

are almost exclusively denominated in 

CVC, are increasing in severity,3 and the 

G7 has specifically noted concern 

regarding ransomware attacks ‘‘in light 

of malicious actors targeting critical 

sectors amid the COVID–19 

pandemic.’’ 4

Second, the new requirements 

FinCEN is proposing to adopt represent 

a targeted expansion of BSA reporting 

and recordkeeping obligations, and 

FinCEN has engaged with the 

cryptocurrency industry on multiple 

occasions on the AML risks presented in 

the cryptocurrency space and carefully 

considered information and feedback 

received from industry participants. 

These engagements have included a 

FinCEN Exchange event in May 2019, 

visits to cryptocurrency businesses in 

California in February 2020, an industry 

roundtable with the Secretary of the 

Treasury in March 2020, and a FinCEN 

Exchange event on cryptocurrency and 

ransomware in November 2020. FinCEN 

also has received outreach on unhosted 

wallets in response to anticipated 

FinCEN regulatory action, including 

letters from CoinCenter, the Blockchain 

Association, Blockchain.com, Global 

Digital Asset & Cryptocurrency 

Association, Circle, and the Association 

for Digital Asset Markets. 

Third, although FinCEN is publishing 

this proposal in the Federal Record and 

invites public comment, FinCEN has 

noted that notice-and-comment 

rulemaking requirements are 

inapplicable because this proposal 

involves a foreign affairs function of the 


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5 5 U.S.C. 533. 

6CVC is therefore a type of ‘‘value that substitutes 

for currency.’’ See 31 CFR 1010.100(ff)(5)(i)(A). This 

definition is consistent with the recent joint notice 

of proposed rulemaking issued by FinCEN and the 

Board of Governors of the Federal Reserve in 

relation to the collection, recordkeeping, and 

transmission requirements applicable to funds 

transfers and transmittals of funds. See ‘‘Threshold 

for the Requirement To Collect, Retain, and 

Transmit Information on Funds Transfers and 

Transmittals of Funds That Begin or End Outside 

the United States, and Clarification of the 

Requirement To Collect, Retain, and Transmit 

Information on Transactions Involving Convertible 

Virtual Currencies and Digital Assets With Legal 

Tender Status,’’ 85 FR 68005, 68011 (Oct. 27, 2020) 

(‘‘Funds Transfer/Travel Rule NPRM’’). 

7See Satoshi Nakamoto, ‘‘Bitcoin: A Peer-to-Peer 

Electronic Cash System’’ (2008), https://bitcoin.org/ 

bitcoin.pdf; Chamber of Digital Commerce, 

‘‘Legislator’s Toolkit for Blockchain Technology’’ 

(Dec. 2018), https://

digitalchamber.s3.amazonaws.com/State-WorkingGroup-Toolkit_Final_12.4.1.pdf. 

8 Id. 

9Financial institutions that use unhosted wallets 

but that still conduct money transmission activities 

on behalf of third parties, such as peer-to-peer 

exchangers, are money transmitters. FinCEN 

Guidance—Application of FinCEN’s Regulations to 

Certain Business Models Involving Convertible 

Virtual Currencies at pp. 14–15 (May 9, 2019) 

(‘‘FinCEN 2019 CVC Guidance’’). 

10 Id. at 16. 

11 G7 Finance Ministers and Central Bank 

Governors’ Statement on Digital Payments (Oct. 13, 

2020). 

12U.S. Dep’t of Justice, ‘‘Report of the Attorney 

General’s Cyber-Digital Task Force, Cryptocurrency: 

An Enforcement Framework,’’ (Oct. 8, 2020), 

https://www.justice.gov/ag/page/file/1326061/ 

download. 

13See Chainalysis, ‘‘2020 Crypto Crime Report,’’ 

(Jan. 2020), https://go.chainalysis.com/2020-CryptoCrime-Report.html. 

14A significant majority of this $119 billion 

related to suspicious activity that took place before 

2019 based on subsequent lookbacks. FinCEN 

anticipates that in the future it will receive 

additional suspicious activity reporting for activity 

that took place in 2019 but that has not yet been 

recognized as suspicious. 

15FinCEN emphasizes that suspicious activity is 

not a clear indication of a crime but is activity that 

is potentially illicit. See 31 CFR 1020.320, 1022.320 

(laying out the standards for suspicious activity). 

16See, e.g., United States. v. Cazes, No. 1:17CR– 

00144, Indictment ¶ 2 (E.D. Ca. filed June 1, 2017) 

(alleging that ‘‘AlphaBay [was] a dark-web 

marketplace designed to enable users to buy and 

United States and because ‘‘notice and 

public procedure thereon are 

impracticable, unnecessary, or contrary 

to the public interest.’’ 5 The proposal 

seeks to establish appropriate controls 

to protect United States national 

security from a variety of threats from 

foreign nations and foreign actors, 

including state-sponsored ransomware 

and cybersecurity attacks, sanctions 

evasion, and financing of global 

terrorism, among others. Furthermore, 

undue delay in the implementation of 

the proposed rule would encourage 

movement of unreported or unrecorded 

assets implicated in illicit finance from 

hosted wallets at financial institutions 

to unhosted or otherwise covered 

wallets, such as by moving CVC to 

exchanges that do not comply with 

AML/CFT requirements. 

This section provides an overview of 

the relevant technology and the 

requirements of the proposed rule. 

A. Technology Overview 

CVC is a medium of exchange, such 

as a cryptocurrency, that either has an 

equivalent value as currency, or acts as 

a substitute for currency, but lacks legal 

tender status.6 Blockchain-based types 

of CVC (e.g., Bitcoin) are peer-to-peer 

systems that allow any two parties to 

transfer value directly with each other 

without the need for a centralized 

intermediary (e.g., a bank or MSB). As 

a technical matter, blockchain-based 

CVC generally consist of computers 

operating the network software (nodes) 

that enable, validate, and store 

transaction records on a distributed 

digital ledger (a blockchain). To transfer 

an asset on a blockchain, a person enters 

an alphanumeric code known only to 

the transferor (a private key) into a 

cryptographic hash function enabled by 

the network software, which allows the 

transferor to request that the network 

software validate a new entry on the 

ledger showing that control of an asset 

has been assigned to the recipient.7

Once the network software has 

validated this transfer, the ledger is 

altered and the recipient may transfer 

the asset to another recipient using their 

own private key.8 Ledger entries are 

cryptographically secured, and accounts 

are identified on a blockchain by 

alphanumeric ‘‘public keys’’—not by the 

owner’s name. 

Some persons use the services of a 

financial institution to acquire or 

transact in CVC. For example, certain 

financial institutions provide custody 

services for their customers’ CVC in socalled ‘‘hosted wallets.’’ In such 

arrangements, a financial institution 

may execute transactions on a 

blockchain on behalf of a customer 

using a private key controlled by the 

financial institution. Other persons do 

not use the services of a financial 

institution, in which case they use the 

private key controlling the CVC to 

transact directly on a blockchain. Such 

persons may store the private key in a 

software program or written record, 

often referred to as an ‘‘unhosted 

wallet.’’ Importantly, as described 

below, financial institutions are subject 

to certain BSA regulatory obligations 

when providing CVC-related services, 

including services involving hosted 

wallets.9 A person conducting a 

transaction through an unhosted wallet 

to purchase goods or services on their 

own behalf is not a money transmitter.10

Blockchain-based CVC networks 

present opportunities as well as risks. 

The G7 Finance Ministers and Central 

Bank Governors recently noted that 

‘‘[t]he widespread adoption of digital 

payments [such as CVC] has the 

potential to address frictions in existing 

payment systems by improving access to 

financial services, reducing 

inefficiencies, and lowering costs.’’ 11 At 

the same time, however, CVCs are used 

in illicit financial activity that presents 

substantial national security concerns. 

Depending on the features of the 

particular CVC and its network, a CVC’s 

global reach can enable the rapid 

transfer of significant value with only 

anonymized or pseudonymized 

information about the transaction 

recorded, making it easier for malign 

actors to engage in illicit financial 

activity without detection or 

traceability.12 Specifically, illicit 

finance risks involving CVC are 

enhanced by the capacity of users to 

engage with the CVC through unhosted 

wallets or wallets hosted by a foreign 

financial institution not subject to 

effective anti-money laundering 

regulation (an ‘‘otherwise covered 

wallet’’). In such cases, there may be 

gaps in the recordkeeping and reporting 

regime with respect to financial 

transactions, which malign actors may 

seek to exploit. 

Determining the true amount of illicit 

activity that is conducted in 

cryptocurrency is challenging. One 

industry estimate is that approximately 

1% of overall market transaction 

volume, or $10 billion, in CVC activity 

conducted globally in 2019 was illicit.13

This figure, however, may 

underestimate such illicit activity. 

Despite significant underreporting due 

to compliance challenges in parts of the 

CVC sector, in 2019, FinCEN received 

approximately $119 billion in 

suspicious activity reporting associated 

with CVC activity taking place wholly 

or in substantial part in the United 

States.14 By industry measures, this 

would equate to approximately 11.9% 

of total CVC market activity being 

relevant to a possible violation of law or 

regulation.15 U.S. authorities have 

found that malign actors have used CVC 

to facilitate international terrorist 

financing, weapons proliferation, 

sanctions evasion, and transnational 

money laundering, as well as to buy and 

sell controlled substances, stolen and 

fraudulent identification documents and 

access devices, counterfeit goods, 

malware and other computer hacking 

tools, firearms, and toxic chemicals.16 In 


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sell illegal goods, including controlled substances, 

stolen and fraudulent identification documents and 

access devices, counterfeit goods, malware and 

other computer hacking tools, firearms, and toxic 

chemicals . . . AlphaBay required its users to 

transact in digital currencies, including Bitcoin, 

Monero, and Ethereum.’’); Dep’t of the Treasury 

Press Release—Remarks of Sigal Mandelker, Under 

Secretary for Terrorism and Financial Intelligence 

(May 13, 2019), https://home.treasury.gov/news/ 

press-releases/sm687; Press Release, Dep’t of 

Justice, ‘‘Two Chinese Nationals Charged with 

Laundering Over $100 Million in Cryptocurrency 

from Exchange Hack’’ at pp. 1 (Mar. 2, 2020) 

(‘‘North Korea continues to attack the growing 

worldwide ecosystem of virtual currency as a 

means to bypass the sanctions imposed on it by the 

United States and the United Nations Security 

Council.’’), https://www.justice.gov/opa/pr/twochinese-nationals-charged-laundering-over-100- 

million-cryptocurrency-exchange-hack. For 

vulnerabilities of digital assets to securities fraud, 

see SEC—Investor Alert: Ponzi Schemes Using 

Virtual Currencies, SEC Pub. No. 153 (7/13), https:// 

www.sec.gov/investor/alerts/ia_

virtualcurrencies.pdf (accessed June 23, 2020); 

CFTC—Investor Alert: Watch Out for Fraudulent 

Digital Asset and ‘‘Crypto’’ Trading websites, 

https://www.cftc.gov/LearnAndProtect/ 

AdvisoriesAndArticles/watch_out_for_digital_

fraud.html (accessed Aug. 28, 2020). 

17 In 2019, ransomware demands reached $25 

billion globally, and FinCEN observed an increase 

in the average amount involved in ransomware 

incidents of $280,000 from 2018 to 2019. See 

Emsisoft, ‘‘Report: The Cost of Ransomware in 

2020. A Country-by-Country Analysis’’ (Feb. 2020), 

https://blog.emsisoft.com/en/35583/report-the-costof-ransomware-in-2020-a-country-by-countryanalysis/ (accessed Dec. 1, 2020); FinCEN Advisory, 

FIN–2020–A006, ‘‘Advisory on Ransomware and 

the Use of the Financial System to Facilitate 

Ransom Payments’’ (Oct. 2020), https://

www.fincen.gov/sites/default/files/advisory/2020- 

10-01/Advisory%20Ransomware

%20FINAL%20508.pdf. See also G7 Finance 

Ministers and Central Bank Governors’ Statement 

on Digital Payments, Ransomware Annex to G7 

Statement (Oct. 13, 2020) (‘‘[Ransomware] [a]ttacks 

have intensified in the last two years[.]’’), https:// 

home.treasury.gov/system/files/136/G7- 

Ransomware-Annex-10132020_Final.pdf. 

18 G7 Finance Ministers and Central Bank 

Governors’ Statement on Digital Payments (Oct. 13, 

2020), https://home.treasury.gov/news/pressreleases/sm1152. In ransomware attacks, victims 

are often compelled to obtain and send CVC to an 

account or address designated by the perpetrator of 

the attack. This activity can occur through regulated 

financial institutions. For example, across 2017 and 

2018, FinCEN observed at least seventeen separate 

transactions over $10,000 conducted between U.S. 

financial institutions and unhosted wallets 

affiliated with the Lazarus Group, a malign actor 

engaged in efforts to steal and extort CVC as a 

means of generating and laundering large amounts 

of revenue for the North Korean regime. Generally, 

FinCEN has observed that, following initial receipt 

of the funds, the perpetrator may then engage in 

multiple transactions between unhosted wallets 

before exchanging the CVC for fiat currency. See 

also Joe Tidy, ‘‘How hackers extorted $1.14m from 

University of California, San Francisco,’’ (June 29, 

2020), https://www.bbc.com/news/technology53214783 (detailing ransomware attack against 

COVID–19 researchers); Dep’t of the Treasury Press 

Release—Remarks of Sigal Mandelker, Under 

Secretary for Terrorism and Financial Intelligence 

(May 13, 2019), https://home.treasury.gov/news/ 

press-releases/sm687.; 

19Cf. Financial Action Task Force, ‘‘12-Month 

Review of the Revised FATF Standards on Virtual 

Assets and Virtual Asset Service Providers’’ (June 

2020) (‘‘The ML/TF [Money Laundering/Terror 

Finance] risks of virtual assets are more difficult to 

address and mitigate once the products are 

launched. Their cross-border nature can present 

difficulties for enforcement if AML/CFT is not 

considered from the start. Hence, it is very 

important for jurisdictions to analyse and address 

risk in a forward-looking manner and ensure that 

they have all the necessary tools and authorities in 

place before they are needed.’’), http://www.fatfgafi.org/media/fatf/documents/recommendations/ 

12-Month-Review-Revised-FATF-Standards-VirtualAssets-VASPS.pdf. 

20FinCEN requests comment on whether to 

expand the requirements of the proposed rule to 

other types of financial institutions, such as brokerdealers. 21FinCEN 2019 CVC Guidance at pp. 15–16. 

addition, ransomware attacks and 

associated demands for payment, which 

are almost exclusively denominated in 

CVC, have increased in severity,17 and 

the G7 has specifically noted concern 

regarding ransomware attacks ‘‘in light 

of malicious actors targeting critical 

sectors amid the COVID–19 

pandemic.’’ 18

Some types of CVC pose particularly 

severe illicit finance challenges. 

Anonymity-enhanced cryptocurrency 

(‘‘AEC’’) protocols have the effect of 

limiting the ability of investigators or 

other parties to follow transaction flows 

on their distributed public ledgers, 

unlike other types of CVC that allow a 

bank or MSB to identify the full 

transaction history of the CVC or LTDA 

value involved in the transaction (i.e. 

the entire transaction history of the 

value from the transaction block it was 

mined). Though relatively small in 

comparison to more established CVC 

networks, AECs have a welldocumented connection to illicit 

activity. For example, AECs were used 

to launder Bitcoins paid to the wallet 

used in the Wannacry ransomware 

attack. AECs are accepted on various 

darknet marketplaces and the largest 

cryptocurrency mining malware 

networks continue to mine Monero, a 

type of AEC. Other innovations in 

distributed ledger technology designed 

to address transaction scalability, such 

as so-called Layer 2 solutions, together 

with AEC protocols represent an overall 

trend towards less transparency. These 

technology features are readily 

transferable to existing systems through 

protocol upgrades or system forks, i.e. 

the development of a new blockchain 

from an existing blockchain.19

B. Rule Overview 

This proposed rule would adopt 

recordkeeping, verification, and 

reporting requirements for certain 

deposits, withdrawals, exchanges, or 

other payments or transfers of CVC or 

LTDA by, through, or to a bank or 

MSB20 that involve an unhosted or 

otherwise covered wallet. FinCEN is 

proposing to define otherwise covered 

wallets as those wallets that are held at 

a financial institution that is not subject 

to the BSA and is located in a foreign 

jurisdiction identified by FinCEN on a 

List of Foreign Jurisdictions Subject to 

31 CFR 1010.316 Reporting and 31 CFR 

1010.410(g) Recordkeeping (the 

‘‘Foreign Jurisdictions List’’). Initially, 

FinCEN is proposing that the Foreign 

Jurisdictions List be comprised of 

jurisdictions designated by FinCEN as 

jurisdictions of primary money 

laundering concern (i.e. Burma, Iran, 

and North Korea). 

First, this proposed rule would 

require banks and MSBs to file a report 

with FinCEN containing certain 

information related to a customer’s CVC 

or LTDA transaction and counterparty 

(including name and physical address), 

and to verify the identity of their 

customer, if a counterparty to the 

transaction is using an unhosted or 

otherwise covered wallet and the 

transaction is greater than $10,000 (or 

the transaction is one of multiple CVC 

transactions involving such 

counterparty wallets and the customer 

flowing through the bank or MSB within 

a 24-hour period that aggregate to value 

in or value out of greater than $10,000). 

Second, this proposed rule would 

require banks and MSBs to keep records 

of a customer’s CVC or LTDA 

transaction and counterparty, including 

verifying the identity of their customer, 

if a counterparty is using an unhosted 

or otherwise covered wallet and the 

transaction is greater than $3,000. 

II. Background 

A. Risks of Unhosted and Otherwise 

Covered Wallets Versus Hosted Wallets 

CVC wallets are interfaces for storing 

and transferring CVC.21 There are two 

wallet types: ‘‘hosted wallets’’ and 

‘‘unhosted wallets.’’ The ability to 

transact in CVC using unhosted or 

otherwise covered wallets, and the 

possibility that there will be a similar 

ability to transact in LTDA using 

unhosted or otherwise wallets, increases 

risks related to AML and combatting the 

financing of terrorism (‘‘CFT’’). 

