The head of the Financial Crimes Enforcement Network (FinCEN) spoke recently to an anti-money laundering conference and elaborated on their thinking for the new regulations on new payment systems such as Bitcoin and e-precious metals.
Here is an excerpt of her remarks:
Emerging Payment Systems
I’d like to begin today by discussing how FinCEN’s analysts are working hard to stay ahead of the curve in understanding emerging payment systems and related financial flows and vulnerabilities and to put that information into the hands of those customers who need it most.
As we all know, during the past decade, the development of new market space and new types of payment systems have emerged as alternatives to traditional mechanisms for conducting financial transactions, allowing developing countries to reach beyond underdeveloped infrastructure and reach those populations who previously had no access to banking services. For consumers and businesses alike, the development and proliferation of these systems are a significant continuing source of positive impact on global commerce.
These new systems have also expanded the boundaries of “money transmission” as more sophisticated payment systems have become available. And the inherent added complexity of these systems opens them to potential misuse by criminals.
FinCEN’s analysts are continually working to understand the schemes and methods used to exploit emerging payment methods for money laundering and terrorist financing, and to develop related guidance for law enforcement. This guidance provides law enforcement with information on key sectors’ operations, recordkeeping practices, and efforts to identify and counter vulnerabilities.
Partnership is key. As our analysts develop their understanding of these new systems, they are significantly aided by working directly with the financial industry. This partnership enables them to better follow financial trails and realistically understand financial mechanisms.
For instance, FinCEN’s analysts are working to finalize a bulletin that will explore the relatively new payment technology of digital currency systems. FinCEN’s bulletin will help “de- mystify” the digital currency realm by explaining to the broader law enforcement community how these systems work. The bulletin will also address the role of traditional financial institutions as intermediaries.
We’re viewing our analytic work in this space as an important part of an ongoing conversation between industry and law enforcement. FinCEN is dedicated to learning more about digital currency systems, along with other emerging mechanisms, to protect those systems from abuse and to aid law enforcement in ensuring that they are getting the leads and information they need to prosecute the criminal actors. As our knowledge base develops, in concert with you, we will look to leverage our new capabilities to identify trends and patterns among the interconnection points of the traditional financial sector and these new payment systems.
To date, FinCEN’s analysts have explored and produced reference products for law enforcement on many traditional and emerging payment systems. These include: cross border funds transfers and correspondent accounts, money transmitters, online payment systems, prepaid cards, and mobile payments. FinCEN’s analysts then follow up this work by providing in-person analysis and training to thousands of investigators each year.
In addition to developing products to help law enforcement follow the financial trails of emerging payments methods, FinCEN also develops guidance for the financial industry to clarify their regulatory responsibilities as they relate to emerging areas.
In fact, just yesterday, FinCEN issued interpretive guidance to clarify the applicability of BSA regulations to virtual currencies. The guidance responds to questions raised by financial institutions, law enforcement, and regulators concerning the regulatory treatment of persons who use virtual currencies or make a business of exchanging, accepting, and transmitting them.
FinCEN’s rules define certain businesses or individuals as money services businesses (MSBs) depending on the nature of their financial activities. MSBs have registration requirements and a range of anti-money laundering, recordkeeping, and reporting responsibilities under FinCEN’s regulations. The guidance considers the use of virtual currencies from the perspective of several categories within FinCEN’s definition of MSBs.
The guidance explains how FinCEN’s “money transmitter” definition applies to certain exchangers and system administrators of virtual currencies depending on the facts and circumstances of that activity. Those who use virtual currencies exclusively for common personal transactions like receiving payments for services or buying goods online are not affected by this guidance. Those who are intermediaries in the transfer of virtual currencies from one person to another person, or to another location, are money transmitters that must register with FinCEN as MSBs unless an exception applies. Some virtual currency exchangers arealready registered with FinCEN as MSBs, though not necessarily as money transmitters. The guidance clarifies definitions and expectations to ensure that businesses engaged in similar activities are aware of their regulatory responsibilities.
The whole speech is here: