Source: https://www.lathropgage.com/newsletter-240.html
Timestamp: 2019-04-26 04:16:18+00:00

Document:
Money laundering is the process of making illegally-gained (“dirty”) money appear legal (“clean”). The United States’ anti-money laundering (“AML”) laws and regulations, including its “Know Your Customer” (“KYC”) mandates, affect financial institutions far beyond US borders. The Trump Administration has indicated that AML enforcement remains a top priority and it has been quick to apply the existing regulatory regime to transactions involving cryptocurrency, given its frequent use for ransomware payments and sales of illicit and stolen goods.
Many legitimate business enterprises are now leveraging the potential of cryptocurrencies and blockchain technology. Merchant websites accept payments in virtual currency. At a variety of auction websites, buyers use cryptocurrency to purchase goods or services from sellers. Cryptocurrency exchanges allow people to purchase, sell and exchange cryptocurrencies themselves.
What are “Money Service Businesses” subject to AML/KYC Regulation?
Types of Money Transmitters. To help define money transmitters of “virtual currency,”3 FinCEN has categorized them as “users,” “exchangers,” and “administrators.” A user is “obtains virtual currency to purchase goods or services.” An exchanger is a business engaged in the exchange of virtual currency for real currency, funds, or other virtual currency. Finally, an administrator is a business that issues (putting into circulation) and redeems (withdrawing from circulation) such virtual currency.
Exchangers. A business is a “money exchanger” (and thus a “money transmitter” and MSB) if any portion of its operation (1) exchanges virtual currencies for fiat currencies (e.g., US Dollars, Euros, etc.) or their equivalent (e.g., prepaid credit/debit cards), (2) exchanges one virtual currency for another virtual currency, (3) issues virtual currency, or (4) involves other similar transactions.
Territorial Scope. In a 2011 regulatory rule, FinCEN provided that foreign entities are subject to MSB regulation if they engage in money transmission within the United States. FinCEN noted that qualification as an MSB is based on the entity’s activity within the United States, not the physical presence of any of its agents or offices in the United States.6 In other words, transactions with United States citizens, residents or businesses by an entity that is physically located outside the United States will be subject to MSB regulations, while these regulations do not apply if the transaction occurs entirely outside the United States.
What Does AML Compliance Entail?
All virtual currency businesses need to determine if they are money transmitters or have otherwise triggered AML MSB obligations, which include FinCEN registration and implementation of an AML compliance program. Although the government’s focus is on illegal and illicit money-laundering activities, it has nonetheless indicated that AML compliance is expected of any business that qualifies as a money transmitter, even if it has not engaged in money laundering of any kind.
Let the members of the Blockchain and Disruptive Technologies practice group at Lathrop Gage, led by Dale Werts and Tedrick Housh, answer your questions regarding the legal aspects of new technologies, like Blockchain and Bitcoin.
Mr. Werts acknowledges the assistance of Brandon Chapman, a law student at the University of Arkansas, who is a summer associate at the Firm and assisted with this Alert.
Blockchain is the next precedent-setting technology disruptor of our time. This distributed and immutable digital platform of transactions and records has the potential to revolutionize countless industries over the next decade. Our ranks include not only experienced practitioners, but industry thought leaders, frequent speakers, and authors on emerging and transformative technologies. As a nationwide full-service law firm, we draw upon the expertise of attorneys from a wide host of practice areas to ensure our clients are well-supported and advised in all aspects of their business.
 A “virtual” currency “is a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency. “Real” currency is “the coin and paper money of the “United States or of any other country that [i] is designated as legal tender and that [ii] circulates and [iii] is customarily used and accepted as a medium of exchange in the country of issuance.” FIN-2013-G001.
 Treasury Assistant Secretary for Legislative Affairs letter to Sen. Ron Wyden, dated Feb. 13, 2018.
 Financial Crimes Enforcement Network, FinCEN Clarifies Money Services Businesses Definitions Rule Includes Foreign-Located MSBs Doing Business in U.S. (July 18, 2011).
 18 No. 3 Cyberspace Law. 12.
 31 CFR 1022.380(b); 31 U.S.C. § 5330(a).
 31 CFR §1022.210; Financial Crimes Enforcement Network, Money Services Business (MSB) Information Center, (Feb. 5, 2018), https://www.irs.gov/businesses/small-businesses-self-employed/money-services-business-msb-information-center.
 31 CFR §1010.311; Financial Crimes Enforcement Network, Money Services Business (MSB) Information Center, (Feb. 5, 2018), https://www.irs.gov/businesses/small-businesses-self-employed/money-services-business-msb-information-center.
 31 CFR §§1010.410, 415; 31 CFR §§1022.420, 380(a)(2).
 31 CFR 1022.380(e); 31 U.S.C. § 5330(e); 18 U.S.C. § 1960(a) (“Whoever knowingly conducts, controls, manages, supervises, directs, or owns all or part of an unlicensed money transmitting business, shall be fined in accordance with this title or imprisoned not more than 5 years, or both.”); 18 U.S.C. § 1960(b)(1)(B) (“A money transmitting business which affects interstate or foreign commerce in any manner or degree and fails to comply with the money transmitting business registration requirements under section 5330 of title 31, United States Code, or regulations prescribed under such section, shall be fined in accordance with this title or imprisoned not more than 5 years, or both.”).

References: § 5330
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 § 1960