Hosted wallets are provided by 

account-based money transmitters that 

receive, store, and transmit CVC on 

behalf of their accountholders. Such 

entities generally interact with their 

customers through websites or mobile 

applications. In this business model, the 

money transmitter (i.e., the hosted 

wallet provider) is the host, the account 

is the wallet, and the accountholder is 

the wallet owner. Banks can also be 


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83844 Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Proposed Rules 

22Since the FinCEN 2019 CVC Guidance, certain 

BSA-regulated banks have obtained authorization to 

custody CVC through hosted wallets. For example, 

on July 22, 2020, the Office of the Comptroller of 

the Currency (‘‘OCC’’) concluded that a national 

bank or federal savings association may provide 

cryptocurrency custody services on behalf of 

customers (the ‘‘OCC Custody Guidance’’). Office of 

the Comptroller of the Currency, Interpretive Letter 

#1170 at pp. 1, 9 (July 22, 2020), https://

www.occ.gov/topics/charters-and-licensing/ 

interpretations-and-actions/2020/int1170.pdf. The 

OCC Custody Guidance notes that demand for 

cryptocurrency custody services has grown for 

several reasons, including that (i) access to 

cryptocurrency value is lost when an owner loses 

its cryptographic private key; (ii) banks may offer 

more secure storage than other existing options; and 

(iii) some investors may wish to manage 

cryptocurrency on behalf of customers and use 

national banks as custodians for the managed 

assets. Id. at pp. 4–5. The OCC Custody Guidance 

notes that as part of the custody services they 

provide, national banks and federal savings 

associations may include services such as 

facilitating the customer’s cryptocurrency and fiat 

currency exchange transactions, transaction 

settlement, trade execution, recording keeping, 

valuation, tax services, reporting, or other 

appropriate services. Id. at pp. 8 n.39, 9. Similarly, 

some state-chartered banks are also authorized to 

custody CVC in hosted wallets. For example, in 

2019 Wyoming created a new class of financial 

institutions, Special Purpose Depository 

Institutions, or SPDIs. See H.B. 74, 65th Wyo. Leg., 

1st Sess. (as amended) (2019). The SPDI bank 

charter permits an SPDI to engage in a range of 

services, including custodial services and trade 

execution related to digital assets. 

23FinCEN 2019 CVC Guidance at pp. 16. 

24 Dep’t of the Treasury, National Money 

Laundering Risk Assessment at pp. 4 (2018), 

https://home.treasury.gov/system/files/136/ 

2018NMLRA_12-18.pdf. 

25The FATF is an international, intergovernmental task force whose purpose is the 

development and promotion of international 

standards and the effective implementation of legal, 

regulatory, and operational measures to combat 

money laundering, terrorist financing, the financing 

of proliferation, and other related threats to the 

integrity of the international financial system. 

26FATF Report to the G20 Finance Ministers and 

Central Bank Governors on So-Called Stablecoins at 

pp. 15 (June 2020), https://www.fatf-gafi.org/media/ 

fatf/documents/recommendations/Virtual-AssetsFATF-Report-G20-So-Called-Stablecoins.pdf. 

27 12-Month Review of the Revised FATF 

Standards on Virtual Assets and Virtual Asset 

Service Providers at pp. 15 (June 2020), https://

www.fatf-gafi.org/media/fatf/documents/ 

recommendations/12-Month-Review-Revised-FATFStandards-Virtual-Assets-VASPS.pdf. The FATF 

has also encouraged government authorities to 

address potential risks posed by disintermediated 

(i.e., peer-to-peer) transactions in a proactive 

manner, as they deem appropriate. Id. at pp. 7. The 

FATF noted that jurisdictions have a range of 

national-level tools to mitigate, to some extent, the 

risks posed by anonymous peer-to-peer transactions 

if national authorities consider the ML/TF risk to 

be unacceptably high. This includes banning or 

denying licensing of platforms if they allow 

unhosted wallet transfers, introducing transactional 

or volume limits on peer-to-peer transactions, or 

mandating that transactions occur with the use of 

a VASP or financial institutions. Id. at pp. 15. 

28The risk profile of wallets hosted by foreign 

financial institutions located in certain jurisdictions 

that do not have an effective AML regime resembles 

the risk profile of unhosted wallets. The reason 

transactions involving hosted wallets present lower 

illicit finance risk in jurisdictions with an effective 

AML regime is because of the role that 

intermediaries in such jurisdictions play in 

preventing money laundering by applying a variety 

of controls, such as due diligence, transaction 

monitoring, and suspicious activity reporting. 

Financial institutions subject to effective regulation 

are also obligated to cooperate with lawful 

investigations. In jurisdictions in which financial 

institutions are allowed to turn a blind eye to, or 

even purposefully facilitate, money laundering, 

there is no basis to conclude that intermediation 

reduces illicit finance risk. The reporting, 

recordkeeping, and verification requirements of this 

proposed rule would apply to transactions with 

wallets hosted in jurisdictions listed on the Foreign 

Jurisdictions List. 

29 D.Y. Huang et al., ‘‘Tracking Ransomware Endto-end,’’ 2018 IEEE Symposium on Security and 

Privacy (SP), San Francisco, CA, 2018, pp. 618–631, 

doi: 10.1109/SP.2018.00047. 

30See ‘‘What is Monero (XMR)?’’ https://

web.getmonero.org/get-started/what-is-monero/ 

(accessed Dec. 1, 2020). 

31Other types of reports required under the BSA, 

including suspicious activity reports, are also 

critical to law enforcement. The reporting 

requirements of this proposed rule are a virtual 

currency analogue to the CTR reporting 

requirement. 

hosted wallet providers.22 Money 

transmitters doing business in whole or 

substantial part in the United States, as 

well as banks within the United States, 

that are hosted wallet providers are 

subject to the BSA and must comply 

with AML/CFT program requirements, 

including by conducting customer due 

diligence with respect to accountholders 

and reporting suspicious activity. 

By contrast, the term unhosted wallet 

describes when a financial institution is 

not required to conduct transactions 

from the wallet (for example, when an 

owner has the private key controlling 

the cryptocurrency wallet and uses it to 

execute transactions involving the 

wallet on the owner’s own behalf). 

Users of unhosted wallets interact with 

a virtual currency system directly and 

have independent control over the 

transmission of the value. When such a 

person conducts a transaction to 

purchase goods or services on the 

person’s own behalf, they are not a 

money transmitter and are not subject to 

BSA requirements applicable to 

financial institutions.23 Additionally, 

because such transactions do not 

necessarily involve a regulated financial 

intermediary on at least one side of the 

transaction, they may never be 

scrutinized pursuant to any AML/CFT 

program. 

The Treasury Department has 

previously noted that ‘‘[a]nonymity in 

transactions and funds transfers is the 

main risk that facilitates money 

laundering.’’ 24 The Financial Action 

Task Force (‘‘FATF’’) 25 has similarly 

observed that the extent to which 

anonymous peer-to-peer permit 

transactions via unhosted wallets, 

without involvement of a virtual asset 

service provider or a financial 

institution, is a key potential AML/CFT 

risk in some CVC systems.26 FATF 

members have specifically observed that 

unregulated peer-to-peer transactions 

‘‘could present a leak in tracing illicit 

flows of virtual assets,’’ particularly if 

one or more blockchain-based CVC 

networks were to reach global scale.27

Importantly, as explained below, while 

data contained on some blockchains are 

open to public inspection and can be 

used by authorities to attempt to trace 

illicit activity, FinCEN believes that this 

data does not sufficiently mitigate the 

risks of unhosted and otherwise covered 

wallets.28

B. Limitations of Current Tools To 

Mitigate the AML/CFT Risks of CVC 

In certain circumstances, investigators 

may be able to analyze blockchain data 

to identify illicit activity.29 While such 

analytic techniques can be used to 

combat illicit finance, they are not a 

panacea. Blockchain analysis can be 

rendered less effective by a number of 

factors, including the scale of a 

blockchain network, the extent of peerto-peer activity (i.e., transactions 

between unhosted wallets), the use of 

anonymizing technologies to obscure 

transaction information, and a lack of 

information concerning the identity of 

transferors and recipients in particular 

transactions. Additionally, several types 

of AEC (e.g., Monero, Zcash, Dash, 

Komodo, and Beam) are increasing in 

popularity and employ various 

technologies that inhibit investigators’ 

ability both to identify transaction 

activity using blockchain data and to 

attribute this activity to illicit activity 

conducted by natural persons.30

Regulations under the BSA already 

require filing CTRs for transactions 

involving or aggregating to more than 

$10,000 in currency or monetary 

instruments as defined in 31 CFR 

1010.100(dd). Such CTRs provide 

valuable information that helps 

investigators identify bulk cash 

smuggling, structuring, and other largescale money laundering efforts, among 

other activity, even when the customer 

is not complicit in the overall money 

laundering scheme.31 This proposed 

rule would similarly provide greater 

insight into transacting parties with a 

nexus to one or more potentially illicit 

transactions: 

• First, the proposed rule would 

require that banks and MSBs identify 

and verify hosted wallet customers who 

engage in transactions with unhosted or 

otherwise covered wallet counterparties 

when those customers conduct 

transactions above the equivalent of 

$3,000 in CVC or LTDA with an 

unhosted or otherwise covered wallet 


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Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Proposed Rules 83845 

32FinCEN recognizes that persons engaged in 

illicit finance will likely attempt to use falsified 

credentials and other types of schemes to evade the 

requirement to report their true identities. However, 

banks and MSBs develop solutions to try to ferret 

out such abuse, not only for AML purposes but also 

to avoid being defrauded by illicit actors 

themselves. Furthermore, such efforts can generate 

valuable leads through suspicious activity reports. 

33Treasury Order 180–01 (Jan. 14, 2020). 

34 31 U.S.C. 5311. 

35Treasury Order 180–01 (Jan. 14, 2020). 

36 31 U.S.C. 5312(a)(3). 

37This proposed rule would not modify the 

regulatory definition of ‘‘monetary instruments’’ at 

31 CFR 1010.100(dd), although it would prescribe 

that CVC and LTDA are ‘‘monetary instruments’’ 

pursuant to 31 U.S.C. 5313 for the purposes of the 

issuance of the proposed reporting requirement 

added at 31 CFR 1010.316. 

38The proposed rule relies on authority under 31 

U.S.C. 5313 and 5318(a)(2) to extend several 

existing requirements that apply to the current 

requirement to file currency transaction reports to 

the new requirement to file transaction reports 

related to transactions in CVC or LTDA. It also 

relies on the authority of 31 U.S.C. 5318(a)(2) for 

the promulgation of the recordkeeping requirements 

on wallets held by foreign financial institutions in 

jurisdictions identified by FinCEN. 

39See, e.g., 31 CFR 1020.210, 1020.320, 1022.210, 

1022.320. 

40 31 CFR 1020.210, 1022.210. 

41 31 CFR 1020.210(b)(5), 1020.220, 

1022.210(d)(1). 

42 31 CFR 1020.320, 1022.320. 

43FinCEN guidance makes clear that CVC is a 

type of ‘‘value that substitutes for currency.’’ See, 

e.g., FinCEN Guidance—Application of FinCEN’s 

Regulations to Persons Administering, Exchanging, 

or Using Virtual Currencies at pp. 3–5 (Mar. 18, 

2013) (‘‘FinCEN 2013 CVC Guidance’’); FinCEN 

2019 CVC Guidance at pp. 7. While LTDA does, by 

definition, have legal tender status, it does not meet 

the definition of currency in 31 CFR 1010.100 as 

it is not coin or paper money. Thus, like CVC, 

LTDA is also value that substitutes for currency. 

counterparty (with reporting required 

for transactions over $10,000), and that 

banks and MSBs collect certain 

information (i.e. name and physical 

address) concerning the customer’s 

counterparties.32

• Second, the proposed rule would 

cause banks and MSBs to generate 

reports containing the transaction hash 

and identity of persons holding wallets 

engaging with unhosted or otherwise 

covered wallets engaging in transactions 

across multiple financial institutions. 

• Third, the proposed rule would 

create a new prohibition on 

structuring—i.e., engaging in 

transactions in a manner to avoid 

reporting requirement—applicable to 

virtual currency transactions. 

Structuring is a method used by some 

malign actors to avoid detection by law 

enforcement of their illicit activities. 

In this notice, FinCEN is seeking 

comment on the potential effects of this 

proposed rule on activity through 

financial intermediaries that are subject 

to the BSA or to AML/CFT regulations 

in a foreign jurisdiction. 

C. Legal Framework 

1. The Bank Secrecy Act 

The Currency and Foreign 

Transactions Reporting Act of 1970, as 

amended by the Uniting and 

Strengthening America by Providing 

Appropriate Tools Required to Intercept 

and Obstruct Terrorism Act of 2001 

(‘‘USA PATRIOT Act’’) (Pub. L. 107–56) 

and other legislation, is the legislative 

framework commonly referred to as the 

BSA. The Secretary of the Treasury 

(‘‘Secretary’’) has delegated to the 

Director of FinCEN (‘‘Director’’) the 

authority to implement, administer, and 

enforce compliance with the BSA and 

associated regulations.33

Pursuant to this authority, FinCEN 

may require financial institutions to 

keep records and file reports that the 

Director determines have a high degree 

of usefulness in criminal, tax, or 

regulatory investigations or proceedings, 

or in intelligence or counterintelligence 

matters to protect against international 

terrorism.34 Regulations implementing 

Title II of the BSA appear at 31 CFR 

chapter X.35

Specifically, under 12 U.S.C. 

1829b(b)(1), where the Secretary 

determines that the maintenance of 

appropriate types of records and other 

evidence by insured depository 

institutions has a high degree of 

usefulness in criminal, tax, or regulatory 

investigations or proceedings, the 

Secretary has the authority to prescribe 

regulations to carry out the purposes of 

this section. Similarly, under 12 U.S.C. 

1953, the Secretary is authorized to 

promulgate recordkeeping requirements 

for uninsured banks and uninsured 

financial institutions, to include MSBs. 

Under 31 U.S.C. 5313, the Secretary is 

authorized to require financial 

institutions to report currency 

transactions, or transactions involving 

other monetary instruments as the 

Secretary prescribes. These reports may 

be required on transactions in an 

amount, denomination, or amount and 

denomination, or under circumstances 

the Secretary prescribes by regulation. 

Reports must be filed at the time and in 

the way the Secretary prescribes. The 

BSA defines the term ‘‘monetary 

instruments’’ to include, among other 

things, ‘‘United States coins and 

currency . . . [and] as the Secretary may 

prescribe by regulation, coins and 

currency of a foreign country, travelers’ 

checks, bearer negotiable instruments, 

bearer investment securities, bearer 

securities, stock on which title is passed 

on delivery, and similar 

material. . . .’’ 36 The term ‘‘monetary 

instruments’’ is also defined for the 

purposes of FinCEN’s regulations in 31 

CFR chapter X at 31 CFR 

1010.100(dd).37

Under 31 U.S.C. 5318(a)(2), the 

general powers of the Secretary 

pursuant to the BSA include the ability 

to require a class of domestic financial 

institutions to ‘‘maintain appropriate 

procedures to ensure compliance with 

[subchapter 53 of title 31 of the U.S. 

Code] and regulations prescribed under 

[such] subchapter or to guard against 

money laundering.’’ 38

2. Implementation of the BSA With 

Respect to Persons Dealing in CVC 

Under FinCEN’s regulations found at 

31 CFR chapter X, banks and MSBs are 

subject to a number of requirements 

under the BSA, including requirements 

to maintain an AML/CFT program and 

to report suspicious activity to 

FinCEN.39 Specifically, banks and MSBs 

are required to have an AML/CFT 

program that includes, at a minimum, 

(1) internal controls to assure ongoing 

compliance; (2) independent testing for 

compliance to be conducted by internal 

personnel or by an outside party; (3) 

designation of an individual or 

individuals responsible for coordinating 

and monitoring day-to-day compliance; 

and (4) training and education for 

appropriate personnel.40 Banks are also 

required to maintain appropriate riskbased procedures for conducting 

customer due diligence and a customer 

identification program (‘‘CIP’’) as part of 

their AML/CFT program.41 The BSA 

and its implementing regulations also 

require banks and MSBs to file CTRs 

and suspicious activity reports 

(‘‘SARs’’). Financial institutions are 

required to file SARs to report any 

transaction that the financial institution 

‘‘knows, suspects, or has reason to 

suspect’’ is suspicious, if the transaction 

is conducted or attempted by, at, or 

through the institution, and the 

transaction involves or aggregates to at 

least $5,000 in funds or other assets in 

the case of banks, and at least $2,000 in 

funds or other assets in the case of 

MSBs.42

Many of the BSA requirements that 

apply to banks and MSBs are applicable 

to their transactions in CVC or LTDA.43

For instance, financial institutions are 

required to address the risks of such 

transactions as part of their AML/CFT 

programs, file CTRs where appropriate 

(such as where a person uses a 

reportable amount of currency to 

purchase CVC or LTDA), and report 

suspicious activity related to such 

transactions to FinCEN. 


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83846 Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Proposed Rules 

44See FinCEN 2019 CVC Guidance at pp. 11–12. 

45Funds Transfer/Travel Rule NPRM at pp. 

68005–06. 

46See 31 CFR 1010.410(e) (non-bank financial 

institutions); 31 CFR 1020.410(a) (banks). Among 

the information that must be collected and retained 

is (a) name and address of the transmittor; (b) the 

amount of the transmittal order; (c) the execution 

date of the transmittal order; (d) any payment 

instructions received from the transmittor with the 

transmittal order; and (e) the identity of recipient’s 

financial institution. 

47See 31 CFR 1010.410(f). 

48See, e.g., 31 CFR 1020.311, 1022.311. 

49See, e.g., 31 CFR 1020.312, 1022.312. 

50See, e.g., 31 CFR 1020.313, 1022.313. 

51See, e.g., 31 CFR 1020.314, 1022.314. 

52See, e.g., 31 CFR 1022.315. 

53 31 U.S.C. 5312(a)(3). 

54 31 U.S.C. 5312(a)(3)(B). 

55Some CVCs, such as stablecoins, may be 

redeemable for an underlying asset. 

56See, e.g., Satoshi Nakamoto, Bitcoin: A Peer-toPeer Electronic Cash System, available at https://

bitcoin.org/bitcoin.pdf (‘‘Each owner transfers the 

coin to the next by digitally signing a hash of the 

previous transaction and the public key of the next 

owner and adding these to the end of the coin. A 

payee can verify the signatures to verify the chain 

of ownership.’’) (accessed December 5, 2020). 

57Nor is this proposed regulatory determination 

intended to have any impact on the definition of 

‘‘currency’’ in 31 CFR 1010.100(m). Furthermore, 

nothing in this proposal is intended to constitute 

a determination that any CVC or LTDA that is 

within the regulatory definition of ‘‘monetary 

instruments’’ at 31 U.S.C. 5312(a)(3) is currency for 

the purposes of the federal securities laws, 15 

U.S.C. 78c(47), or the federal derivatives laws, 7 

U.S.C. 1–26, and the regulations promulgated 

thereunder. 

FinCEN’s guidance also states that 

financial institutions are subject to the 

collection, recordkeeping, and 

transmittal requirements applicable to 

transmittals of funds with respect to 

transactions in CVC or LTDA.44 A notice 

of proposed rulemaking recently 

published by FinCEN and the Board of 

Governors of the Federal Reserve 

System proposes regulatory 

amendments to these same rules to 

clarify that they apply to transactions in 

CVC or LTDA, and also to lower the 

monetary threshold triggering the rules 

for certain transactions (the ‘‘Funds 

Transfer/Funds Travel Rule NPRM’’).45

Under the collection and recordkeeping 

aspect of these rules, banks and 

nonbank financial institutions are 

required to collect and retain 

information related to transmittals of 

funds in amounts of $3,000 or more.46

Furthermore, the transmittal aspect of 

these rules requires financial 

institutions to transmit certain 

information required to be collected by 

the funds recordkeeping rule to other 

banks or nonbank financial institutions 

participating in the transmittal.47

3. CTR Reporting Obligations 

The existing regulations that 

implement the CTR reporting 

requirement are found at several 

sections of 31 CFR chapter X. The basic 

reporting requirement is found at 31 

CFR 1010.311, and applies generally to 

all financial institutions as defined by 

FinCEN’s regulations. Individual 

regulatory parts also refer back to 31 

CFR 1010.311, such as in the regulatory 

parts that apply to banks and MSBs.48

Timing, procedural, and recordkeeping 

requirements related to the CTR 

reporting requirement are found at 31 

CFR 1010.306(a)(1)–(3) and (d)–(e). 

Identification verification and 

recordkeeping requirements applicable 

to transactions requiring a CTR are 

found at 31 CFR 1010.312 and are 

referenced in other regulatory parts.49

Aggregation requirements that require 

financial institutions to aggregate across 

multiple branches and transactions for 

the purposes of determining whether 

the CTR reporting requirement’s 

monetary threshold is satisfied are 

found at 31 CFR 1010.313 and are 

referenced in other regulatory parts.50

Anti-structuring rules that apply to 

transactions in currency reporting 

requirements are found at 31 CFR 

1010.314 and are referenced in other 

regulatory parts.51 An exemption that 

applies to non-bank financial 

institutions obligations under the CTR 

reporting requirement is found at 31 

CFR 1010.315 and is also referenced in 

other regulatory parts.52 Finally, banks 

are subject to specific statutory 

exemptions from the CTR reporting 

requirement as incorporated into 

FinCEN’s regulations at 31 CFR 

1020.315; the mandatory and 

discretionary statutory exemptions these 

regulations implement are found at 31 

U.S.C. 5313(d) and (e), respectively. 

III. Proposed Reporting Requirement 

for Transactions Involving CVC or 

LTDA 

A. Expansion of the BSA Definition of 

‘‘Monetary Instruments’’ 

This proposed rule would add a 

determination at 31 CFR 1010.316(a), a 

new section this proposed rule would 

add, that CVC and LTDA are ‘‘monetary 

instruments’’ for the purposes of 31 

U.S.C. 5313. Section 5313 authorizes the 

Secretary to issue reporting 

requirements in relation to ‘‘transactions 

for the payment, receipt, or transfer of 

United States coins or currency (or other 

monetary instruments the Secretary of 

the Treasury prescribes)’’ (emphasis 

added). The BSA defines ‘‘monetary 

instruments’’ to include, among other 

things, ‘‘United States coins and 

currency’’ and ‘‘as the Secretary may 

prescribe by regulation, coins and 

currency of a foreign country, travelers’ 

checks, bearer negotiable instruments, 

bearer investment securities, bearer 

securities, stock on which title is passed 

on delivery, and similar material[.]’’ 53

CVC and LTDA are ‘‘similar material’’ 

to ‘‘coins and currency of a foreign 

country, travelers’ checks, bearer 

negotiable instruments, bearer 

investment securities, bearer securities, 

[and] stock on which title is passed on 

delivery . . . .’’ 54 The six specific 

instruments included in 31 U.S.C. 

5312(a)(3)(B) each represent material 

that can serve as a substitute for U.S. 

coins and currency, or in other words, 

function as money. Like currency itself, 

negotiable instruments and instruments 

in bearer form are commodified so that 

they can serve monetary functions, such 

as by acting as a medium of exchange, 

a store of value, or a unit of account. 

CVC similarly functions as a 

commodified unit of exchange and a 

substitute for coins and currency. 

For purposes of the BSA, a salient 

characteristic shared by the six specific 

instruments included in 31 U.S.C. 

5312(a)(3)(B) is not the right to an 

underlying asset, but rather that title to 

the asset passes upon delivery, that is, 

whoever possess the instrument is 

considered its owner.55 With respect to 

CVC and LTDA, the holder of the 

private key related to any such CVC or 

LTDA has control over that CVC or 

LTDA. That private key grants the 

holder the ability and blockchain-based 

authority to transfer the CVC or LTDA.56

In essence, ownership of CVC and 

LTDA passes upon delivery similar to 

the instruments described in 31 U.S.C. 

5312(a)(3)(B). 

As the note to the proposed 

determination at 31 CFR 1010.316(a) 

makes clear, however, that proposed 

determination is not intended to affect 

the regulatory definition of ‘‘monetary 

instruments’’ at 31 CFR 1010.100(dd), or 

the use of that regulatory definition 

elsewhere in FinCEN’s regulations, 

including in relation to the CTR 

reporting requirement at 31 CFR 

1010.311 and the transportation of 

currency or monetary instruments 

reporting requirement at 31 CFR 

1010.340.57

B. Scope of the Reporting Requirement 

The proposed reporting requirement 

would apply to transactions involving 

CVC or LTDA between a bank’s or 

MSB’s hosted wallet customer and an 

unhosted or otherwise covered wallet. 

This proposed rule would apply an 

aggregation requirement, similar to the 

CTR aggregation requirement, to the 

proposed reporting requirement for 

transactions involving CVC or LTDA. 


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58As noted previously, the changes this proposed 

rule would make are not intended to modify the 

CTR reporting requirement. Consistent with this 

intention, the proposed rule would make no change 

to the CTR aggregation requirements; the value of 

a person’s CVC or LTDA transactions is not relevant 

to the determination of whether the person’s 

currency transactions in aggregate require the filing 

of a CTR. 

59FinCEN is therefore not extending the 

exemptions at 31 CFR 1020.315(b)(4)–(5) to the 

proposed CVC/LTDA transaction reporting 

requirement. 31 CFR 1020.315(b)(4)–(5) were 

promulgated to implement the mandatory reporting 

exemptions of 31 U.S.C. 5313(d) with respect to 

transactions in currency. ‘‘Amendment to the Bank 

Secrecy Act Regulations—Exemptions From the 

Requirement To Report Transactions in Currency’’ 

62 FR 47141, 47142 (Sept. 8, 1997). 

60See 31 CFR 1020.315(b)(6)–(7). 

61See 31 CFR 1020.315(c)(1). 

62See 31 CFR 1020.315(b)(6)–(7). 

However, only CVC or LTDA 

transactions would need to be 

aggregated together for the purposes of 

the proposed reporting requirement; a 

report would not be required when the 

total value of a person’s CVC or LTDA 

transactions plus the person’s currency 

transactions in a 24-hour period is 

greater than $10,000 in value, as 

determined by the financial institution 

based on the value at the time of each 

transaction, but the total value of the 

person’s CVC or LTDA transactions 

alone is not greater than $10,000 in 

value, as determined by the financial 

institution based on the value at the 

time of each transaction.58

FinCEN is proposing an exemption to 

the reporting requirement that would 

make this requirement inapplicable to 

transactions between hosted wallets 

held at financial institutions subject to 

the BSA. FinCEN is also proposing to 

extend this exemption to CVC or LTDA 

transactions where the counterparty 

wallet is hosted by a foreign financial 

institution, except for a foreign financial 

institution in a jurisdiction listed on the 

Foreign Jurisdictions List, which 

FinCEN is proposing to establish. 

Initially, the Foreign Jurisdictions List 

would be comprised of jurisdictions 

designated by FinCEN as jurisdictions of 

primary money laundering concern (i.e. 

Burma, Iran, and North Korea), but 

could in the future be expanded to 

include jurisdictions that are identified 

to have significant deficiencies in their 

regulation of CVC or LTDA such that the 

application of this proposed rule’s 

recordkeeping and reporting 

requirements would be appropriate. 

C. Comparison to the CTR Reporting 

Requirements and Consideration of 

Extension of Current CTR Exemptions to 

the Proposed CVC/LTDA Transaction 

Reporting Requirement 

Similar to the CTR reporting 

requirement, this proposed rule would 

require reporting of transactions in CVC 

or LTDA that aggregate to greater than 

$10,000 in one day. Substantive 

exemptions to the CTR reporting 

requirement can be found at 31 CFR 

1010.315 and 1020.315. The exemption 

at 31 CFR 1010.315 exempts a non-bank 

financial institution (including an MSB) 

from the obligation to file a report 

otherwise required by 31 CFR 1010.311 

with respect to a transaction in currency 

between the institution and a 

commercial bank. This proposed rule 

would not extend this exemption to the 

reporting requirement proposed to be 

added at 31 CFR 1010.316(b) related to 

CVC/LTDA transactions between a 

bank’s or MSB’s hosted wallet customer 

and an unhosted or otherwise covered 

wallet. FinCEN is not proposing 

extending this exemption because 

unhosted and otherwise covered wallets 

would generally not involve a U.S. 

commercial bank. FinCEN has requested 

comment, however, on whether these 

exemptions should be extended with 

respect to the proposed CVC/LTDA 

transaction reporting requirement. 

The current exemptions to the CTR 

reporting requirement for banks at 31 

CFR 1020.315 are based in the 

mandatory and discretionary statutory 

exemptions to reporting requirements 

imposed on banks pursuant to 31 U.S.C. 

5313(d) and (e), respectively. The two 

sections below consider those 

exemptions in turn. 

1. Application of Mandatory 

Exemptions to 31 U.S.C. 5313 Reporting 

Requirements to the Proposed CVC/ 

LTDA Transaction Reporting 

Requirement 

31 U.S.C. 5313(d) mandates that the 

Secretary exempt ‘‘depository 

institutions’’—which include the banks 

on which the proposed CVC/LTDA 

transaction reporting requirement 

would be imposed—from reporting 

requirements imposed pursuant to 31 

U.S.C. 5313(a) with respect to 

transactions between the depository 

institution and: (a) Another depository 

institution; (b) a department or agency 

of the United States, any State, or any 

political subdivision of any State; (c) 

any entity established under the laws of 

the United States, any State, or any 

political subdivision of any State, or 

under an interstate compact between 

two or more States, which exercises 

governmental authority on behalf of the 

United States or any such State or 

political subdivision; or (d) any 

business or category of business the 

reports on which have little or no value 

for law enforcement purposes. 

FinCEN believes these mandatory 

statutory exemptions are likely to be of 

limited practical relevance with respect 

to the proposed reporting requirement 

because of the limited likelihood that 

the types of institutions covered by 

these mandatory statutory exemptions 

would maintain unhosted or otherwise 

covered wallets. Nevertheless, FinCEN 

is proposing to apply the mandatory 

statutory exemptions to the proposed 

CVC/LTDA transaction reporting 

requirement. At this time, however, 

FinCEN is not proposing to determine 

that there is any business or category of 

business for which the reports on CVC 

or LTDA would have little or no value 

for law enforcement purposes.59

2. Consideration of Applying the 

Discretionary Exemptions to 31 U.S.C. 

5313 Reporting Requirements to the 

Proposed CVC/LTDA Transaction 

Reporting Requirement 

31 U.S.C. 5313(e) states that the 

Secretary may exempt a depository 

institution from the reporting 

requirements of subsection (a) with 

respect to transactions between the 

depository institution and a qualified 

business customer of the institution on 

the basis of information submitted to the 

Secretary by the institution in 

accordance with procedures which the 

Secretary shall establish. FinCEN’s 

regulations incorporate this provision 

by including as ‘‘exempt persons’’ two 

categories of entities that are not within 

the mandatory exemptions of 31 U.S.C. 

5313(d),60 and then requiring that banks 

file a notice to FinCEN with respect to 

such persons prior to applying the 

exemption to discontinue the filing of 

CTRs.61

The discretionary exemptions that 

FinCEN has adopted relate to U.S. 

businesses with transaction accounts 

that frequently engage in transactions 

greater than $10,000, and certain payroll 

account customers.62 Neither of these 

discretionary categories appear likely to 

be counterparties to transactions 

between banks’ hosted wallet customers 

and unhosted or otherwise covered 

wallets. Therefore, FinCEN is not 

proposing to extend these provisions to 

the proposed CVC/LTDA transaction 

reporting requirement. FinCEN has 

requested comment on the exemptions 

it should apply. 


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63 31 CFR 1010.316(c) provides definitions for 

CVC and LTDA. As noted previously, CVC is 

defined consistently with the proposed definition 

in FinCEN and the Board of Governors of the 

Federal Reserve Board’s recent Funds Transfer/ 

Travel Rule NPRM. See 85 FR 68005, 68011 (Oct. 

27, 2020). LTDA is defined for the first time to be 

any type of digital asset issued by the United States 

or any other country that is designated as legal 

tender by the issuing country and accepted as a 

medium of exchange in the country of issuance. 

64The term ‘‘prevailing exchange rate’’ means a 

rate reasonably reflective of a fair market rate of 

exchange available to the public for the CVC/LTDA 

at the time of the transaction. Financial institutions 

would be required to document their method for 

determining the prevailing exchange rate. 

65For example, if three $6,000 transactions with 

unhosted wallets are initiated by a MSB’s hosted 

wallet customer at 7:00 a.m. on Tuesday, 7:00 p.m. 

IV. Proposed Recordkeeping, 

Verification, and Other Procedural 

Requirements on Transactions 

Involving CVC or LTDA 

A. Recordkeeping, Verification, and 

Other Procedural Requirements Related 

to the Proposed CVC/LTDA Transaction 

Reporting Requirement 

As noted above in Section II.C.3, the 

basic CTR reporting requirement at 31 

CFR 1010.311 is complemented by 

identification verification, 

recordkeeping, and procedural 

requirements, and other provisions 

found in other sections of 31 CFR 

chapter X. In particular, with respect to 

transactions for which a CTR must be 

filed, financial institutions must comply 

with the following related requirements: 

• Pursuant to 31 CFR 1010.312, 

financial institutions must verify and 

record the identity of the individual 

presenting the transaction, as well as 

record the identity, account number, 

and the social security or taxpayer 

identification number, if any, of any 

person or entity on whose behalf such 

transaction is to be effected. The 

regulation also lays out specific 

requirements for verification. 

• Pursuant to 31 CFR 1010.306(a)(1), 

a CTR must be filed within 15 days 

following the date of the reportable 

transaction. 

• Pursuant to 31 CFR 1010.306(a)(2), 

a CTR must be retained for five years 

from the date of the report. 

• Pursuant to 31 CFR 1010.306(a)(3), 

a CTR must be filed with FinCEN, 

unless otherwise specified. 

• Pursuant to 31 CFR 1010.306(d), a 

CTR must be filed on a form prescribed 

by the Secretary. Pursuant to 31 CFR 

1010.306(e), the CTR form may be 

obtained from the BSA E-Filing System. 

• Pursuant to 31 CFR 1010.314, 

structuring transactions to evade the 

CTR reporting requirement is 

prohibited. 

This proposed rule would amend 

these requirements. Specifically, the 

procedural and anti-structuring rules are 

proposed to be amended in a 

straightforward manner by adding to 

their scope the proposed reporting 

requirement at 31 CFR 1010.316. The 

identity verification and recordkeeping 

requirements are proposed to be 

amended to apply a new verification 

requirement to a financial institution’s 

hosted wallet customer, and to require 

the collection of the name and physical 

address of the customer’s counterparty, 

when engaging in a transaction 

reportable pursuant to the proposed 

CVC/LTDA transaction reporting 

requirement. 

B. Recordkeeping and Verification 

Requirements Distinct From the 

Proposed CVC/LTDA Transaction 

Reporting Requirement 

This proposed rule would add a new 

recordkeeping requirement at 31 CFR 

1010.410(g) requiring banks and MSBs 

to keep records and verify the identity 

of their hosted wallet customers, when 

those customers engage in transactions 

with unhosted or otherwise covered 

wallets with a value of more than 

$3,000. With respect to the verification 

requirement for recordkeeping, the 

proposed rule would allow for methods 

analogous to those permitted for 

verification of hosted wallet customers 

in relation to transactions subject to the 

proposed CVC/LTDA transaction 

reporting requirement. The proposed 

recordkeeping requirement would not 

apply to transactions between hosted 

wallets (except for otherwise covered 

wallets). 

FinCEN is proposing to establish this 

recordkeeping and verification 

requirement pursuant to 12 U.S.C. 

1829b(b)(1) and 12 U.S.C. 1953, which 

authorize the Secretary to adopt 

recordkeeping requirements for banks 

and MSBs that have a high degree of 

usefulness in criminal, tax, or regulatory 

investigations or proceedings, as well as 

31 U.S.C. 5318(a), which authorizes the 

Secretary to require domestic banks and 

MSBs to maintain appropriate 

procedures to ensure compliance with 

subchapter 53 of title 31 of the U.S. 

Code and regulations prescribed 

thereunder or to guard against money 

laundering. As a result, the statutory 

exemptions of 31 U.S.C. 5313 covering 

transactions between depository 

institutions and certain other entities do 

not apply to these proposed 

requirements. 

V. Section-by-Section Analysis 

A. Expansion of the Definition of 

‘‘Monetary Instruments’’ 

As described in Section III.B, the 

proposed rule would add a new 

provision at 31 CFR 1010.316(a) that 

includes a determination that CVC and 

LTDA are ‘‘monetary instruments’’ for 

the purposes of 31 U.S.C. 5313. This 

determination provides a basis for the 

proposed CVC/LTDA transaction 

reporting requirement proposed to be 

added at 31 CFR 1010.316(b).63

This proposed determination is not 

intended to impact the regulatory 

definition of ‘‘monetary instruments’’ at 

31 CFR 1010.100(dd), nor that 

regulatory definition’s use elsewhere in 

FinCEN’s regulations, including in 

relation to the currency transaction 

reporting requirement at 31 CFR 

1010.311, and the transportation of 

currency or monetary instruments 

reporting requirement at 31 CFR 

1010.340. 

B. Reporting Requirements on CVC and 

LTDA Transactions With Unhosted or 

Otherwise Covered Wallets 

This notice proposes a new reporting 

requirement at 31 CFR 1010.316(b). This 

would require banks and MSBs to file a 

report similar to the CTR for 

transactions between their customers’ 

CVC or LTDA hosted wallets and 

unhosted or otherwise covered wallets, 

either as senders or recipients. This 

reporting requirement would apply even 

if the user of the unhosted or otherwise 

covered wallet is the customer for 

which the financial institution holds a 

hosted wallet. 

To maintain consistency with the CTR 

form, this proposed rule would require 

CVC and LTDA transaction reporting at 

a threshold of $10,000 in value, as 

determined by the financial institution 

based on the prevailing exchange rate at 

the time of the transaction.64 FinCEN 

plans to issue a reporting form similar 

to but distinct from the CTR reporting 

form that will require the reporting of 

information on the filer, transaction, 

hosted wallet customer, and each 

counterparty. 

The proposed rule would add 

aggregation requirements similar to 

those that apply to the requirement to 

file CTRs. Specifically, the proposed 

aggregation provision at 31 CFR 

1010.313(c) would require that banks 

and MSBs, in calculating whether the 

$10,000 threshold has been met, treat 

multiple CVC and LTDA transactions as 

a single transaction if the bank or MSB 

has knowledge that they are by or on 

behalf of any person and result in value 

in or value out of CVC or LTDA above 

the threshold of $10,000 during a 24- 

hour period. This 24-hour period begins 

from the first unreported transaction.65


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on Tuesday, and 8:00 a.m. on Wednesday, then the 

first two transactions would be reported, consistent 

with the aggregation requirement, but not the third 

transaction. However, the third transaction would 

be subsequently reported, consistent with the 

aggregation requirement, if there were additional 

transactions with unhosted or otherwise covered 

wallets before 8:00 a.m. on Thursday totaling more 

than $4,000 in value. 

66Cf. FinCEN Advisory, FIN–2012–A001, 

‘‘Foreign-Located Money Services Businesses’’ (Feb. 

2012), https://www.fincen.gov/sites/default/files/ 

advisory/FIN-2012-A001.pdf. 

67Pursuant to the note to 31 CFR 1010.312(b), this 

includes verifying the identity of the person 

accessing the customer’s account, which may be 

someone conducting a transaction on the 

customer’s behalf. 

The aggregation provisions would not 

require that CVC/LTDA transactions be 

aggregated with currency transactions 

for the purposes of either the CTR 

reporting requirement threshold or the 

CVC/LTDA transaction reporting 

requirement threshold. 

Because a bank or MSB may provide 

CVC or LTDA hosting through distinct 

corporate structures and from different 

physical locations than it provides 

traditional financial services, proposed 

31 CFR 1010.313(c) makes clear that, for 

purposes of aggregation with respect to 

the CVC/LTDA transaction reporting 

requirement, a bank or MSB must 

include all of its offices and records, 

wherever they may be located. 

Additionally, under this proposed rule, 

foreign-located MSBs must comply with 

the proposed CVC/LTDA transaction 

reporting requirement, and this related 

aggregation requirement, with respect to 

their activities in the United States.66

With respect to counterparty 

information that would be required to 

be reported pursuant to 31 CFR 

1010.316(b), the proposed rule would 

require the reporting of certain 

identifying information including, at a 

minimum, the name and physical 

address of each counterparty. Consistent 

with their AML/CFT programs, under 

the proposed rule, banks and MSBs 

would continue to follow risk-based 

procedures to determine whether to 

obtain additional information about 

their customer’s counterparties or take 

steps to confirm the accuracy of 

counterparty information. 

The proposed 31 CFR 1010.316 would 

exempt from required reporting those 

transactions that are between a filer’s 

hosted wallet customer and a 

counterparty hosted wallet at a financial 

institution that is either regulated under 

the BSA or located in a foreign 

jurisdiction that is not on the Foreign 

Jurisdictions List. As proposed, prior to 

applying the exemption at 31 CFR 

1010.316(d), banks and MSBs would 

need to have a reasonable basis to 

determine that a counterparty wallet is 

a hosted wallet at either a BSAregulated financial institution or a 

foreign financial institution in a 

jurisdiction that is not on the Foreign 

Jurisdictions List. For example, in 

analyzing whether a counterparty’s 

wallet is hosted by a BSA-regulated 

MSB, financial institutions would need 

to ensure that the MSB is registered 

with FinCEN. In making a 

determination of the applicability of the 

exemption to a wallet hosted by a 

foreign financial institution, banks and 

MSBs would need to confirm that the 

foreign financial institution is not 

located in a jurisdiction on the Foreign 

Jurisdictions List, and would need to 

apply reasonable, risk-based, 

documented procedures to confirm that 

the foreign financial institution is 

complying with registration or similar 

requirements that apply to financial 

institutions in the foreign jurisdiction. 

As discussed in Section III.D, FinCEN 

also proposes amending 31 CFR 

1020.315 to apply the mandatory 

statutory exemptions to the reporting 

requirements imposed pursuant to 31 

U.S.C. 5313(a) to the proposed CVC/ 

LTDA transaction reporting requirement 

to be added at 31 CFR 1010.316(b). 

However, as discussed in Section III.D, 

FinCEN is not proposing to conclude 

that there is any business or category of 

business the reports on which have little 

or no value for law enforcement 

purposes under the proposed CVC/ 

LTDA transaction reporting 

requirement. Therefore, FinCEN is not 

proposing to extend the regulatory 

exceptions related to public companies 

and their subsidiaries that have been 

applied to such entities with respect to 

currency transactions pursuant to 31 

CFR 1020.315(b)(4)–(5). Further, 

FinCEN is not proposing applying the 

discretionary statutory exemptions to 

further limit the scope of the proposed 

CVC/LTDA transaction reporting 

requirement. FinCEN is continuing to 

consider these issues and has sought 

comments on whether it should apply 

these exemptions differently. 

Because FinCEN has only proposed 

extending the exemption under 31 CFR 

1020.315 to entities subject to the 

mandatory statutory exemption listed in 

31 CFR 1020.315(b)(1)–(3), FinCEN is 

not proposing to require a bank to file 

FinCEN Form 110 or a similar form in 

relation to such exempt persons in order 

to take advantage of the exemption. This 

is consistent with the existing special 

rule at 31 CFR 1020.315(c)(2)(B) for 

transactions in currency. 

In some instances, CVC/LTDA 

transactions may involve multiple 

senders and recipients. As reflected in 

the proposed exemption language at 31 

CFR 1010.316(d), a transaction where 

any one participating wallet is unhosted 

or otherwise covered would be subject 

to the proposed CVC/LTDA transaction 

reporting requirement. Therefore, banks 

and MSBs would be required to report, 

keep records, and engage in verification 

with respect to such transactions, if the 

aggregate amount of CVC/LTDA 

transactions involving unhosted or 

otherwise covered wallets, either sent or 

received from their customer’s account, 

exceeds $10,000 in value within a 24- 

hour period. 

C. Recordkeeping and Verification 

Requirements Related to the 

Transaction Reporting Requirement for 

CVC and LTDA Transactions With 

Unhosted or Otherwise Covered Wallets 

As described in Section IV, the 

proposed rule would also extend to the 

new CVC/LTDA transaction reporting 

requirement provisions analogous to the 

identity verification, recordkeeping, and 

procedural requirements, and the antistructuring rule, that apply to the CTR 

reporting requirement. 

1. Identity Verification and 

Recordkeeping Requirements 

The identity verification and 

recordkeeping requirements applicable 

to transactions that require the filing of 

a CTR are found at 31 CFR 1010.312. 

The proposed rule would amend this 

provision by adding a requirement at 31 

CFR 1010.312(b) that banks and MSBs 

verify and keep records of their hosted 

wallet customers who engage in a 

transaction with unhosted or otherwise 

covered wallet counterparties. 

Specifically, banks and MSBs would be 

required to verify and record the 

identity of their customer engaged in a 

reportable transaction.67 Under the 

proposed rule, in the case of a 

transaction in which the bank’s or 

MSB’s customer is the sender and the 

bank or MSB is aware at the time of the 

transaction that reporting is required 

pursuant to 31 CFR 1010.316 or 

1010.313(c) (where the reporting 

requirement applies based on 

aggregation), the bank or MSB should 

not complete the transmission of funds 

until such recordkeeping and 

verification is complete. Similarly, in 

the case of a transaction in which the 

bank’s or MSB’s customer is the 

recipient, the bank or MSB would need 

to obtain the required recordkeeping 

and verification information as soon as 

practicable. In addition, under the 

proposed rule, banks and MSBs would 

be expected to incorporate policies 

tailored to their respective business 

models should the bank or MSB be 


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68See 31 CFR 1020.210(b)(5); 31 CFR 1020.220(a). 

69See 31 CFR 1022.210(a). 

70Specifically, the proposed rule would make 

relevant conforming changes to 31 CFR 1020.310, 

1020.312, 1020.313, 1022.310, 1022.312, and 

1022.313. 

71Cf., e.g., 31 CFR 1010.410(g)(2), with 31 CFR 

1010.312(b) (verification is only required under 

either provision for hosted wallet customers 

transacting through unhosted or otherwise covered 

wallets). 

72Cf. 31 CFR 1010.410(g)(4), with 31 CFR 

1010.316(d). 

unable to obtain the required 

information, such as by terminating its 

customer’s account in appropriate 

circumstances. 

FinCEN recognizes that verification of 

identity in the CTR context generally 

involves transactions in currency that 

are physically presented, in contrast to 

the CVC and LTDA transactions that are 

subject to the proposed CVC/LTDA 

transaction reporting requirement, for 

which this is often not the case. 

Accordingly, under the proposed rule, 

consistent with the bank’s or MSB’s 

AML/CFT program, the bank or MSB 

would need to establish risk-based 

procedures for verifying their hosted 

wallet customer’s identity that are 

sufficient to enable the bank or MSB to 

form a reasonable belief that it knows 

the true identity of its customer. These 

procedures would be based on the 

bank’s or MSB’s assessment of the 

relevant risks, including those presented 

by the nature of their relationship with 

their hosted wallet customer, the 

transaction activity, and other activity 

associated with each counterparty and 

the CVC or LTDA assets. In the case of 

a bank, which is subject to very similar 

requirements pursuant to its obligations 

to obtain CIP information and engage in 

ongoing customer due diligence 

(‘‘CDD’’), the bank may be able to 

leverage information it has previously 

collected and is already obligated to 

collect.68 The same may be true for 

MSBs which must maintain internal 

controls as part of an effective money 

laundering program that is reasonably 

designed to prevent the money services 

business from being used to facilitate 

money laundering and the financing of 

terrorist activities.69

2. Procedural Requirements and the 

Anti-Structuring Rule 

a. Procedural Requirements 

The proposed rule would amend 

several procedural requirements that 

apply to the CTR reporting requirement 

to ensure their application to the 

proposed CVC/LTDA transaction 

reporting requirement as well. These 

include the requirements of 31 CFR 

1010.306(a)(1), which applies a 15-day 

deadline from the date of a reportable 

transaction for the filing of the new 

report; (a)(2), which requires the 

retention of a copy of each filed report 

for five years from the date of the report; 

(a)(3), which requires reports to be filed 

with FinCEN unless otherwise 

specified); (d), which requires reports to 

be filed on form prescribed by the 

Secretary; and (e), which states that 

forms used to make reports may be 

obtained on FinCEN’s BSA E-Filing 

System. 

The proposed rule would also make 

several clerical edits. It would amend 31 

CFR 1010.310, which previously 

provided an overview of the CTR 

requirement, so that it describes both 

the CTR requirement and the proposed 

CVC/LTDA transaction reporting 

requirement. The proposed rule would 

also conform the relevant crossreferences in Parts 1020 and 1022 to the 

new requirements,70 and would add 

cross-references to the new reporting 

requirement at 31 CFR 1020.316 and 31 

CFR 1022.316. 

b. Anti-Structuring Rule 

The proposed rule would amend the 

definition of structuring at 31 CFR 

1010.100(xx) to refer to the new 

reporting requirement at 31 CFR 

1010.316 and would also modify the 

prohibition on structuring at 31 CFR 

1010.314 to refer to the proposed 

reporting requirement. In order to make 

the proposed reporting requirement 

effective, it is necessary to ensure that 

parties engaged in structuring to avoid 

the new reporting requirement are 

subject to penalties. Because the 

proposed reporting requirement at 31 

CFR 1010.316 would be imposed 

pursuant to 31 U.S.C. 5313(a), the 

proposed amended structuring 

prohibition at 31 CFR 1010.314 is 

consistent with 31 U.S.C. 5324. 

D. Recordkeeping and Verification 

Requirements for Transactions Greater 

than $3,000 

Under the proposed recordkeeping 

provision, to be added at 31 CFR 

1010.410(g), banks and MSBs would be 

required to keep records and verify the 

identity of their customers engaging in 

transactions involving the withdrawal, 

exchange or other payment or transfer, 

by, through, or to such financial 

institution of CVC or LTDA, as those 

terms are defined in § 1010.316(c), with 

a value of more than $3,000, as 

determined by the bank or MSB based 

on the prevailing exchange rate at the 

time of the transaction. 

With respect to counterparty 

information for which banks and MSBs 

would be required to collect records 

pursuant to 31 CFR 1010.410(g), the 

proposed rule would require that banks 

and MSBs collect, at a minimum, the 

name and physical address of each 

counterparty, and other information the 

Secretary may prescribe on the reporting 

form implementing the proposed CVC/ 

LTDA transaction reporting 

requirement. Banks and MSBs would, 

under the proposed rule, continue to 

follow risk-based procedures, consistent 

with their AML/CFT program, to 

determine whether to obtain additional 

information about their customer’s 

counterparties or take steps to confirm 

the accuracy of counterparty 

information. 

Transactions with a value of greater 

than $10,000 would be subject to both 

the reporting requirement of 31 CFR 

1010.316(b) and the recordkeeping and 

verification requirements of 31 CFR 

1010.410(g). However, FinCEN expects 

that banks and MSBs would be able to 

employ a single set of information 

collection and verification procedures to 

satisfy both requirements, and has made 

the verification requirements 

consistent.71 Furthermore, FinCEN has 

proposed to apply to these 

recordkeeping and verification 

requirements the exemption for 

transactions between hosted wallets 

(except for otherwise covered wallets).72

The same considerations, discussed in 

Section V.B, that govern the application 

of the exemption to the proposed CVC/ 

LTDA transaction reporting 

requirement, such as the need for banks 

or MSBs to have a documented basis for 

applying an exemption, would also 

govern the application of this 

exemption. In addition, no aggregation 

would be required for the purpose of the 

recordkeeping requirement at 31 CFR 

1010.410(g). 

Furthermore, banks and MSBs would 

be subject to similar programmatic 

requirements under the recordkeeping 

requirement at 31 CFR 1010.410(g) as 

they would be under the verification 

requirement for the proposed CVC/ 

LTDA transaction reporting 

requirement. Specifically, in the case of 

a transaction in which the bank’s or 

MSB’s customer is the sender and 

recordkeeping and verification is 

required pursuant to 31 CFR 

1010.410(g), the bank or MSB should 

not complete the transmission of funds 

until such recordkeeping and 

verification is complete. Similarly, in 

the case of a transaction in which the 

bank’s or MSB’s customer is the 

recipient, the bank or MSB should 

obtain the required recordkeeping and 

verification information as soon as 


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practicable. In addition, banks and 

MSBs would be expected to incorporate 

policies tailored to their respective 

business models should the bank or 

MSB be unable to obtain the required 

information, such as by terminating its 

customer’s account in appropriate 

circumstances. 

For transactions subject to the 

proposed recordkeeping requirement at 

31 CFR 1010.410(g), a bank or MSB 

would be required to obtain and retain 

an electronic record of information 

about its customer, the amount and 

execution date of the transaction, and 

the counterparty. Unlike other 

recordkeeping requirements, such as 31 

CFR 1010.410(e) and 1020.410(a), the 

recordkeeping requirement in the 

proposed rule would require the 

electronic retention of information. 

FinCEN is proposing to require 

electronic recordkeeping based on the 

fact that such recordkeeping is the 

practical way in which businesses 

engaged in CVC or LTDA transactions 

are likely to track their data and the 

most efficient form in which data can be 

provided to law enforcement and 

national security authorities. 

Furthermore, under 31 CFR 

1010.410(g)(3) as proposed, the 

information that a financial institution 

would be required to retain under 

paragraphs (g)(1) and (g)(2) of that 

section must be retrievable by the bank 

or MSB by reference to the name or 

account number of its customer, or the 

name of its customer’s counterparty. 

This information would not need not be 

retained in any particular manner, so 

long as the bank or MSB is able to 

retrieve the information. FinCEN is 

proposing these requirements to ensure 

that the information retained by banks 

and MSBs is efficiently searchable in 

response to lawful information requests. 

VI. Request for Comment 

FinCEN welcomes comment on all 

aspects of this proposed rule. FinCEN 

encourages all interested parties to 

provide their views. 

With respect to the effect of 

expanding the scope on the definition of 

‘‘monetary instruments’’ in the BSA, 

FinCEN in particular requests comment 

on the following question from financial 

institutions and members of the public: 

(1) Has FinCEN been sufficiently clear 

that the impact of the definitional 

change to ‘‘monetary instruments’’ 

would be limited to the reporting, 

recordkeeping, verification, and other 

requirements of this proposed rule, and 

not to preexisting regulatory obligations 

such as the CTR reporting requirement 

at 31 CFR 1010.311? 

With respect to the reporting 

requirements in proposed 31 CFR 

1010.316, FinCEN in particular requests 

comment on the following questions 

from law enforcement, financial 

institutions, and members of the public: 

(2) Describe the costs from complying 

with the proposed reporting 

requirement. 

(3) Describe the benefits to law 

enforcement from the data obtained 

from the proposed reporting 

requirement. 

(4) Has FinCEN struck a reasonable 

balance between financial inclusion and 

consumer privacy and the importance of 

preventing terrorism financing, money 

laundering, and other illicit financial 

activity? If not, what would be a more 

appropriate way to balance these 

objectives? 

(5) Describe how the costs of 

complying with the proposed reporting 

requirement, or the benefits to law 

enforcement from the data obtained 

from the proposed reporting 

requirement, would vary were FinCEN 

to adopt a higher or lower threshold 

than $10,000. 

(6) Describe how the costs of 

complying with the proposed reporting 

requirement, or the benefits to law 

enforcement from the data obtained 

from the proposed reporting 

requirement, would vary were FinCEN 

to apply the reporting requirement to all 

CVC/LTDA transactions by hosted 

wallets, including those with hosted 

wallet counterparties. 

(7) Should FinCEN add additional 

jurisdictions to the Foreign Jurisdictions 

List or remove jurisdictions currently on 

that list? Are there any particular 

considerations FinCEN should take into 

account when adding or removing 

jurisdictions? 

(8) Has FinCEN provided sufficient 

clarity to financial institutions on the 

scope of the aggregation requirements 

that apply to the proposed CVC/LTDA 

transaction reporting requirement? 

(9) Discuss the costs and benefits of 

modifying the aggregation requirement 

to require aggregation for the purposes 

of the proposed CVC/LTDA transaction 

reporting requirement across both fiat 

and CVC/LTDA transactions. 

(10) Has FinCEN properly considered 

the extension of the mandatory and 

discretionary statutory exemptions at 31 

U.S.C. 5313(d)–(e) that are currently 

applicable to the CTR reporting 

requirement to the proposed CVC/LTDA 

transaction reporting requirement? Has 

FinCEN extended exemptions either too 

broadly or too narrowly? Was FinCEN 

correct to not extend the exemption 

from the CTR reporting requirement at 

31 CFR 1010.315 related to transactions 

between a non-bank financial institution 

and a commercial bank to the proposed 

CVC/LTDA transaction reporting 

requirement? 

(11) Should FinCEN extend the 

obligation to file reports under the 

proposed CVC/LTDA transaction 

reporting requirement to financial 

institutions other than banks and MSBs 

(e.g., brokers-dealers, futures 

commission merchants, mutual funds, 

etc.)? What would be the cost and 

benefits of extending the proposed CVC/ 

LTDA transaction reporting 

requirements to other financial 

institutions? 

With respect to the proposed 

recordkeeping, verification, and other 

requirements in connection with CVC/ 

LTDA transactions, FinCEN in 

particular requests comment on the 

following questions from law 

enforcement, financial institutions, and 

members of the public: 

(12) Describe the costs from 

complying with the proposed 

recordkeeping and verification 

requirements. 

(13) Describe the benefits to law 

enforcement from being able to access 

data verified and obtained based on the 

proposed recordkeeping and verification 

requirements. 

(14) Could the verification 

requirements be adjusted to enhance the 

benefits to law enforcement without a 

significant change to the costs to banks 

and MSBs, or to reduce the costs to 

banks and MSBs without a significant 

change in the benefit to law 

enforcement? 

(15) Describe the potential changes to 

the costs and benefits that would be 

available to law enforcement were 

FinCEN to maintain the reporting 

requirement of 31 CFR 1010.316 but 

also require that banks and MSBs verify 

the identity of the counterparties of 

their hosted wallet customers. 

(16) Is it necessary for the antistructuring prohibition to be extended 

to the proposed CVC/LTDA transaction 

reporting requirement? 

With respect to the proposed 

recordkeeping requirements in 31 CFR 

1010.410(g), FinCEN in particular 

requests comment on the following 

questions from law enforcement, 

financial institutions, and members of 

the public: 

(17) Would it be appropriate for 

FinCEN to require additional data be 

retained pursuant to 31 CFR 

1010.410(g)? 

(18) Describe the costs from 

complying with the proposed 

recordkeeping and verification 

requirements. 


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73See generally 5 U.S.C. 553. 

74See N. Carolina Growers’ Ass’n, Inc. v. United 

Farm Workers, 702 F.3d 755, 770 (4th Cir. 2012); 

Rural Cellular Ass’n v. FCC, 588 F.3d 1095, 1101 

(D.C. Cir. 2009). 

75See 5 U.S.C. 553(a)(1), (b)(3)(B), (d)(3). 

76See Press Release, FinCEN, May 3, 2019, 

available at https://www.fincen.gov/resources/ 

financial-crime-enforcement-network-exchange 

(last accessed Dec. 18, 2020). 

77See Press Release, U.S. Dep’t of the Treasury, 

Mar. 2, 2019, available at https://

home.treasury.gov/news/press-releases/sm926 (last 

accessed Dec. 18, 2020). 

78See Press Release, FinCEN, Nov. 12, 2020, 

available at https://www.fincen.gov/news/newsreleases/fincen-holds-virtual-fincen-exchangeransomware (last accessed Dec. 18, 2020). 

79See Mast Indus., Inc. v. Regan, 596 F. Supp. 

1567, 1581 (Ct. Int’l Trade 1984) (quoting H.R.Rep. 

No. 79–1980, at 23 (1946), H.R.Rep. No. 79–1980, 

at pp. 23 (1946)). 

(19) Describe the benefits to law 

enforcement from being able to access 

data verified and obtained based on the 

proposed recordkeeping and verification 

requirements. 

(20) Could the verification 

requirements be adjusted to enhance the 

benefits to law enforcement without a 

significant change to the costs to banks 

and MSBs, or to reduce the costs to 

banks and MSBs without a significant 

change in the benefit to law 

enforcement? 

(21) Describe the potential changes to 

the costs and benefits that would be 

available to law enforcement were 

FinCEN to maintain the recordkeeping 

requirement of 31 CFR 1010.410(g) but 

also require that banks and MSBs verify 

the identity of the counterparties of 

their hosted wallet customers. 

(22) Is it reasonable to require that 

records be retained in electronic form? 

Are the retrievability criteria 

reasonable? 

(23) Should FinCEN extend the 

obligation to keep records under the 

proposed CVC/LTDA transaction 

reporting requirement to financial 

institutions other than banks and MSBs 

(e.g., broker-dealers, futures commission 

merchants, mutual funds, etc.)? 

(24) Describe technical challenges to 

implementation to could impact 

reasonable ability to implement these 

requirements. 

VII. Administrative Procedure Act 

The Administrative Procedure Act 

(APA) generally requires an agency to 

provide notice of proposed rulemaking 

in the Federal Register and an 

opportunity for interested persons to 

participate in the rulemaking by 

submitting comments on the proposal.73

No minimum period for comment is 

prescribed, although agencies must 

provide the public with a ‘‘meaningful 

opportunity’’ to comment on a 

proposal.74 The APA also requires 

publication of the final version of a rule 

at least thirty days before the rule’s 

effective date. 

These requirements do not apply, 

however, to rules involving a ‘‘foreign 

affairs function’’ or where ‘‘good cause’’ 

is shown for rules with respect to which 

‘‘notice and public procedure’’ is 

‘‘impracticable, unnecessary, or contrary 

to the public interest.’’ 75 As described 

below, the proposed rule is not subject 

to notice-and-comment requirements 

because it falls within each of these 

exceptions. Nevertheless, FinCEN is 

publishing its proposed rule in the 

Federal Register and inviting 

comments, and will consider any 

comments received. 

FinCEN has determined that a longer 

period of public comment is not 

necessary and would frustrate the 

objectives of the rule by unduly 

delaying implementation of measures to 

curb illicit finance and threats to United 

States national interests. FinCEN notes 

that in addition to the comment period 

being provided, the agency has directly 

engaged with the cryptocurrency 

industry on multiple occasions and in a 

variety of formats over the past year on 

the AML risks arising in connection 

with cryptocurrency and carefully 

considered information and feedback 

received from industry participants. 

These engagements have included a 

FinCEN Exchange event in May 2019 on 

virtual currency with representatives 

from virtual currency money 

transmitters, third-party service 

providers, federal government agencies, 

a federal task force, and depository 

institutions that included discussion of 

methods to identify vulnerabilities, 

disrupt terrorist and proliferation 

financing, and guard against other 

financial crimes; 76 visits to 

cryptocurrency businesses in California 

in February 2020; a working session in 

March 2020 with cryptocurrency 

industry leaders, compliance experts, 

and senior Treasury Department and 

FinCEN officials that included 

discussion of supervisory and regulatory 

challenges facing digital assets, 

including cryptocurrency; 77 and a 

FinCEN Exchange event on 

cryptocurrency and ransomware in 

November 2020 that included 

discussion of emerging trends and 

typologies, and recovery of victims’ 

funds.78 Recently, FinCEN also has 

received outreach from industry 

specifically addressing potential 

regulatory requirements for unhosted 

wallets, including letters from 

CoinCenter, the Blockchain Association, 

Blockchain.com, the Global Digital 

Asset & Cryptocurrency Association, 

Circle, and the Association for Digital 

Asset Markets. 

The proposed rule is a vital part of 

FinCEN’s efforts to curb illicit finance, 

and, subject to feedback received during 

the comment period, FinCEN believes 

rapid implementation is critical to the 

successful accomplishment of the 

proposed rule’s objectives. Undue delay 

in implementing this rule would 

encourage movement of unreported or 

unrecorded assets implicated in illicit 

finance from hosted wallets at financial 

institutions to unhosted or otherwise 

covered wallets, such as by moving CVC 

to exchanges that do not comply with 

AML/CFT requirements. Such delay 

presents an opportunity to illicit actors 

who have substantial proceeds in 

regulated financial institutions and who 

want to be able to move those funds 

without detection into the darker, 

unregulated corners of the CVC 

ecosystems: Withdraw the funds quickly 

with no required reporting to federal 

authorities, or withdraw the funds after 

the rule takes effect with detailed 

mandatory reporting to federal 

authorities. Conversely, participants 

with funds at regulated financial 

institutions who wish to transact with 

illicit actors operating outside that 

regulated environment are similarly 

enabled to proceed with those 

transactions immediately without 

detailed mandatory reporting to federal 

authorities, but face significant 

reporting obligations if they wait until 

after a period of delayed 

implementation. FinCEN has concluded 

that the incentives that would be 

created by an undue implementation 

delay could seriously undermine the 

interests the rule is designed to advance. 

In addition, the substantial concerns 

about national security, terrorism, 

ransomware, money laundering, and 

other illicit financial activities 

discussed above, and the need for an 

effective response in a rapidly changing 

area of major national concern, support 

making the amendments in the 

proposed rule effective as quickly as is 

feasible. 

The considerations are reinforced by 

the inapplicability of the APA’s noticeand-comment requirements to the 

proposed rule. As noted, the APA 

provides an exemption from notice-andcomment requirements where ‘‘there is 

involved . . . a foreign affairs function 

of the United States,’’ and while this 

exemption is not to be ‘‘interpreted 

loosely’’ to reach any function having an 

impact beyond U.S. borders,79 it is 

applicable wherever a foreign affairs 


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80See Mast, 596 F. Supp. at pp. 1581. 

81 Id. 

82See California Bankers Assn. v. Shultz, 416 

U.S. 21, 27–28 (1974). 

83 ‘‘Global Bitcoin Nodes Distribution,’’ Bitnodes, 

https://bitnodes.io/ (accessed Dec. 2, 2020). 

84See Rajah v. Mukasey, 544 F.3d 427, 438 (2d 

Cir. 2008) (reasoning that notice-and-comment 

process can be ‘‘slow and cumbersome,’’ thereby 

impairing national interests). 

85See Am. Ass’n of Exporters & Importers-Textile 

& Apparel Grp. v. United States, 751 F.2d 1239, 

1249 (Fed. Cir. 1985) (noting incentive to engage in 

activities to manipulate trade levels that prior 

announcement of restricted quotas would create). 

86See City of New York v. Permanent Mission of 

India to United Nations, 618 F.3d 172, 201–02 (2d 

Cir. 2010). As commentators have noted, the United 

States has played a leading role in the development 

of international AML/CFT measures, including 

through unilateral action establishing templates for 

global standards. See Laura K. Donohue, AntiTerrorist Finance in the United Kingdom and 

United States, 27 Mich. J. Int’l L. 303, 381 (2006). 

87See Schultz, 416 U.S. at pp. 27–28. Numerous 

provisions of the BSA single out transactions with 

foreign elements for special treatment. See, e.g., 31 

U.S.C. 5314 (reports on transactions with foreign 

financial agencies), 5316 (importation and 

exportation of monetary instruments); see also 31 

U.S.C. 5315(a)(1), (3) (declaring congressional 

findings that, inter alia, ‘‘moving mobile capital can 

have a significant impact on the proper functioning 

of the international monetary system’’ and that 

authority should be provided to collect information 

on capital flows to beyond authorities under the 

Trading with the Enemy Act and the Bretton Woods 

Agreement Act). 

88 5 U.S.C. 553(b)(3)(B). 

89 Mobil Oil Corp. v. Dept of Energy, 728 F.2d 

1477, 1492 (Temp. Emer. Ct. App. 1983). 

90See U.S. Dep’t of Justice, Attorney General’s 

Manual on the Administrative Procedure Act at pp. 

31, quoted in Utility Solid Waste Activities Group 

v. Environmental Protection Agency, 236 F.3d 749, 

755 (D.C. Cir. 2001). 

91 Mack Trucks, Inc. v. E.P.A., 682 F.3d 87, 95 

(D.C. Cir. 2012) (citation and quotation marks 

omitted). 

92 Jifry v. FAA, 370 F.3d 1174, 1179 (D.C. Cir. 

2004). 

93See id.; see also Airport Operators Council 

Intern. v. Shaffer, 354 F. Supp. 79 (D.D.C. 1973). 

94See Disabled in Action of Metro. New York, Inc. 

v. Brezenoff, 506 F. Supp. 244, 248 (S.D.N.Y. 1980); 

see also Northern Arapahoe Tribe v. Hodel, 808 

F.2d 741, 751 (10th Cir. 1987) (finding good cause 

based on need to preserve wildlife in light of 

impending hunting season). 

function is ‘‘involved.’’ This exemption 

is distinct from the APA’s good cause 

exception,80 and reaches matters 

affecting relations with other 

governments to a substantial extent, 

such as where adherence to the APA’s 

requirements would ‘‘provoke definitely 

undesirable international 

consequences.’’ 81

The proposed rule advances foreign 

policy and national security interests of 

the United States, using a statute that 

was designed in part for that purpose. 

As the Supreme Court has explained, 

one of Congress’s core aims in enacting 

the Bank Secrecy Act was to respond to 

threats associated with international 

financial transactions.82 Those concerns 

are plainly implicated where a foreign 

financial institution is not subject to 

adequate AML/CFT regulation, or where 

individuals outside the United States 

transact without using a financial 

institution at all. With the increasingly 

geographically dispersed operating 

models of CVC systems and financial 

institutions, both in their organizational 

and operational structures as well as in 

their services to customers in many 

jurisdictions, most CVC and LTDA 

activity involves cross-border value 

transfer or cross-border operations. For 

example, the Bitcoin network operates 

across nodes around the world. Only 

approximately 17% of the nodes on the 

Bitcoin network operate in the United 

States.83

The requirements of the proposed rule 

directly involve one or more foreign 

affairs functions of the United States. 

The illicit financing targeted by these 

requirements involves substantial 

international dimensions. Among the 

objectives of these requirements is the 

application of appropriate controls to 

curb malign actions of hostile foreign 

states facilitated by means of CVC/ 

LTDA, to prevent evasion of United 

States sanctions regimes, to combat the 

financing of global terrorism, and to 

address other threats originating in 

whole or in substantial part outside the 

United States, including the 

proliferation of ransomware attacks, 

transnational money laundering, and 

international trafficking in controlled 

substances, stolen and fraudulent 

identification documents and access 

devices, counterfeit goods, malware and 

other computer hacking tools, firearms, 

and toxic chemicals. Unduly delaying 

the implementation of the proposed rule 

would hinder the efforts of the United 

States government to perform important 

national security and foreign affairs 

functions.84 In addition, as explained in 

the discussion of the good cause 

exception, FinCEN expects that malign 

actors may exploit such a delay by 

moving assets to unhosted wallets and 

away from regulated financial 

institutions to escape financial 

transparency.85

Furthermore, and consistent with the 

policy interests underlying this rule, 

FinCEN notes that the requirements 

being imposed represent an important 

part of the leadership role of the United 

States in the development of 

international standards applicable to 

global financial networks, both in 

general and with respect to CVC/LTDA 

in particular.86 In addition to the foreign 

affairs functions involved in efforts to 

combat illicit financing, the measures 

being adopted directly concern the 

movement of currency and its 

equivalents (i.e., value that substitutes 

for currency) across national borders, 

which has long been viewed as a critical 

aspect of foreign policy, international 

relations, and global economic 

standing.87

In addition to the foreign affairs 

exemption, the APA permits an agency 

to forgo otherwise applicable noticeand-comment procedures where the 

agency ‘‘for good cause finds . . . that 

notice and public procedure thereon are 

impracticable, unnecessary, or contrary 

to the public interest.’’ 88 It has long 

been recognized that the APA’s noticeand-comment requirements may run 

counter to the public interest ‘‘when the 

very announcement of a proposed rule 

itself can be expected to precipitate 

activity by affected parties that would 

harm the public welfare.’’ 89 This is 

especially so in connection with 

financial regulation where the 

‘‘announcement of a proposed rule 

would enable the sort of financial 

manipulation the rule sought to 

prevent.’’ 90 In such circumstances 

‘‘notice and comment could be 

dispensed with in order to prevent the 

amended rule from being evaded.’’ 91 As 

noted above, FinCEN is concerned about 

the consequences of undue delay in the 

implementation of the proposed rule, 

and in particular that such delay could 

accelerate or cause the movement of 

assets implicated in illicit finance from 

hosted wallets at financial institutions 

to unhosted or otherwise covered 

wallets, such as by moving CVC to 

exchanges that do not comply with 

AML/CFT requirements. These concerns 

squarely implicate the APA’s good 

cause exception. Good cause may also 

be supported where delay in 

implementation ‘‘could result in serious 

harm.’’ 92 For example, agency good 

cause findings have been sustained in 

connection with anti-terrorism 

measures, such as rules adopted to 

prevent airplane hijacking.93 While 

serious harm most commonly involves 

threats to physical health and safety, 

agency good cause findings based on 

other concerns, such as the prevention 

of substantial financial fraud, have also 

survived challenge.94 FinCEN has 

determined that the substantial 

concerns about national security, 

terrorism, ransomware, money 

laundering, and other illicit financial 

activities discussed above, and the need 

for an effective response in a rapidly 

changing area of major national concern, 

support making the amendments in the 

proposed rule effective as quickly as is 

feasible. 


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95 85 FR 31598, 31604 and 31607 (May 26, 2020). 

96At the moment, only a limited number of 

transactions occur involving LTDA, although many 

countries are developing LTDA. 

97See Institute for Economics and Peace, Global 

Terrorism Index, 2019 (Nov. 2019), https://

visionofhumanity.org/app/uploads/2019/11/GTI2019web.pdf. 

98For example, the New York Comptroller 

estimated in 2002 that the direct physical and 

human cost of the September 11 attacks on New 

York was over $30.5 billion. See City of New York 

Comptroller, ‘‘One Year Later: The Fiscal Impact of 

9/11 on New York City’’ (Sept. 4, 2002), https://

comptroller.nyc.gov/wp-content/uploads/ 

documents/impact-9-11-year-later.pdf. 

VIII. Regulatory Analysis 

A. Executive Orders 13563, 12866, and 

13771 

Executive Orders 13563 and 12866 

direct agencies to assess costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, and public health and 

safety effects; distributive impacts; and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing rules, 

and of promoting flexibility. Although 

the review requirements of Executive 

Order 12866 do not apply to this 

proposed rule because it involves a 

foreign affairs function, in the interest of 

maximizing transparency, FinCEN has 

analyzed the economic effects of this 

proposed rule consistent with the 

principles of the Order. 

FinCEN believes the primary cost of 

complying with the proposed rule is 

captured in its Paperwork Reduction 

Act (44 U.S.C. 3507(d)) (‘‘PRA’’) burden 

estimates described in detail below, 

which amount to 1,284,349 hours. 

FinCEN estimated in its recent OMB 

control number renewal for SAR 

requirements that the average labor cost 

of storing SARs and supporting 

documentation, weighed against the 

relevant labor required, was $24 per 

hour.95 FinCEN assesses that this is a 

reasonable estimate for the labor cost of 

the requirements that would be imposed 

by this rule. Therefore a reasonable 

minimum estimate for the burden of 

administering this rule is approximately 

$30.8 million annually (1,284,349 hours 

multiplied by $24 per hour). However, 

the PRA burden does not include 

certain costs, such as information 

technology implementation costs solely 

resulting from the proposed rule. 

FinCEN specifically requests comment 

regarding the costs associated with 

implementing these requirements. 

FinCEN notes that although 

institutions that provide CVC or LTDA 

wallet hosting services are, ipso facto, 

likely to be capable of handling the 

implementation of the proposed 

reporting requirement, the initial costs 

of implementation may be non-trivial. 

For instance, institutions may incur 

costs in the initial stages if they set up 

a process for fitting existing data they 

maintain into XML format. 

The benefits from the proposed rule 

are expected to include enhanced law 

enforcement ability to investigate, 

prosecute and disrupt the financing of 

international terrorism and other 

priority transnational security threats, as 

well as other types of financial crime, by 

obtaining improved visibility into 

financial flows into unhosted wallets 

and improved attribution of CVC 

transactions involving unhosted and 

otherwise covered wallets.96 FinCEN 

believes that the collection of CVC and 

LTDA indicators will significantly 

enhance law enforcement’s and 

regulators’ ability to leverage blockchain 

analytics to obtain attribution and move 

investigations forward in an expeditious 

manner. 

The cost of terrorist attacks can be 

immense. For instance, one public 

report estimated the cost of terrorism 

globally at $33 billion in 2018, though 

this cost was primarily borne outside 

the United States.97 The cost of a major 

terrorist attack, such as the September 

11 attacks, can reach tens of billions of 

dollars.98 Of course, it is difficult to 

quantify the contribution of a particular 

rule to a reduction in the risk of a 

terrorist attack. However, even if the 

proposed rule produces very small 

reductions in the probability of a major 

terrorist attack, the benefits would 

exceed the costs. 

