[Federal Register Volume 86, Number 10 (Friday, January 15, 2021)]
[Proposed Rules]
[Pages 3897-3899]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-01016]


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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; reopening of comment period.

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SUMMARY: On December 23, 2020, FinCEN published a notice of proposed 
rulemaking proposing requirements for banks and money services 
businesses (``MSBs'') related to certain transactions involving 
convertible virtual currency (``CVC'') or digital assets with legal 
tender status (``legal tender digital assets'' or ``LTDA''). As set 
forth below, FinCEN is identifying additional statutory authority for 
the proposed rule under the Anti-Money Laundering Act of 2020, 
providing additional information regarding the reporting form, and 
reopening the comment period for the proposal. Specifically, FinCEN is 
providing an additional 15 days for comments on the proposed reporting 
requirements regarding

[[Page 3898]]

information on CVC or LTDA transactions greater than $10,000, or 
aggregating to greater than $10,000, that involve unhosted wallets or 
wallets hosted in a jurisdiction identified by FinCEN. FinCEN is 
providing an additional 45 days for comments on the proposed 
requirements that banks and MSBs report certain information regarding 
counterparties to transactions by their hosted wallet customers, and on 
the proposed recordkeeping requirements.

DATES: The comment period for the proposed rule published on December 
23, 2020 (85 FR 83840) is reopened for 15 days for comments on the 
proposed reporting requirements and for 45 days for comments on the 
proposed requirement to report counterparty information and the 
proposed recordkeeping requirements. Written comments are now therefore 
due with respect to the proposed reporting requirements (except with 
respect to reporting of counterparty information) on February 1, 2021, 
and with respect to all other aspects of the proposed rule on March 1, 
2021.

ADDRESSES: Comments may be submitted by any of the following methods:
    <bullet> 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 to which the 
comment applies.
    <bullet> 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 <a href="/cdn-cgi/l/email-protection#e7819584a7818e89848289c9808891"><span class="__cf_email__" data-cfemail="4f293d2c0f2926212c2a2161282039">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: 
    On December 18, 2020, FinCEN filed with the Federal Register a 
notice of proposed rulemaking (the ``December Notice''). The December 
Notice was published in the Federal Register on December 23, 2020.\1\ 
In the December Notice, FinCEN proposed to address the threat of 
illicit finance with respect to certain transactions involving CVC or 
LTDA by (i) establishing new reporting requirements for certain CVC or 
LTDA transactions analogous to existing currency transaction reports, 
and (ii) establishing new recordkeeping requirements for certain CVC or 
LTDA transactions that is similar to the recordkeeping and travel rule 
regulations pertaining to funds transfers and transmittals of funds. 
The original comment period formally closed on January 7, 2021, 
although FinCEN took steps to ensure comments could still be received 
after that date.\2\
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    \1\ Requirements for Certain Transactions Involving Convertible 
Virtual Currency or Digital Assets, 85 FR 83840 (Dec. 23, 2020).
    \2\ Members of the public have continued to be able to, and have 
in fact continued to, submit comments since January 7, 2021. FinCEN 
will continue to review comments submitted after the filing of the 
original notice of proposed rulemaking, including comments received 
between January 7, 2021 and January 15, 2021.
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    On January 1, 2021, the Anti-Money Laundering Act of 2020 (Division 
F of Pub. L. 116-283) (``AML Act of 2020'') became law. The AML Act of 
2020 amended 31 U.S.C. 5312(a)(3), the definition of ``monetary 
instruments'' in the Bank Secrecy Act (``BSA''), on which Treasury 
proposed to rely to determine that CVC and LTDA are monetary 
instruments. As amended by the AML Act of 2020, the BSA now defines the 
term monetary instruments as United States coins and currency; 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; as the Secretary of the 
Treasury shall provide by regulation for purposes of sections 5316 and 
5331, checks, drafts, notes, money orders, and other similar 
instruments which are drawn on or by a foreign financial institution 
and are not in bearer form; and, as the Secretary shall provide by 
regulation, value that substitutes for any monetary instrument 
described in the other categories.\3\
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    \3\ 31 U.S.C. 5312(a)(3), as amended by section 6102(d) of the 
AML Act of 2020, which added paragraph (D).
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    In the December Notice, FinCEN proposed prescribing by regulation 
that CVC and LTDA are monetary instruments because they constitute 
``similar material'' to instruments described in 31 U.S.C. 
5312(a)(3)(B) (``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. . 
. .''). As the December Notice explained, 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. . 
. .'' FinCEN now intends to prescribe by regulation that CVC and LTDA 
are ``monetary instruments'' pursuant to paragraph (D) of 31 U.S.C. 
5312(a)(3), as amended. Specifically, pursuant to 31 U.S.C. 
5312(a)(3)(D), CVC and LTDA are both value that substitute for currency 
and are therefore ``monetary instruments'' under the BSA.
    As FinCEN specified in the December Notice, the determination at 31 
CFR 1010.316(a) 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 currency transaction reporting requirements at 31 CFR 
1010.311 and the transportation of currency or monetary instruments 
reporting requirements at 31 CFR 1010.340.\4\
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    \4\ Nor is this regulatory determination intended to have any 
impact on the definition of ``currency'' in 31 CFR 1010.100(m). 
Furthermore, nothing in the proposal is intended to constitute a 
determination that any CVC or LTDA that is within the regulatory 
definition of ``monetary instruments'' prescribed pursuant to 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. Finally, 
this determination is intended to have no impact on the taxability 
of CVC or LTDA.
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    The AML Act of 2020 also amended 31 U.S.C. 5318(a)(2), granting the 
Secretary additional authority to implement reporting requirements. 
Specifically, the Secretary may require a class of domestic financial 
institutions to ``maintain appropriate procedures, including the 
collection and reporting of certain information as the Secretary of the 
Treasury may prescribe by regulation, 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, the 
financing of terrorism, or other forms of illicit finance.'' Thus, in 
addition to the authority cited in the December Notice, the proposed 
rule relies on authority under 31 U.S.C. 5318(a)(2) to extend 
transaction reporting requirements to CVC/LTDA transactions.\5\
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    \5\ 31 U.S.C. 5318(a)(2), as amended by section 6101(b) of the 
AML Act of 2020.
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    Reports required by the proposed rule would be submitted on a Value 
Transaction Report form similar to the existing FinCEN Currency 
Transaction Report (``CTR'') Form 112. The form would be submitted 
through the existing BSA E-filling system and would be able to be batch 
reported.\6\ Filers would be able submit information commonly 
associated with CVC and LTDA transactions, such as:
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    \6\ The user guide for the existing CTR form is available at: 
https://bsaefiling.fincen.treas.gov/docs/XMLUserGuide_FinCENCTR.pdf.

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[[Page 3899]]

    (a) The CVC or LTDA type used in the transaction;
    (b) The transaction amount;
    (c) The assessed transaction value (in U.S. dollars);
    (d) The date and time of the transaction;
    (e) The transaction hash;
    (f) CVC or LTDA addresses involved in the transaction, and if they 
are hosted or unhosted;
    (g) The name and physical address of each counterparty to the 
transaction of the financial institution's customer; and
    (h) Other information readily available to the bank or MSB, which 
aids in identifying the specific reported transaction(s), the means by 
which it was conducted, and the parties involved.
    A final rule implementing these proposed reporting requirements 
would be effective 30 days after its publication, except that the 
requirement to report counterparty information (if adopted) would not 
take effect for 60 days given the additional complexity it may present.
    FinCEN also continues to invite comment on the portion of the 
December Notice related to proposed independent recordkeeping 
obligations for transactions greater than $3,000. Any final rule 
implementing the recordkeeping requirements would be effective 60 days 
after its publication.
    Comments on the December Notice: FinCEN reviewed and considered 
7,506 comments submitted in response to the December Notice prior to 
January 8, 2021. Commenters included financial institutions and 
companies that provide services related to CVC or LTDA, academics, 
trade organizations, cryptocurrency development groups, non-profit 
organizations, customers and employees of companies that provide 
services related to CVC or LTDA, and cryptocurrency owners and other 
individuals (both domestic and foreign), as well as anonymous sources. 
Commenters addressed a range of considerations, including implications 
for technological development and other forms of innovation, the 
economics of the digital asset industry, U.S. economic competitiveness, 
compliance matters, data security and privacy, utility to law 
enforcement, and procedural aspects of the December Notice (including 
the length of the comment period).
    Determination to Reopen the Public Comment Period: FinCEN 
appreciates the substantial response from commenters during the 
original comment period, and FinCEN welcomes further comment in the 
reopened comment periods. With respect to the additional 15 days for 
comments on the proposed reporting requirements, FinCEN notes that 
these proposed requirements are essentially equivalent to the existing 
CTR reporting requirements that apply to transactions in currency. The 
proposed rule is a vital loophole-closing measure to prevent illicit 
transactions using CVC and LTDA, including the financing of terrorism, 
in light of the fact that such transactions would otherwise be subject 
to familiar and long-established reporting requirements if they were in 
cash. The proposal is also consistent with Congress's recent expansion 
of the definition of ``monetary instrument'' in the BSA, which reflects 
the expectation that FinCEN would bring CVC and LTDA within monetary 
instrument reporting requirements. FinCEN notes that a large number of 
commenters agreed it is fully appropriate for FinCEN to finalize a rule 
providing similar regulatory treatment to similar activity. FinCEN 
welcomes comments during this reopened comment period on FinCEN's 
application of new statutory authority pursuant to the BSA amendments 
made by the AML Act of 2020. In addition, several commenters noted the 
need for additional information on the nature of the reports required 
by the proposal in order to provide an assessment of potential costs 
and benefits of the proposed rule. As indicated in the supplementary 
information, FinCEN intends to use a form similar to the existing CTR 
form and requests further comment in light of this additional 
information.
    With respect to the additional 45 days for comments on the proposed 
recordkeeping requirements and the proposed requirement to report 
counterparty information, FinCEN is providing a longer period in light 
of the somewhat greater complexity of those aspects of the proposed 
rule and various issues identified in comments received during the 
original comment period.

Kenneth A. Blanco,
Director, Financial Crimes Enforcement Network.
[FR Doc. 2021-01016 Filed 1-14-21; 8:45 am]
BILLING CODE 4810-02-P


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