US Financial Crime Regulator Now Receives 1,500 SAR Reports per Month

FinCEN relies on reports of suspicious activity to investigate wrongdoing, so the more the better.

Kenneth A. Blanco, Director of the US Financial Crimes Enforcement Network, gave a speech which spoke positively about his agency’s efforts to regulate cryptocurrency businesses and the rise in the number of suspicious incidents being reported to it.

The speech was given at a technology conference held at the Chicago-Kent College of Law.

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‘Value that substitutes for currency’

Blanco said that the organisation’s attention on cryptocurrency businesses in terms of controlling criminal activity “goes back years”. It first issued rules ensuring that pre-existing regulations apply to companies that accept and transmit “value that substitutes for currency,” a definition which includes cryptocurrency, in 2011. And then between January and October 2014, it released a number of further notices covering all aspects of cryptocurrency business – mining, software development, trading platforms and payment systems.

Summarising FinCEN’s outlook on cryptocurrency, Blanco said that all money transmitting businesses are subject to the same rules. This includes businesses that provide anonymous services.

This definition caused some confusion recently because the US Securities and Exchange Commission had indicated that it sees businesses that sell crypto-tokens in an initial coin offering as selling securities. Under US law it is not possible to be both a securities seller and money transmitter.

Nonetheless, Blanco made it clear in his speech that all businesses that transfer money have to register with FinCEN as a money services business. They are also obligated to develop an anti-money laundering programme and keep detailed records of all transactions in order to be able to flag suspicious-looking activity.

He emphasised the importance of SARs or suspicious activity reports. He said that the agency now receives more than 1,500 reports of suspicious activity from businesses, which is positive because it is these that provide the leads necessary to secure convictions.

One example is the case of Alexander Vinnik, of which Blanco is proud. Vinnik is a Russian national who is sitting in a Greek jail cell awaiting extradition to the US (or possibly Russia). FinCEN issued Vinnik with a $12 million civil fine, the first that the regulator has levied against a foreign national and its largest ever anywhere.

Vinnik was the operator of a major cryptocurrency exchange called BTC-e. He is accused of a wide selection of illegal activities. As Blanco explained in the speech, BTC-e lacked any kind of self-regulation, and as a result of this, its customer base had a significant criminal element.

Blanco said that the harvest of SARs is partly the result of the work which his agency has been doing with the IRS, the country’s tax service. Together they have managed to examine slightly under a third of the US’ cryptocurrency exchanges since 2014.

“Compliance does not begin because you may get caught, or because you are about to be discovered.”

Regarding compliance, Blanco said that his organisation is prepared to help businesses understand their obligations, but “avoiding the question for fear of the answer is not a legitimate strategy”.

It said that financial businesses should be sorting this stuff out before they get in trouble, not after: “We have been surprised to see financial institutions establish an adequate number of compliance staff and take appropriate steps to meet their regulatory requirements only after they receive notice.”

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