The proposed rule would contribute 

to the ability of law enforcement to 

investigate a wide array of priority 

transnational threats and financial 

crimes, including terrorism, 

proliferation financing, sanctions 

evasion, money laundering, human 

trafficking, and child exploitation. 

FinCEN considered several 

alternatives to the proposed rule. First, 

FinCEN considered imposing a 

reporting requirement on all CVC/LTDA 

transactions. However, FinCEN 

determined that existing AML 

requirements typically were sufficient to 

mitigate enough of the risks of illicit 

finance involving transactions between 

hosted wallets at BSA-regulated 

institutions that it did not appear 

justified to impose an additional 

transaction reporting requirement that 

all banks and MSBs report all such 

transactions. If FinCEN reevaluates this 

conclusion in light of comments to the 

proposed rule, FinCEN would likely 

extend the discretionary reporting 

requirement exemptions similar to the 

rules that apply to banks under 31 CFR 

1020.315 such that filers could submit 

a FinCEN Form 110 or similar form to 

exempt certain customers that engage in 

consistent patterns of legal transactions. 

Second, FinCEN considered only 

applying the exemption at 31 CFR 

1010.316(d) to counterparty hosted 

wallets at BSA-regulated financial 

institutions and not extending it to 

hosted wallets at foreign financial 

institutions in jurisdictions not on the 

Foreign Jurisdictions List. However, 

FinCEN determined that given the 

inherently international nature of CVC 

and LTDA transactions, and the fact that 

certain other jurisdictions apply an 

AML regime to financial institutions 

hosting CVC or LTDA wallets, it would 

be appropriate to initially not impose 

additional requirements with respect to 

wallets hosted by financial institutions 

in jurisdictions not on the Foreign 

Jurisdictions List. However, FinCEN 

will carefully analyze comments to 

determine whether additional 

jurisdictions should be added to the 

Foreign Jurisdictions List. 

Third, FinCEN considered applying a 

lower threshold for the proposed CVC/ 

LTDA transactions than the $10,000 

threshold. While imposing a lower 

threshold for CVC/LTDA transactions 

would enhance the ability of law 

enforcement and national security 

authorities to obtain attribution on a 

larger number of wallets, FinCEN 

determined that it would be beneficial 

for the reporting requirement included 

in the proposed rule to have a threshold 

consistent with the CTR reporting 

requirement for fiat transactions. 

FinCEN will carefully consider 

comments as to whether a lower or 

higher reporting threshold would be 

appropriate for the proposed CVC/LTDA 

transaction reporting requirement. 

Fourth, FinCEN considered extending 

the proposed CVC/LTDA transaction 

reporting requirement to different types 

of financial institutions besides banks 

and MSBs. Based on the current market 

structure, FinCEN determined that it 

would be appropriate to limit the 

proposed rule’s application to banks 

and MSBs. FinCEN will carefully 

evaluate comments as to whether the 

CVC/LTDA custody market in its 

current form, or as a result of how it is 

expected to develop in the future, 

justifies extending the proposed CVC/ 

LTDA transaction reporting requirement 

to other types of financial institutions 

such as those in the securities and 

commodities industries. 


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99The Small Business Administration (‘‘SBA’’) 

defines a depository institution (including a credit 

union) as a small business if it has assets of $600 

million or less. The information on small banks is 

published by the Federal Deposit Insurance 

Corporation (‘‘FDIC’’) and was current as of March 

31, 2020. 

100The SBA defines an entity engaged in 

‘‘Financial Transactions Processing, Reserve, and 

Clearinghouse Activities’’ to be small if it has assets 

of $41.5 million or less. FinCEN assesses that 

money transmitters most closely align with this 

SBA category of entities. 

Fifth, FinCEN considered imposing 

the proposed CVC/LTDA transaction 

reporting requirement at 31 CFR 

1010.316(b), as well as the proposed 

recordkeeping requirement at 31 CFR 

1010.410(g), without associated 

verification requirements. However, 

FinCEN determined that it is reasonable 

to require verification at the time a 

hosted wallet customer engages in CVC/ 

LTDA transactions that transfer 

significant value involving unhosted or 

otherwise covered wallets. The 

proposed verification requirement 

would enhance the ability of financial 

institutions to provide accurate 

information in their CVC/LTDA 

transaction reporting, as well as to 

identify suspicious activity. FinCEN 

also considered proposing verification 

requirements that required gathering 

specific documentation consistent with 

the verification requirements applicable 

to CTR reporting, but determined that it 

would be more appropriate to allow 

banks and MSBs to rely on risk-based 

verification procedures. 

Executive Order 13771 requires an 

agency to identify at least two existing 

regulations to be repealed whenever it 

publicly proposes for notice and 

comment or otherwise promulgates a 

new regulation. The reporting, 

recordkeeping, and verification 

requirements proposed in this notice 

involve a national security function. 

Therefore, Executive Order 13771 does 

not apply. 

B. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) (5 U.S.C. 601 et seq.) requires 

an agency either to provide an initial 

regulatory flexibility analysis with a 

proposed rule or certify that the 

proposed rule will not have a significant 

economic impact on a substantial 

number of small entities. This proposed 

regulation applies to all banks and 

MSBs and likely would affect a 

substantial number of small entities. 

FinCEN has therefore prepared an initial 

regulatory flexibility analysis pursuant 

to the RFA. FinCEN welcomes 

comments on all aspects of the initial 

regulatory flexibility analysis. A final 

regulatory flexibility analysis will be 

conducted after consideration of 

comments received during the comment 

period. 

1. Statement of the Need for, and 

Objectives of, the Proposed Regulation 

This proposed rule would adopt 

recordkeeping, verification, and 

reporting requirements for certain 

deposits, withdrawals, exchanges, or 

other payments or transfers of CVC or 

LTDA by, through, or to a bank or MSB 

that involve an unhosted or otherwise 

covered wallet. FinCEN is proposing to 

define otherwise covered wallets as 

those wallets that are held at a financial 

institution that is not subject to the BSA 

and is located in a foreign jurisdiction 

identified by FinCEN on a Foreign 

Jurisdictions List. 

First, this proposed rule would 

require banks and MSBs to file a report 

with FinCEN containing certain 

information related to a customer’s CVC 

or LTDA transaction and counterparty 

(including name and physical address), 

and to verify the identity of their 

customer, if a counterparty to the 

transaction is using an unhosted or 

otherwise covered wallet and the 

transaction is greater than $10,000 (or 

the transaction is one of multiple CVC 

transactions involving such 

counterparty wallets and the customer 

flowing through the bank or MSB within 

a 24-hour period that aggregate to value 

in or value out of greater than $10,000). 

Second, this proposed rule would 

require banks and MSBs to keep records 

of a customer’s CVC or LTDA 

transaction and counterparty, including 

verifying the identity of their customer, 

if a counterparty is using an unhosted 

or otherwise covered wallet and the 

transaction is greater than $3,000. 

Although analytic techniques can be 

used to combat illicit finance through 

CVC or LTDA, they are not a panacea. 

Blockchain analysis can be rendered 

less effective by a number of factors, 

including the scale of a blockchain 

network, the extent of peer-to-peer 

activity (i.e., transactions between 

unhosted wallets), the use of 

anonymizing technologies to obscure 

transaction information, and a lack of 

information concerning the identity of 

transferors and recipients in particular 

transactions. Additionally, several types 

of AEC are increasing in popularity and 

employ various technologies that inhibit 

investigators’ ability both to identify 

transaction activity using blockchain 

data and to attribute this activity to 

illicit activity conducted by natural 

persons. 

The requirements FinCEN is 

proposing would therefore provide 

greater insight into transacting parties 

with a nexus to one or more potentially 

illicit transactions in several respects. 

These include directly as a result of the 

information collected, maintained, and 

reported in relation to transactions 

above the recordkeeping or reporting 

thresholds and also through information 

identified in relation to structured 

transactions given the new structuring 

prohibition that would be imposed. This 

greater insight will contribute to the 

ability of law enforcement to investigate 

a wide array of priority transnational 

threats and financial crimes, including 

terrorism, proliferation financing, 

sanctions evasion, money laundering, 

human trafficking, and child 

exploitation. The proposed rule’s 

reporting requirements are similar to the 

reporting requirements applicable to 

cash transactions imposed by the CTR 

reporting requirement. Furthermore the 

recordkeeping requirements resemble 

the recordkeeping requirements 

applicable to transmittals of funds 

between financial institutions. 

2. Small Entities Affected by the 

Proposed Regulation 

This proposed regulation applies to 

all banks and MSBs and likely would 

affect a substantial number of small 

entities. As described in the PRA 

section that follows, based upon current 

data there are 5,306 banks, 5,236 credit 

unions, and 365 MSBs that would be 

impacted by the proposed rule changes. 

Based upon current data, for the 

purposes of the RFA, there are at least 

3,817 small Federally-regulated banks 

and 4,681 small credit unions.99 FinCEN 

believes that most money transmitters 

are small entities.100 Because the 

proposed rule would apply to all of 

these small financial institutions, 

FinCEN concludes that this proposed 

rule would apply to a substantial 

number of small entities. 

FinCEN anticipates that for most 

small banks and credit unions the 

impact of the proposed changes will be 

minor. While FinCEN is aware that such 

institutions, in light of developments 

such as the OCC Custody Guidance and 

the creation of the SPDI charter in 

Wyoming, are likely to engage in a 

growing amount of CVC transactions, 

that trend is still in the early stages. 

FinCEN anticipates the burden on banks 

will become more comparable to that on 

MSBs over time, as banks engage in 

more custody transactions involving 

CVC or LTDA. Likewise, FinCEN does 

not believe that any banks or MSBs 

currently facilitate a significant number 

of transactions involving sovereign 

digital currencies. 

Based on the conclusions just 

mentioned, the primary impact of the 


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83856 Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Proposed Rules 

proposed rules on small businesses will 

be on small businesses acting as money 

transmitters. FinCEN notes that 

although institutions that provide CVC 

or LTDA wallet hosting services are, 

ipso facto, likely to be capable of 

handling the implementation of the 

proposed reporting requirement, the 

initial costs of implementation may be 

non-trivial. For instance, institutions 

may incur costs in the initial stages if 

they set up a process for fitting existing 

data they maintain into XML format. 

3. Compliance Requirements 

Compliance costs for entities that 

would be affected by these regulations 

are generally, reporting, recordkeeping, 

and information technology 

implementation and maintenance costs. 

Data are not readily available to 

determine the costs specific to small 

entities and FinCEN invites comments 

about compliance costs, especially those 

affecting small entities. 

This proposed rule would adopt 

recordkeeping, verification, and 

reporting requirements for certain 

deposits, withdrawals, exchanges, or 

other payments or transfers of CVC or 

LTDA by, through, or to a bank or MSB 

that involve an unhosted or otherwise 

covered wallet. First, this proposed rule 

would require banks and MSBs to file a 

report with FinCEN containing certain 

information related to a customer’s CVC 

or LTDA transaction and counterparty 

(including name and physical address), 

and to verify the identity of their 

customer, if a counterparty to the 

transaction is using an unhosted or 

otherwise covered wallet and the 

transaction is greater than $10,000 (or 

the transaction is one of multiple CVC 

transactions involving such 

counterparty wallets and the customer 

flowing through the bank or MSB within 

a 24-hour period that aggregate to value 

in or value out of greater than $10,000). 

Second, this proposed rule would 

require banks and MSBs to keep records 

of a customer’s CVC or LTDA 

transaction and counterparty, including 

verifying the identity of their customer, 

if a counterparty is using an unhosted 

or otherwise covered wallet and the 

transaction is greater than $3,000. 

4. Duplicative, Overlapping, or 

Conflicting Federal Rules 

FinCEN is unware of any Federal 

rules that duplicate, overlap with, or 

conflict with the changes to the BSA 

regulation proposed herein. These rules 

are meant to be analogues to the 

recordkeeping requirements applicable 

to transmittals of funds between 

financial institutions and the CTR 

reporting requirements applicable to 

transactions in currency. 

5. Significant Alternatives to the 

Proposed Regulations 

FinCEN considered several 

alternatives to the proposed regulatory 

changes. First, FinCEN considered 

imposing a reporting requirement on all 

CVC/LTDA transactions. However, 

FinCEN determined that existing AML 

requirements typically were sufficient to 

mitigate enough of the risks of illicit 

finance involving transactions between 

hosted wallets at BSA-regulated 

institutions that it did not appear 

justified to impose an additional 

transaction reporting requirement that 

all banks and MSBs report all such 

transactions. 

Second, FinCEN considered only 

applying the exemption at 31 CFR 

1010.316(d) to counterparty hosted 

wallets at BSA-regulated financial 

institutions and not extending it to 

hosted wallets at foreign financial 

institutions in jurisdictions not on the 

Foreign Jurisdictions List. However, 

FinCEN determined that it would be 

appropriate to initially not impose 

additional requirements with respect to 

wallets hosted by financial institutions 

in jurisdictions not on the Foreign 

Jurisdictions List. 

Third, FinCEN considered applying a 

lower threshold for the proposed CVC/ 

LTDA transactions than the $10,000 

threshold. FinCEN determined that it 

would be beneficial for the reporting 

requirement included in the proposed 

rule to have a threshold consistent with 

the CTR reporting requirement for fiat 

transactions. 

Fourth, FinCEN considered extending 

the proposed CVC/LTDA transaction 

reporting requirement to different types 

of financial institutions besides banks 

and MSBs. Based on the current market 

structure, FinCEN determined that it 

would be appropriate to limit the 

proposed rule’s application to banks 

and MSBs. 

Fifth, FinCEN considered imposing 

the proposed CVC/LTDA transaction 

reporting requirement at 31 CFR 

1010.316(b), as well as the proposed 

recordkeeping requirement at 31 CFR 

1010.410(g), without associated 

verification requirements. However, 

FinCEN determined that it is reasonable 

to require verification at the time a 

hosted wallet customer engages in CVC/ 

LTDA transactions that transfer 

significant value involving unhosted or 

otherwise covered wallets. FinCEN also 

considered proposing verification 

requirements that required gathering 

specific documentation consistent with 

the verification requirements applicable 

to CTR reporting, but determined that it 

would be more appropriate to allow 

banks and MSBs to rely on risk-based 

verification procedures. 

FinCEN welcomes comment on the 

overall regulatory flexibility analysis, 

especially information about 

compliance costs and alternatives. 

C. Unfunded Mandates Reform Act 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 

(‘‘Unfunded Mandates Act’’), Public 

Law 104–4 (March 22, 1995), requires 

that an agency prepare a budgetary 

impact statement before promulgating a 

rule that may result in expenditure by 

the state, local, and tribal governments, 

in the aggregate, or by the private sector, 

of $100 million or more in any one year. 

If a budgetary impact statement is 

required, section 202 of the Unfunded 

Mandates Act also requires an agency to 

identify and consider a reasonable 

number of regulatory alternatives before 

promulgating a rule. See section VIII.A 

for a discussion of the economic impact 

of this proposed rule and regulatory 

alternatives. 

D. Paperwork Reduction Act 

The reporting and recordkeeping 

requirements contained in this proposed 

rule have been submitted by FinCEN to 

OMB for review in accordance with the 

PRA. Under the Paperwork Reduction 

Act, an agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

unless it displays a valid control 

number assigned by OMB. Written 

comments and recommendations for the 

information collection can be submitted 

by visiting www.reginfo.gov/public/do/ 

PRAMain. Find this particular notice by 

selecting ‘‘Currently under Review— 

Open for Public Comments’’ or by using 

the search function. Comments are 

welcome and must be received by 

January 7, 2021. In accordance with 

requirements of the PRA and its 

implementing regulations, 5 CFR part 

1320, the following information 

concerning the collections of 

information are presented to assist those 

persons wishing to comment on the 

information collections. 

1. Change in the Definition of 

‘‘Monetary Instruments’’ 

The change proposed in this notice to 

the definition of monetary instruments 

would impose no direct burden on the 

public. 


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101According to the FDIC there were 5,103 FDICinsured banks as of March 31, 2020. According to 

the Board of Governors of the Federal Reserve 

System, there were 203 other entities supervised by 

the Board or other Federal regulators, as of June 16, 

2020, that fall within the definition of bank. (20 

Edge Act institutions, 15 agreement corporations, 

and 168 foreign banking organizations). According 

to the National Credit Union Administration, there 

were 5,236 federally regulated credit unions as of 

December 31, 2019. 

102 In the Funds Transfer/Travel Rule NPRM, 

FinCEN estimated that there were 530 MSB filers. 

Certain of these, however, are filers that were 

previously registered with FinCEN and that 

subsequently allowed their expirations to lapse. As 

a result of their expirations lapsing, FinCEN has 

removed those filers from the burden calculation. 

103As discussed in the next section, FinCEN 

assumes that the recordkeeping requirement burden 

in the Funds Transfer/Travel Rule NPRM context is 

analogous to the recordkeeping/verification burden 

related to CVC/LTDA transaction reporting. 

104FinCEN anticipates that the number of 

transactions subject to reporting and recordkeeping 

related to otherwise covered wallets hosted by 

foreign financial institutions located in jurisdictions 

on the Foreign Jurisdictions List will be modest and 

does not calculate additional burden in relation to 

this aspect of the rule. 

105CipherTrace, ‘‘FinCEN’s Proposed Rule 

Change for Travel Rule Threshold Would More 

Than Double Compliance Events at US VASPs’’ 

(Nov. 13, 2020), https://ciphertrace.com/fincensproposed-rule-change-for-travel-rule-would-triggermore-than-double-the-compliance-events-at-usvasps/ (accessed Dec. 1, 2020). 

106Specifically, FinCEN fit an equation of the 

model Y = CXα to the data from CipherTrace, where 

Y equals the number of transactions above a given 

threshold, X equals the threshold, C is a constant, 

and a is the percent change in Y per one-percent 

change in X. FinCEN used the calibrated values of 

C and a to extrapolate to the number of transactions 

above the $10,000 threshold. 

2. Reporting Requirement Related to 

CVC and LTDA: [31 CFR 

1010.306(a)(1)–(3), (d)–(e), 1010.313, 

1010.316, 1020.313, 1020.315, 1020.316, 

1022.313, 1022.316] 

The proposed rule would require 

banks and MSBs to report information 

related to CVC and LTDA transactions 

above $10,000 between their hosted 

wallet clients and unhosted or 

otherwise covered wallets. The 

proposed aggregation rules that would 

apply to CVC and LTDA transactions are 

broadly similar to those that apply to 

the CTR reporting requirement; 

aggregation is not required, however, 

between a person’s CVC/LTDA and 

currency transactions. The mandatory 

exemptions of 31 U.S.C. 5313(d) apply 

to the proposed CVC/LTDA transaction 

reporting requirement, as incorporated 

in 31 CFR 1020.315. 

Description of Recordkeepers: Banks 

and MSBs that conduct CVC or LTDA 

transactions on behalf of hosted wallet 

clients as senders or recipients in an 

amount above $10,000. 

