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  • FATF steps up combating terrorist and proliferation financing

    Financial Crimes

    On February 25, the U.S. Treasury Department announced that the Financial Action Task Force (FATF) concluded another plenary meeting, in which it “advanced its work on several important issues, including finalizing a non-public report on terrorist financing and agreeing to seek public comment on updated guidance documents on virtual assets and proliferation finance.” Among other things, FAFT finalized three non-public reports outlining best practices for investigating and prosecuting terrorist financing for FATF member states, as well as an internal ISIS/Al Qaeda financing update and internal guidance designed “to assist investigative authorities trace financial flows between illicit arms traffickers and terrorists.” FATF also approved new guidance (to be published early March) intended to clarify and improve the adoption of risk-based supervision, which outlines ways supervisors should apply risk-based approaches to their activities, highlights common implementation challenges to risk-based supervision, and provides examples of effective strategies. Additionally, FAFT noted it has agreed to seek public consultation on amendments to its 2019 guidance concerning anti-money laundering/countering the financing of terrorism obligations concerning virtual assets and virtual asset service providers, and expects to release final updated guidance this summer. FATF also stated it intends to issue new guidance this summer on ways countries and the private sector can understand and mitigate proliferation financing threats, vulnerabilities, and risks.

    Financial Crimes FATF Agency Rule-Making & Guidance Combating the Financing of Terrorism Of Interest to Non-US Persons Anti-Money Laundering Virtual Currency Digital Assets

  • DFPI: Certain bitcoin ATMs/kiosks not subject to MTA licensure

    Recently, California’s Department of Financial Protection and Innovation (DFPI) released a new opinion letter covering aspects of the Money Transmission Act (MTA) related to bitcoin automated teller machines (ATMs) and kiosks. The letter explains that the sale and purchase of bitcoin through ATMs/kiosks in third-party retail locations described by the applicant company are not subject to licensure under the MTA because the sale and purchase of bitcoin from the company’s own inventory through a kiosk does not meet California’s definition of “money transmission.” In each instance, the transaction would only be between the consumer using the ATM/kiosk and the company, the bitcoin would be sent directly to the customer’s virtual currency wallet, and any bitcoin sold would be provided exclusively from the company’s own inventory. DFPI reminded the company that its determination is limited to the activities specified in the letter and does not extend to any other activities that the company may engage in. Moreover, the letter does not relieve the company from any FinCEN, federal, or state regulatory obligations.

    Licensing State Issues DFPI Virtual Currency State Regulators California Money Transmission Act Digital Assets

  • NYDFS virtual currency techsprint set for March

    State Issues

    On January 21, NYDFS announced the details of its first-of-its-kind techsprint focusing on virtual currency that will open on March 1 and culminate on March 12. As previously covered by InfoBytes, the techsprint is a collaboration with the Conference of State Bank Supervisors and the Alliance for Innovative Regulation, and the objective is “to achieve creative and collaborative prototyping as a step toward smarter regulatory reporting in virtual currency.” NYDFS notes that the virtual format will allow flexibility for the techsprint to include a combination of full-day facilitated exercises and self-paced, team-managed efforts. The teams will work to address one of several problem statements, including (i) “[h]ow can DFS achieve real-time or more frequent access to company financial data from virtual currency licensees and receive early warning signs of financial risks to the companies or their customers?” (i) “[h]ow can DFS obtain real-time transaction data from its licensees and automatically analyze the data to safeguard against illicit financing risks?” and (iii) “[h]ow can DFS use tools such as natural language processing, machine learning, and artificial intelligence to identify risks by processing and analyzing supervisory reports that are submitted by licensees in a wide range of formats?”

    State Issues NYDFS Fintech Virtual Currency Techsprint Bank Regulatory Digital Assets

  • Congress overrides veto of NDAA with significant BSA/AML provisions

    Financial Crimes

    On January 1, the U.S. Senate voted to override President Trump’s veto of the National Defense Authorization Act (NDAA) for Fiscal Year 2021, following a similar vote in the House a few days prior. As previously covered by InfoBytes, the NDAA includes significant changes to the Bank Secrecy Act (BSA) and anti-money laundering (AML) laws under the Anti-Money Laundering Act of 2020, such as:

    • Establishing federal disclosure requirements of beneficial ownership information, including a requirement that reporting companies submit, at the time of formation and within a year of any change, their beneficial owner(s) to a “secure, nonpublic database at FinCEN”;
    • Expanding the declaration of purpose of the BSA and establishing national examinations and supervision priorities;
    • Requiring streamlined, real-time reporting of Suspicious Activity Reports;
    • Establishing a Subcommittee on Innovation and Technology within the Bank Secrecy Act Advisory Group to encourage and support technological innovation in the area of AML and countering the financing of terrorism and proliferation (CFT);
    • Expanding the definition of financial institution under the BSA to include dealers in antiquities;
    • Requiring federal agencies to study the facilitation of money laundering and the financing of terrorism through the trade of works of art; and
    • Including digital currency in AML-CFT enforcement by, among other things, expanding the definition of financial institution under the BSA to include businesses engaged in the transmission of “currency, funds or value that substitutes for currency or funds.”

    Financial Crimes Federal Issues Anti-Money Laundering Bank Secrecy Act Combating the Financing of Terrorism Virtual Currency Of Interest to Non-US Persons U.S. House U.S. Senate Veto Federal Legislation Anti-Money Laundering Act of 2020 Digital Assets

  • FinCEN proposes new reporting requirements for certain CVC and digital asset transactions

    Agency Rule-Making & Guidance

    On December 18, the Financial Crimes Enforcement Network (FinCEN) issued a notice of proposed rulemaking (NPRM) that would require financial institutions and money service businesses (MSBs) to maintain records and submit reports to verify customer identities for certain transactions involving convertible virtual currency (CVC) or digital assets with legal tender status (LTDA). Under the NPRM, the requirements would apply to transactions involving CVC and LTDA that are held in certain “hosted” wallets at financial institutions, as well as in “unhosted” wallets, which are not held in an exchange or bank. Banks and MSBs would be required to file transaction reports within 15 days with FinCEN verifying the identity of customers if a counterparty to the transaction is using an unhosted or otherwise covered wallet and the transaction is greater than $10,000. Banks and MSBs would also be required to maintain records of customers’ CVC or LTDA transactions and counterparties—“including verifying the identity of their customers, if a counterparty uses an unhosted or otherwise covered wallet and the transaction is greater than $3,000.” According to Treasury Secretary Steven T. Mnuchin, the proposed rule “is intended to protect national security, assist law enforcement, and increase transparency while minimizing impact on responsible innovation” by “closing loopholes that malign actors may exploit.” FinCEN notes that, while the NPRM “proposes to prescribe by regulation that CVC and LTDA are ‘monetary instruments’ for purposes of the” Bank Secrecy Act (BSA), it does not “modify the regulatory definition of ‘monetary instruments’ or otherwise alter existing BSA regulatory requirements applicable to ‘monetary instruments’ in FinCEN’s regulations.” Comments on the NPRM were due January 4. 

    Agency Rule-Making & Guidance FinCEN Anti-Money Laundering Virtual Currency Fintech Of Interest to Non-US Persons Bank Secrecy Act

  • Senate passes NDAA with significant AML provisions

    Federal Issues

    On December 11, the U.S. Senate passed the National Defense Authorization Act (NDAA) for Fiscal Year 2021 in a 84-13 vote, which was passed by the U.S. House of Representatives earlier in the week. As previously covered by InfoBytes, the NDAA includes a number of anti-money laundering provisions, such as (i) establishing federal disclosure requirements of beneficial ownership information, including a requirement that reporting companies submit, at the time of formation and within a year of any change, their beneficial owner(s) to a “secure, nonpublic database at FinCEN”; (ii) expanding the declaration of purpose of the Bank Secrecy Act (BSA) and establishing national examinations and supervision priorities; (iii) requiring streamlined, real-time reporting of Suspicious Activity Reports; (iv) expanding the definition of financial institution under the BSA to include dealers in antiquities; and (v) including digital currency in the AML-CFT enforcement regime by, among other things, expanding the definition of financial institution under the BSA to include businesses engaged in the transmission of “currency, funds or value that substitutes for currency or funds.” The NDAA has been sent to President Trump, who has publicly threatened to veto the measure; however, the legislation passed both the Senate and the House with majorities large enough to override a veto.

    Federal Issues Financial Crimes Anti-Money Laundering Bank Secrecy Act Combating the Financing of Terrorism Virtual Currency SARs Of Interest to Non-US Persons U.S. Senate Federal Legislation

  • House passes NDAA with significant AML/CFT provisions

    Federal Issues

    On December 8, the U.S. House of Representatives passed the National Defense Authorization Act (NDAA) for Fiscal Year 2021 in a 335-78 vote, which includes significant language from the September 2019 proposed legislation, the “Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings (ILLICIT CASH) Act,” among other proposed laws. Highlights of the anti-money laundering (AML) provisions include:

    • Establishing federal disclosure requirements of beneficial ownership information, including a requirement that reporting companies submit, at the time of formation and within a year of any change, their beneficial owner(s) to a “secure, nonpublic database at FinCEN”;
    • Expand the declaration of purpose of the Bank Secrecy Act (BSA) and establish national examinations and supervision priorities;
    • Require streamlined, real-time reporting of Suspicious Activity Reports;
    • Establish a Subcommittee on Innovation and Technology within the Bank Secrecy Act Advisory Group to encourage and support technological innovation in the area of AML and countering the financing of terrorism and proliferation (CFT);
    • Expand the definition of financial institution under the BSA to include dealers in antiquities;
    • Require federal agencies to study the facilitation of money laundering and the financing of terrorism through the trade of works of art; and
    • Inclusion of digital currency in AML-CFT enforcement by, among other things, expanding the definition of financial institution under the BSA to include businesses engaged in the transmission of “currency, funds or value that substitutes for currency or funds.”

    Federal Issues Financial Crimes Anti-Money Laundering Bank Secrecy Act Combating the Financing of Terrorism Virtual Currency SARs Of Interest to Non-US Persons U.S. House Federal Legislation

  • Representatives question the OCC’s cryptocurrency and stablecoin efforts

    Federal Issues

    On November 10, six members of the U.S. House of Representatives wrote to Acting Comptroller of the Currency Brian Brooks raising concerns about the OCC’s recent unilateral actions to regulate cryptocurrencies. In the letter, the members question the OCC’s regulatory priorities. For example, the members highlight that, through recent actions, such as its advance notice of proposed rulemaking on digital activities (covered by InfoBytes here), the OCC has sought “to serve those ‘already-banked’ with better payments options” while potentially “overlooking opportunities for assisting the unbanked and underbanked to participate in the economy and the banking system.” Additionally, the members note that the OCC’s interpretive decisions, which authorize financial institutions to hold cryptocurrency and stablecoins for customers (covered by InfoBytes here and here), may have “broad implications for the future of banking” and “are best made in collaboration with your fellow regulators and with Congress to ensure we avoid potential harms to institutional safety and soundness and equity and inclusion.” In closing, the members ask the OCC to answer a number of questions, including (i) whether stablecoin reserves will be segregated from calculating the capital requirements of large banks; (ii) what consumer protections the agency will impose on stablecoin providers; and (iii) whether the OCC has collaborated with other federal regulators on their recent decisions.

    Federal Issues Digital Assets OCC Virtual Currency Fintech Cryptocurrency

  • FinCEN penalizes first bitcoin “mixer” $60 million for violating BSA

    Federal Issues

    On October 19, the Financial Crimes Enforcement Network (FinCEN) announced a civil money penalty against an individual exchanger who founded and operated two convertible virtual currency (CVC) platforms known as “mixers” or “tumblers” for allegedly violating the Bank Secrecy Act’s (BSA) registration, program, and reporting requirements. According to FinCEN, the exchanger, among other things, (i) accepted and transmitted CVC through a variety of means, which “contain[ed] the proceeds of various acts of cybercrime”; (ii) conducted over 1,225,000 transactions for customers; and (iii) “is associated with virtual currency wallet addresses that have sent or received over $311 million.” FinCEN also contends that the exchanger advertised his services to customers on the dark web and circumvented BSA’s requirements by disregarding his obligations and operating the platforms as unregistered money service businesses (MSB).

    Under FinCEN’s 2013 guidance and 2019 clarification, exchangers and administrators of CVC are money transmitters and therefore subject to BSA regulations, with mixers and tumblers subject to the same rules. (Previously covered by InfoBytes here and here.) According to FinCEN, the exchanger’s activities qualified him as a virtual currency exchanger, MSB, and a financial institution under the BSA. As such, the exchanger was required to register as an MSB with FinCEN, establish and implement an effective written anti-money laundering program, detect and file suspicious activity reports, and report currency transactions, which he failed to do. The order requires the exchanger to pay a $60 million civil money penalty.

    Federal Issues FinCEN Enforcement Anti-Money Laundering Virtual Currency Bank Secrecy Act

  • NYDFS urges regulating social media companies following hacks

    State Issues

    On October 14, NYDFS released a report detailing the Department’s investigation into the July 2020 social media hacks of public figures and cryptocurrency firms, concluding that the social media platform lacked adequate cybersecurity protections and recommending increased regulation of large social media companies. The investigation, which was requested by New York Governor Andrew Cuomo, determined, among other things, that (i) the social media hackers obtained log-in credentials from four employees by pretending to be from the company’s IT department; (ii) the hackers stole over $118,000 worth of bitcoin from consumers by tweeting “double your bitcoin” with a link to send bitcoin payments from celebrity accounts and several bitcoin companies; (iii) certain Department-regulated cryptocurrency companies blocked attempted transfers to the hacker’s addresses; and (iv) the social media company lacked adequate cybersecurity protection, including not having “a chief information security officer, adequate access controls and identity management, and adequate security monitoring.” The report recommends that the largest social media companies be designated as “systemically important institutions” subject to an analogue council of the Financial Stability Oversight Council. The report suggests the social media companies should be subject to enhanced regulation, including “stress test[]” scenarios covering cyberattacks and election interference.

    State Issues Digital Assets Privacy/Cyber Risk & Data Security NYDFS Cryptocurrency Virtual Currency

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