Estimated Number of Recordkeepers: 

10,907 financial institutions. FinCEN 

estimates that there are approximately 

5,306 federally regulated banks and 

5,236 federally regulated credit 

unions.101 FinCEN, for purposes of 

these estimates, will assume that all of 

these banks and credit unions engage 

nominally in transactions involving 

CVC. FinCEN estimates that, as of 

November 2020, 365 MSBs engage in 

CVC transactions.102 The FinCEN MSB 

registration form does not require that 

companies disclose whether they engage 

in CVC transactions. This estimate is 

therefore based on adding the number of 

MSBs that indicated they engage in CVC 

transactions in an optional field on the 

MSB registration form, and the number 

that did not so indicate but which, 

based on FinCEN’s research, FinCEN 

believes engage in CVC transactions. 

(5,306 + 5,236 + 365 = 10,907). 

Estimated Average Annual Burden 

Hours Per Recordkeeper: FinCEN notes 

that in the recent Funds Transfer/Travel 

Rule NPRM, FinCEN estimated that the 

burden hours per bank was nominally 

one hour. FinCEN is retaining the same 

estimate for this rule. While FinCEN is 

aware that banks, in light of 

developments such as the OCC Custody 

Guidance and the creation of the SPDI 

charter in Wyoming, are likely to engage 

in a growing amount of CVC 

transactions, that trend is still in the 

early stages. FinCEN anticipates the 

burden on banks will become more 

comparable to that on MSBs over time, 

as banks engage in more custody 

transactions involving CVC or LTDA. 

In the Funds Transfer/Travel Rule 

NPRM PRA analysis, FinCEN estimated 

that the burden per MSB to comply with 

the collection and recordkeeping 

requirement at the transactional 

threshold of $3,000 was 240 hours per 

institution, and that the burden per 

MSB to comply with the transmission 

requirement at the transactional 

threshold of $3,000 was 180 hours per 

institution. The burden analysis below 

assumes that the transmittal 

requirement burden in the Funds 

Transfer/Travel Rule NPRM context is 

analogous to the reporting requirement 

burden under the proposed CVC/LTDA 

transaction reporting requirement.103

However, the burden must be adjusted 

for four factors: (i) The fact that the 

$10,000 threshold under the CVC/LTDA 

transaction reporting requirement is 

greater than the $3,000 threshold in the 

Funds Transfer/Travel Rule NPRM; (ii) 

the fact that the burden analyzed in the 

Funds Transfer/Travel Rule NPRM 

relates to transactions between hosted 

wallets and not transactions from hosted 

to unhosted wallets, and there may be 

more or fewer hosted-to-unhosted 

transactions at any level; (iii) the fact 

that some transactions below the 

transaction reporting threshold may be 

subject to reporting due to aggregation 

requirements; and (iv) the fact that the 

reporting burden under the proposed 

CVC/LTDA transaction reporting 

requirement may be more complex than 

the transmission requirement under the 

Funds Transfer/Travel Rule NPRM.104

As FinCEN noted in the Funds 

Transfer/Travel Rule NPRM PRA 

analysis, the estimated average burden 

hours would vary depending on the 

number of transactions conducted by a 

financial institution’s customers with 

unhosted or otherwise covered wallets. 

In a recent publication commenting on 

the recent Funds Transfer/Funds Travel 

NPRM, the blockchain analytics firm 

CipherTrace estimated that the 

proposed decrease in the applicable 

threshold for international transactions 

from $3,000 to $250 would increase the 

number of reportable transactions per 

month from approximately 27,300 to 

approximately 79,000.105 Applying a 

constant elasticity model,106 FinCEN 

estimates that approximately 60% as 

many transactions would occur above 

the $10,000 threshold. 

In order to estimate the ratio of 

unhosted-to-hosted transactions to 

hosted-to-hosted transactions, FinCEN 

analyzed blockchain data related to all 

identifiable transactions by each of two 

major exchanges in September 2020 

using blockchain analytic tools. FinCEN 

found that the ratio of unhosted-tohosted to hosted-to-hosted transactions 

were approximately 1.52 and 2.39 in the 

$3,000 to $10,000 transaction range for 

the two exchanges, respectively. In the 

greater than $10,000 range the ratios 

were 1.40 and 1.64, respectively. In the 

analysis below, FinCEN uses the larger 

ratios, 2.39 and 1.64. Thus FinCEN will 

assume that 164% as many transactions 

would be covered by the reporting 

requirements at the $10,000 threshold 

under the proposed rule than the 

transmission requirements at the same 

threshold in the Funds Transfer/Travel 

Rule NPRM. Similarly, in the $3,000 to 

$10,000 range, FinCEN will assume 

239% as many transactions would be 

covered by the proposed rule’s 

recordkeeping and verification 

requirements described in the next 

section in comparison to the 

recordkeeping requirements in the 

Funds Transfer/Travel Rule NPRM. 

Thus, at the $10,000 threshold, we 

assume that only 60% as many 

transactions are occurring as at the 

$3,000 level, but that the number of 

such transactions which are unhostedto-hosted are 164% of the amount of 

such transactions that are hosted-toVerDate Sep<11>2014 16:43 Dec 22, 2020 Jkt 253001 PO 00000 Frm 00021 Fmt 4702 Sfmt 4702 E:\FR\FM\23DEP1.SGM 23DEP1

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83858 Federal Register / Vol. 85, No. 247 / Wednesday, December 23, 2020 / Proposed Rules 

107The burden of collecting counterparty 

information that must be reported on the reporting 

form is considered in the next section. 

hosted, for a combined total scaling 

factor of 98.4%. To account for the fact 

that some transactions less than $10,000 

will need to be aggregated due to 

aggregation requirements, we will 

assume that the total scaling factor is 

148% (98.4% * 1.5). 

In contrast to the PRA analysis used 

for the Funds Transfer/Travel Rule 

NPRM, the reporting burden will 

possibly be more complicated than the 

requirement to transmit information in 

the Funds Transfer/Travel Rule NPRM 

given the variety of information 

required by the reporting form. For 

purposes of calculations, FinCEN 

assumes that the reporting burden will 

be twice as complex.107 Therefore the 

total scaling factor applied to the Funds 

Transfer/Travel Rule NPRM PRA 

burden estimate for transmission burden 

is 2.96 (2.96 = 2 × 1.48). As a result, the 

estimated burden per MSB is 533 hours 

(180 hours (from Funds Transfer/Travel 

Rule NPRM PRA analysis) × 2.94). 

Estimated Total Additional Annual 

Burden Hours: 10,542 hours (10,542 

banks × 1 hour/bank) + 194,545 hours 

(365 MSBs × 533 hours/MSB) = 205,087 

hours. 

3. Recordkeeping and Verification 

Requirements Related to CVC and 

LTDA: [31 CFR 1010.312, 1010.410(g), 

1022.312, 1022.312] 

The proposed rule would require 

banks and MSBs to keep records of, and 

verify the identity of their hosted wallet 

customers who participate in, 

transactions subject to the CVC/LTDA 

transaction reporting requirements, i.e. 

CVC/LTDA transactions involving 

hosted wallet customers and unhosted 

or otherwise covered wallets related 

with a value aggregating to $10,000 or 

more. The proposed recordkeeping 

requirement at 31 CFR 1010.410(g) 

likewise would require banks and MSBs 

to keep records of, and verify the 

identity of their hosted wallet customers 

who engage in, transactions with a value 

of more than $3,000. Furthermore, 

under the proposed rule, for 

transactions that are greater than $3,000, 

or that aggregate to more than $10,000, 

the name and physical address of each 

counterparty must be collected and, in 

the case of reportable transactions, 

reported. 

Description of Recordkeepers: Banks 

and MSBs that conduct CVC or LTDA 

transactions on behalf of hosted wallet 

clients as senders or recipients in an 

amount above $3,000, or that aggregate 

to an amount above $10,000. 

Estimated Number of Recordkeepers: 

10,907 financial institutions. FinCEN 

estimates that there are approximately 

5,306 federally regulated banks and 

5,236 federally regulated credit unions. 

FinCEN assesses that all of these banks 

and credit unions nominally engage in 

transactions involving CVC. FinCEN 

estimates that there are 365 MSBs that 

engage in CVC transactions. 

Estimated Average Annual Burden 

Hours per Recordkeeper: As noted in 

the previous section, FinCEN believes 

that the burden estimate for 

recordkeeping in the Funds Transfer/ 

Travel Rule NPRM (240 hours per MSB) 

is analogous to the burden estimate for 

recordkeeping and verification 

requirements pursuant to the proposed 

CVC/LTDA transaction reporting 

requirement. 

All transactions subject to reporting 

would also subject to recordkeeping and 

verification requirements. Therefore, the 

estimate that 148% as many 

transactions will be subject to the 

proposed reporting requirement as 

compared to the transactions subject to 

transmission requirements proposed by 

the Funds Transfer/Travel Rule NPRM, 

also applies to the recordkeeping and 

verification requirements of the 

proposed rule. However, this increase 

needs to be supplemented with the 

increase in transactions that would be 

subject to recordkeeping and 

verification under 31 CFR 1010.410(g), 

as proposed, which are between $3,000 

and $10,000. Using the constant 

elasticity model described in the 

previous section, the number of hostedto-hosted transactions between $3,000 

and $10,000 is approximately 40% of 

the estimated number of transactions 

about $10,000. Applying the 239% scale 

factor used in the previous section to 

calculate the proportionate number of 

hosted-to-unhosted transactions, and 

making no adjustment for the fact that 

some transactions in this $3,000 to 

$10,000 range would contribute to 

aggregation for the purposes of the 

proposed CVC/LTDA transaction 

reporting requirement and already be 

subject to verification, the total number 

of transactions subject to verification 

and recordkeeping due to 31 CFR 

1010.410(g) would increase by an 

additional 96% (0.4 * 2.39 = 0.956), for 

a total scaling factor of 244% (2.44 = 

1.48 + 0.96). 

However, FinCEN notes that the 

recordkeeping and verification 

requirement in the proposed rule is 

likely to be more burdensome than the 

collection and recordkeeping 

requirements of the Funds Transfer/ 

Travel Rule NPRM. In particular, the 

requirements dealt with in the Funds 

Transfer/Travel Rule NPRM do not 

require verification in most cases. In 

contrast, this proposed rule would 

require verifying the hosted wallet 

customer in each transaction subject to 

the reporting or recordkeeping 

requirements, as well as collecting each 

counterparty’s name and physical 

address. As a result of this greater 

burden, FinCEN assumes, for the 

purpose of this burden estimate, that the 

recordkeeping and verification burden 

is five times greater per transaction, 

under the proposed rule, than the 

burden imposed under the 

recordkeeping requirements of the 

Funds Transfer/Travel Rule NPRM. 

Therefore the total scaling factor applied 

to the Funds Transfer/Travel Rule 

NPRM PRA burden estimate for 

transmission burden is 12.2 (12.2 = 5 × 

2.44). As a result, the estimated burden 

per MSB is 2,928 hours (240 hours (from 

Funds Transfer/Travel Rule NPRM PRA 

analysis) × 12.2). 

Estimated Total Additional Annual 

Burden Hours: 10,542 hours (10,542 

banks × 1 hour/bank) + 1,068,720 hours 

(365 MSBs × 2,928 hours/MSB) = 

1,079,262 hours. 

4. Total Annual Burden Hours Estimate 

Under the Proposed Rule 

205,087 (reporting requirements) + 

1,079,262 hours (recordkeeping and 

verification requirements) = 1,284,349 

hours. 

5. Questions for Comment 

In addition to the questions listed 

above, FinCEN specifically invites 

comment on: (a) The accuracy of the 

estimated burden associated with the 

collection of information; (b) how the 

quality, utility, and clarity of the 

information to be collected may be 

enhanced; and (c) how the burden of 

complying with the collection of 

information may be minimized, 

including through the application of 

automated collection techniques or 

other forms of information technology. 

List of Subjects in 31 CFR Parts 1010, 

1020, and 1022 

Administrative practice and 

procedure, Banks, Banking, Currency, 

Foreign banking, Foreign currencies, 

Investigations, Penalties, Reporting and 

recordkeeping requirements, Terrorism. 

Authority and Issuance 

For the reasons set forth in the 

preamble, Parts 1010, 1020, and 1022 of 

chapter X of Title 31 of the Code of 

Federal Regulations are proposed to be 

amended as follows: 


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PART 1010—GENERAL PROVISIONS 

■ 1. The authority citation for part 1010 

continues to read as follows: 

Authority: 12 U.S.C. 1829b and 1951–1959; 

31 U.S.C. 5311–5314 and 5316–5332; title III, 

sec. 314, Pub. L. 107–56, 115 Stat. 307; sec. 

701, Pub. L. 114–74, 129 Stat. 599. 

■ 2. Amend § 1010.100 by revising 

paragraph (xx) to read as follows: 

§ 1010.100 General definitions. 

* * * * * 

(xx) Structure (structuring). For 

purposes of § 1010.314, a person 

structures a transaction if that person, 

acting alone, or in conjunction with, or 

on behalf of, other persons, conducts or 

attempts to conduct one or more 

transactions in currency, or, as defined 

in § 1010.316(c), convertible virtual 

currency, and digital assets with legal 

tender status, in any amount, at one or 

more financial institutions, on one or 

more days, in any manner, for the 

purpose of evading the reporting 

requirements under §§ 1010.311, 

1010.313, 1020.315, 1010.316, 1021.311 

and 1021.313 of this chapter. ‘‘In any 

manner’’ includes, but is not limited to, 

the breaking down of a single sum of 

currency exceeding $10,000 into smaller 

sums, including sums at or below 

$10,000, or the conduct of a transaction, 

or series of currency transactions at or 

below $10,000. The transaction or 

transactions need not exceed the 

$10,000 reporting threshold at any 

single financial institution on any single 

day in order to constitute structuring 

within the meaning of this definition. 

* * * * * 

■ 3. Amend § 1010.306, by revising the 

text of paragraphs (a), (d), and (e) to read 

as follows: 

§ 1010.306 Filing of reports. 

(a)(1) A report required by § 1010.311, 

§ 1010.316, or § 1021.311 of this 

chapter, shall be filed by the financial 

institution within 15 days following the 

day on which the reportable transaction 

occurred. 

(2) A copy of each report filed 

pursuant to §§ 1010.311, 1010.313, 

1010.316, 1020.315, 1021.311 and 

1021.313 of this chapter, shall be 

retained by the financial institution for 

a period of five years from the date of 

the report. 

(3) All reports required to be filed by 

§§ 1010.311, 1010.313, 1010.316, 

1020.315, 1021.311 and 1021.313 of this 

chapter, shall be filed with FinCEN, 

unless otherwise specified. 

* * * * * 

(d) Reports required by § 1010.311, 

1010.313, 1010.316, 1010.340, 

§ 1010.350, 1020.315, 1021.311 or 

1021.313 of this chapter shall be filed 

on forms prescribed by the Secretary. 

All information called for in such forms 

shall be furnished. 

(e) Forms to be used in making the 

reports required by § 1010.311, 

1010.313, 1010.316, 1010.350, 1020.315, 

1021.311 or 1021.313 of this chapter 

may be obtained from BSA E-Filing 

System. Forms to be used in making the 

reports required by § 1010.340 may be 

obtained from the U.S. Customs and 

Border Protection or FinCEN. 

■ 4. Revise § 1010.310 to read as 

follows: 

§ 1010.310 Reports of transactions in 

currency. 

Sections 1010.310 through 1010.314 

and 1010.316 set forth the rules for the 

reporting by financial institutions of 

transactions in currency, convertible 

virtual currency, and digital assets with 

legal tender status. Unless otherwise 

indicated, the transactions in currency 

reporting requirements in §§ 1010.310 

through 1010.314 apply to all financial 

institutions. The transactions in 

convertible virtual currency and digital 

assets with legal tender status 

requirements apply to banks and money 

services businesses. Each financial 

institution should refer to subpart C of 

its chapter X part for any additional 

transactions in currency reporting 

requirements. 

■ 5. Revise § 1010.312 to read as 

follows: 

§ 1010.312 Identification required. 

(a) Transactions in Currency: Before 

concluding any transaction with respect 

to which a report is required under 

§ 1010.311, 1010.313(b), 1020.315, 

1021.311, or 1021.313 of this chapter, a 

financial institution shall verify and 

record the name and address of the 

individual presenting a transaction, as 

well as record the identity, account 

number, and the social security or 

taxpayer identification number, if any, 

of any person or entity on whose behalf 

such transaction is to be effected. 

Verification of the identity of an 

individual who indicates that he or she 

is an alien or is not a resident of the 

United States must be made by passport, 

alien identification card, or other 

official document evidencing 

nationality or residence (e.g., a 

Provincial driver’s license with 

indication of home address). 

Verification of identity in any other case 

shall be made by examination of a 

document, other than a bank signature 

card, that is normally acceptable within 

the banking community as a means of 

identification when cashing checks for 

nondepositors (e.g., a driver’s license or 

credit card). A bank signature card may 

be relied upon only if it was issued after 

documents establishing the identity of 

the individual were examined and 

notation of the specific information was 

made on the signature card. In each 

instance, the specific identifying 

information (i.e., the account number of 

the credit card, the driver’s license 

number, etc.) used in verifying the 

identity of the customer shall be 

recorded on the report, and the mere 

notation of ‘‘known customer’’ or ‘‘bank 

signature card on file’’ on the report is 

prohibited. 

(b) Transactions in Convertible 

Virtual Currency or Digital Assets with 

Legal Tender Status: Before concluding 

any transaction with respect to which a 

report is required under § 1010.313(c) or 

§ 1010.316 of this chapter, a bank or 

money services business shall verify 

and record the identity of its customer 

engaging in the transaction. Consistent 

with the bank’s or money service 

business’s anti-money laundering and 

countering the financing of terrorism 

program, the bank or money services 

business should establish risk-based 

procedures for verifying the identity of 

its customer. The procedures must 

enable the bank or money services 

business to form a reasonable belief that 

it knows the true identity of its 

customer engaging in a transaction. 

These procedures must be based on the 

bank or money services business’s 

assessment of the relevant risks, 

including those presented by the nature 

of their relationship with its customer, 

the transaction activity, and other 

activity associated with the convertible 

virtual currency or digital assets with 

legal tender status involved in the 

transaction. 

Note to paragraph (b): If a bank or 

money services business has knowledge 

that a person has accessed the bank’s or 

money services business’s customer’s 

wallet to conduct a reportable 

transaction who is not the bank’s or 

money services business’s customer, the 

bank or money services business should 

treat that person as a customer for the 

purposes of this paragraph, and verify 

both the person who accessed the 

account and the customer. 

■ 6. Revise § 1010.313 to read as 

follows: 

§ 1010.313 Aggregation. 

(a) Multiple branches. A financial 

institution includes all of its domestic 

branch offices, and any recordkeeping 

facility, wherever located, that contains 

records relating to the transactions of 

the institution’s domestic offices, for 


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purposes of the transactions in currency 

reporting requirements in this chapter. 

(b) Multiple transactions in currency. 

In the case of financial institutions other 

than casinos, for purposes of the 

transactions in currency reporting 

requirements in this chapter, multiple 

currency transactions shall be treated as 

a single transaction if the financial 

institution has knowledge that they are 

by or on behalf of any person and result 

in either cash in or cash out totaling 

more than $10,000 during any one 

business day (or in the case of the U.S. 

Postal Service, any one day). Deposits 

made at night or over a weekend or 

holiday shall be treated as if received on 

the next business day following the 

deposit. 

(c) Multiple transactions in 

convertible virtual currency or digital 

assets with legal tender status. In the 

case of banks and money services 

businesses, for purposes of the 

transactions in convertible virtual 

currency and digital assets with legal 

tender status reporting requirements in 

this chapter, multiple convertible 

virtual currency and digital assets with 

legal tender status transactions shall be 

treated as a single transaction if the 

bank or money services business has 

knowledge that they are by or on behalf 

of any person and result in value in or 

value out of convertible virtual currency 

or digital assets with legal tender status 

with a value of more than $10,000 

during a 24-hour period. A bank or 

money services business includes all of 

its offices and records, wherever they 

may be located, for purposes of 

reporting requirements in this chapter 

for their transactions in convertible 

virtual currency or digital assets with 

legal tender status. 

■ 7. Amend § 1010.314 by revising the 

introductory text and paragraphs (a) and 

(b) to read as follows: 

§ 1010.314 Structured transactions. 

No person shall for the purpose of 

evading the transactions in currency or 

transactions in convertible virtual 

currency or digital assets with legal 

tender status reporting requirements of 

this chapter with respect to such 

transaction: 

(a) Cause or attempt to cause a 

domestic financial institution to fail to 

file a report required under the 

transactions in currency or transactions 

in convertible virtual currency or digital 

assets with legal tender status reporting 

requirements of this chapter; 

(b) Cause or attempt to cause a 

domestic financial institution to file a 

report required under the transactions 

in currency or transactions in 

convertible virtual currency or digital 

assets with legal tender status reporting 

requirements of this chapter that 

contains a material omission or 

misstatement of fact; or 

* * * * * 

■ 8. Add § 1010.316 to read as follows: 

§ 1010.316 Filing obligations for reports of 

transactions in convertible virtual currency 

and digital assets with legal tender status. 

(a) For purposes of this section only, 

FinCEN has determined that ‘‘monetary 

instruments’’ as defined by 31 U.S.C. 

5312(a)(3) includes convertible virtual 

currency and digital assets with legal 

tender status. 

Note to paragraph (a): The 

determination in paragraph (a) 

authorizes the promulgation of reporting 

requirements for transactions in 

convertible virtual currency and digital 

assets with legal tender status pursuant 

to 31 U.S.C. 5313(a). However, the 

determination in paragraph (a) is 

intended to have no impact on the 

definition of the term ‘‘monetary 

instruments’’ at § 1010.100(dd) or as 

used elsewhere in this chapter, 

including in relation to the currency 

transaction reporting requirement at 

§ 1010.311 and the transportation of 

currency or monetary instruments 

reporting requirement at § 1010.340. 

Therefore, other requirements in this 

chapter that depend on the definition of 

‘‘monetary instruments’’ are not affected 

by the determination in paragraph (a). 

(b) Except as exempted by paragraph 

(d) or otherwise exempted by regulation, 

each bank or money services business, 

as defined in § 1010.100, shall file a 

report of each deposit, withdrawal, 

exchange, or other payment or transfer, 

by, through, or to such financial 

institution which involves a transaction 

in convertible virtual currency or a 

digital asset with legal tender status 

with a value of more than $10,000. Such 

report shall include, in a form 

prescribed by the Secretary, the name 

and address of each counterparty, and 

such other information as the Secretary 

may require. 

(c) For purposes of paragraphs (a) and 

(b): 

(1) Convertible virtual currency 

means a medium of exchange (such as 

cryptocurrency) that either has an 

equivalent value as currency, or acts as 

a substitute for currency, but lacks legal 

tender status. 

(2) Digital assets with legal tender 

status means any type of digital asset 

issued by the United States or any other 

country that is designated as legal 

tender by the issuing country and 

accepted as a medium of exchange in 

the country of issuance. 

(d) Banks and money services 

businesses are not required to file a 

report under paragraph (b) in relation to 

a transaction in convertible virtual 

currency or a digital asset with legal 

tender status that is between the 

financial institution’s customer and a 

counterparty whose account is held at a 

financial institution regulated under the 

BSA, or at a foreign financial institution, 

except for a foreign financial institution 

in a jurisdiction listed on the List of 

Foreign Jurisdictions Subject to this 

section and § 1010.410(g) 

Recordkeeping, which is maintained on 

FinCEN’s website on the Resources 

page. If a single transaction involves 

multiple counterparties, the transaction 

is only subject to this exemption if the 

account of each counterparty to the 

transaction is held at a financial 

institution regulated under the BSA, or 

at a foreign financial institution, except 

for a foreign financial institution in a 

jurisdiction listed on the List of Foreign 

Jurisdictions Subject to this section and 

§ 1010.410(g) Recordkeeping. 

■ 9. Amend § 1010.410 by adding 

paragraph (g) to read as follows: 

§ 1010.410 Records to be made and 

retained by financial institutions. 

* * * * * 

(g) Each bank or money services 

business, as defined by 31 CFR 

1010.100, is subject to the requirements 

of this paragraph (g) with respect to a 

withdrawal, exchange or other payment 

or transfer, by, through, or to such 

financial institution which involves a 

transaction in convertible virtual 

currency or a digital asset with legal 

tender status, as those terms are defined 

in § 1010.316(c), with a value of more 

than $3,000. 

(1) Recordkeeping Requirements: For 

each withdrawal, exchange, or other 

payment or transfer, by, through, or to 

such financial institution which 

involves a transaction in convertible 

virtual currency or a digital asset with 

legal tender status, as those terms are 

defined in § 1010.316(c), a bank or 

money services business shall obtain 

and retain an electronic record of the 

following information: 

(i) The name and address of the 

financial institution’s customer; 

(ii) The type of convertible virtual 

currency or legal tender digital assets 

used in the transaction; 

(iii) The amount of convertible virtual 

currency or legal tender digital assets in 

the transaction; 

(iv) The time of the transaction; 

(v) The assessed value of the 

transaction, in dollars, based on the 

prevailing exchange rate at the time of 

the transaction; 


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(vi) Any payment instructions 

received from the financial institution’s 

customer; 

(vii) The name and physical address 

of each counterparty to the transaction 

of the financial institution’s customer, 

as well as other counterparty 

information the Secretary may prescribe 

as mandatory on the reporting form for 

transactions subject to reporting 

pursuant to § 1010.316(b); 

(viii) Any other information that 

uniquely identifies the transaction, the 

accounts, and, to the extent reasonably 

available, the parties involved; and, 

(ix) Any form relating to the 

transaction that is completed or signed 

by the financial institution’s customer. 

(2) Verification: In addition to 

obtaining and retaining the information 

required in paragraph (g)(1) of this 

section, before concluding any 

transaction in relation to which records 

must be retained under this paragraph, 

a financial institution shall verify the 

identity of its customer engaging in the 

transaction. Consistent with the 

financial institution’s anti-money 

laundering and countering the financing 

of terrorism program, the financial 

institution should establish risk-based 

procedures for verifying the identity of 

its customer. The procedures must 

enable the financial institution to form 

a reasonable belief that it knows the true 

identity of its customer engaging in a 

transaction. These procedures must be 

based on the financial institution’s 

assessment of the relevant risks, 

including those presented by the nature 

of its relationship with its customer, the 

transaction activity, and other activity 

associated with the convertible virtual 

currency or digital assets with legal 

tender status involved in the 

transaction. 

Note to paragraph (g)(2): If a bank or 

money services business has knowledge 

that a person has accessed the bank’s or 

money services business’s customer’s 

wallet to conduct a transaction for 

which records must be maintained who 

is not the bank’s or money services 

business’s customer, the bank or money 

services business should treat that 

person as a customer for the purposes of 

this paragraph, and verify both the 

person accessing the account and the 

customer. 

(3) Retrievability. The information 

that a financial institution must retain 

under paragraphs (g)(1) and (g)(2) of this 

section shall be retrievable by the 

financial institution by reference to the 

name or account number of the financial 

institution’s customer, or the name of a 

counterparty to the financial 

institution’s customer’s transaction. 

This information need not be retained in 

any particular manner, so long as the 

financial institution is able to retrieve 

the information required by this 

paragraph, either by accessing records 

directly or through reference to some 

other record maintained by the financial 

institution. 

(4) Exceptions. Banks and money 

services businesses are not required to 

retain records under this subsection in 

relation to a transaction in convertible 

virtual currency or a digital asset with 

legal tender status that is between the 

financial institution’s customer and a 

counterparty whose account is held at a 

financial institution regulated under the 

BSA, or at a foreign financial institution, 

except for a foreign financial institution 

in a jurisdiction listed on the List of 

Foreign Jurisdictions Subject to 31 CFR 

1010.316 Reporting and § 1010.410(g) 

Recordkeeping, which is maintained on 

FinCEN’s website on the Resources 

page. 

PART 1020—RULES FOR BANKS 

■ 10. The authority citation for part 

1020 continues to read as follows: 

Authority: 12 U.S.C. 1829b and 1951–1959; 

31 U.S.C. 5311–5314 and 5316–5332; title III, 

sec. 314, Pub. L. 107–56, 115 Stat. 307; sec. 

701, Pub. L. 114–74, 129 Stat. 599. 

■ 11. Revise § 1020.310 to read as 

follows: 

§ 1020.310 Reports of transactions in 

currency, convertible virtual currency, and 

digital assets with legal tender status. 

The reports of transactions in 

currency and transactions in convertible 

virtual currency and digital assets with 

legal tender status requirements for 

banks are located in subpart C of part 

1010 of this chapter and this subpart. 

■ 12. Revise § 1020.312 to read as 

follows: 

§ 1020.312 Identification required. 

Refer to § 1010.312 of this chapter for 

identification requirements for reports 

of transactions in currency and 

transactions in convertible virtual 

currency and digital assets with legal 

tender status filed by banks. 

■ 13. Revise § 1020.313 to read as 

follows: 

§ 1020.313 Aggregation. 

Refer to § 1010.313 of this chapter for 

reports of transactions in currency and 

transactions in convertible virtual 

currency and digital assets with legal 

tender status aggregation requirements 

for banks. 

■ 14. Amend § 1020.315 by: 

■ a. Revising paragraphs (a), (b)(4) and 

(5), (b)(6) introductory text and (b)(7) 

introductory text; 

■ b. Adding paragraph (c)(2)(iii); and 

■ c. Revising (g)(1) and (3), and (h). 

The addition and revisions read as 

follows: 

§ 1020.315 Transactions of exempt 

persons. 

(a) General. (1) No bank is required to 

file a report otherwise required by 

§ 1010.311 with respect to any 

transaction in currency between an 

exempt person and such bank, or, to the 

extent provided in paragraph (e)(6) of 

this section, between such exempt 

person and other banks affiliated with 

such bank. (A limitation on the 

exemption described in this paragraph 

(a) is set forth in paragraph (f) of this 

section.) 

(2) No bank is required to file a report 

otherwise required by § 1010.316 with 

respect to any transaction in convertible 

virtual currency or digital assets with 

legal tender status between an exempt 

person defined in paragraphs (b)(1) to 

(3) of this section and such bank, or, to 

the extent provided in paragraph (e)(6) 

of this section, between such exempt 

person and other banks affiliated with 

such bank. (A limitation on the 

exemption described in this paragraph 

(a) is set forth in paragraph (f) of this 

section.) 

(b) * * * 

(4) Solely for purposes of the 

exemption applicable to any transaction 

in currency in paragraph (a)(1) of this 

section, any entity, other than a bank, 

whose common stock or analogous 

equity interests are listed on the New 

York Stock Exchange or the American 

Stock Exchange or whose common stock 

or analogous equity interests have been 

designated as a NASDAQ National 

Market Security listed on the NASDAQ 

Stock Market (except stock or interests 

listed under the separate ‘‘NASDAQ 

Capital Markets Companies’’ heading), 

provided that, for purposes of this 

paragraph (b)(4), a person that is a 

financial institution, other than a bank, 

is an exempt person only to the extent 

of its domestic operations; 

(5) Solely for purposes of the 

exemption applicable to any transaction 

in currency in paragraph (a)(1) of this 

section, any subsidiary, other than a 

bank, of any entity described in 

paragraph (b)(4) of this section (a ‘‘listed 

entity’’) that is organized under the laws 

of the United States or of any State and 

at least 51 percent of whose common 

stock or analogous equity interest is 

owned by the listed entity, provided 

that, for purposes of this paragraph 

(b)(5), a person that is a financial 

institution, other than a bank, is an 

exempt person only to the extent of its 

domestic operations; 


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(6) Solely for purposes of the 

exemption applicable to any transaction 

in currency in paragraph (a)(1) of this 

section, to the extent of its domestic 

operations and only with respect to 

transactions conducted through its 

exemptible accounts, any other 

commercial enterprise (for purposes of 

this section, a ‘‘non-listed business’’), 

other than an enterprise specified in 

paragraph (e)(8) of this section, that: 

* * * * * 

(7) Solely for purposes of the 

exemption applicable to any transaction 

in currency in paragraph (a)(1) of this 

section, with respect solely to 

withdrawals for payroll purposes from 

existing exemptible accounts, any other 

person (for purposes of this section, a 

‘‘payroll customer’’) that: 

* * * * * 

(c) * * * 

(2) * * * 

(iii) A bank is not required to file a 

FinCEN Form 110 with respect to the 

transfer of convertible virtual currency 

or digital assets with legal tender status 

to or from any exempt person as 

described in paragraphs (b)(1) to (3) of 

this section. 

* * * * * 

(g) * * * 

(1) No bank shall be subject to penalty 

under this chapter for failure to file a 

report required by § 1010.311 or 

§ 1010.316 of this chapter with respect 

to a transaction in currency, convertible 

virtual currency, or digital assets with 

legal tender status by an exempt person 

with respect to which the requirements 

of this section have been satisfied, 

unless the bank: 

* * * * * 

(3) A bank that files a report with 

respect to a currency, convertible virtual 

currency, or digital asset with legal 

tender status transaction by an exempt 

person rather than treating such person 

as exempt shall remain subject, with 

respect to each such report, to the rules 

for filing reports, and the penalties for 

filing false or incomplete reports that 

are applicable to reporting of 

transactions in currency, convertible 

virtual currency, or digital assets with 

legal tender status by persons other than 

exempt persons. 

(h) Obligations to file suspicious 

activity reports and maintain system for 

monitoring transactions in currency, 

convertible virtual currency, or digital 

assets with legal tender status. 

(1) Nothing in this section relieves a 

bank of the obligation, or reduces in any 

way such bank’s obligation, to file a 

report required by § 1020.320 with 

respect to any transaction, including 

any transaction in currency, convertible 

virtual currency, or digital assets with 

legal tender status, that a bank knows, 

suspects, or has reason to suspect is a 

transaction or attempted transaction that 

is described in § 1020.320(a)(2)(i), (ii), or 

(iii), or relieves a bank of any reporting 

or recordkeeping obligation imposed by 

this chapter (except the obligation to 

report transactions in currency, 

convertible virtual currency, or digital 

assets with legal tender status, pursuant 

to this chapter to the extent provided in 

this section). Thus, for example, a sharp 

increase from one year to the next in the 

gross total of currency transactions 

made by an exempt customer, or 

similarly anomalous transactions trends 

or patterns, may trigger the obligation of 

a bank under § 1020.320. 

■ 15. Add § 1020.316 to read as follows: 

§ 1020.316 Convertible virtual currency 

and digital assets with legal tender status 

filing obligations. 

Refer to § 1010.316 of this chapter for 

reports of transactions in convertible 

virtual currency and digital assets with 

legal tender status filing obligations for 

banks. 

PART 1022—RULES FOR MONEY 

SERVICES BUSINESSES 

■ 16. The authority citation for part 

1022 continues to read as follows: 

Authority: 12 U.S.C. 1829b and 1951–1959; 

31 U.S.C. 5311–5314 and 5316–5332; title III, 

sec. 314, Pub. L. 107–56, 115 Stat. 307; sec. 

701, Pub. L. 114–74, 129 Stat. 599. 

■ 17. Revise § 1022.310 to read as 

follows: 

§ 1022.310 Reports of transactions in 

currency, convertible virtual currency, and 

digital assets with legal tender status. 

The reports of transactions in 

currency and transactions in convertible 

virtual currency and digital assets with 

legal tender status requirements for 

money services businesses are located 

in subpart C of part 1010 of this chapter 

and this subpart. 

■ 18. Revise § 1022.312 to read as 

follows: 

§ 1022.312 Identification required. 

Refer to § 1010.312 of this chapter for 

identification requirements for reports 

of transactions in currency and 

transactions in convertible virtual 

currency and digital assets with legal 

tender status filed by money services 

businesses. 

■ 19. Revise § 1022.313 to read as 

follows: 

§ 1022.313 Aggregation. 

Refer to § 1010.313 of this chapter for 

reports of transactions in currency and 

transactions in convertible virtual 

currency and digital assets with legal 

tender status aggregation requirements 

for money services businesses. 

■ 20. Add § 1022.316 to read as follows: 

§ 1022.316 Convertible virtual currency 

and digital assets with legal tender status 

filing obligations. 

Refer to § 1010.316 of this chapter for 

reports of transactions in convertible 

virtual currency filing obligations for 

money services businesses. 

By the Department of the Treasury. 

Kenneth A. Blanco, 

Director, Financial Crimes Enforcement 

Network. 

[FR Doc. 2020–28437 Filed 12–18–20; 4:20 pm] 

BILLING CODE 4810–02–P 

DEPARTMENT OF EDUCATION 

34 CFR Chapter II 

[Docket ID ED–2020–OESE–0172] 

Proposed Priorities, Requirements, 

and Definitions—Expanding 

Opportunity Through Quality Charter 

Schools Program (CSP)—National 

Dissemination Grants 

AGENCY: Office of Elementary and 

Secondary Education, Department of 

Education. 

ACTION: Proposed priorities, 

requirements, and definitions. 

SUMMARY: The Assistant Secretary for 

Elementary and Secondary Education 

proposes priorities, requirements, and 

definitions for the Expanding 

Opportunity Through Quality Charter 

Schools Program (CSP)—National 

Dissemination Grants, Assistance 

Listing Number 84.282T. We may use 

one or more of these priorities, 

requirements, and definitions for 

competitions in fiscal year (FY) 2021 

and later years. We take this action to 

ensure that CSP National Dissemination 

Grants are aligned with the statutory 

purposes of the CSP and address key 

national policy issues. Specifically, the 

proposed priorities, requirements, and 

definitions focus on disseminating best 

practices for strengthening charter 

school authorizing and oversight; 

improving charter school access to 

facilities and facility financing; 

increasing educational choice for 

students with disabilities, English 

learners, and other traditionally 

underserved student groups, including 

Native American students and students 

in rural communities. 

DATES: We must receive your comments 

on or before January 22, 2021. 

ADDRESSES: Submit your comments 

through the Federal eRulemaking Portal 


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