November 18, 2019

November 18, 2019

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CFTC, FinCEN and SEC Issue Joint Statement Reminding Persons in Digital Assets Space of Obligations Under Bank Secrecy Act

On Oct. 11, 2019, the Financial Crimes Enforcement Network (FinCEN), the U.S. Commodity Futures Trading Commission (CFTC), and the U.S. Securities and Exchange Commission (SEC) (collectively, the “Agencies”), published a Joint Statement on Activities Involving Digital Assets (the “Joint Statement”). The purpose of the Joint Statement was “to remind persons engaged in activities involving digital assets of their anti-money laundering and countering the financing of terrorism (AML/CFT) obligations under the Bank Secrecy Act (BSA).”

The Joint Statement reminds participants in the digital asset space that AML/CFT obligations apply to “financial institutions,” such as:

  • broker-dealers and mutual funds obligated to register with the SEC,

  • futures commission merchants and introducing brokers obligated to register with the CFTC, and

  • money services businesses (MSBs) as defined by FinCEN.

AML/CFT obligations include the requirement to establish and implement an effective anti-money laundering program (“AML Program”) and to comply with recordkeeping and reporting requirements, including suspicious activity reporting requirements.

For purposes of the Joint Statement, “digital assets” include instruments that may qualify under applicable U.S. laws as securities, commodities, and security- or commodity-based instruments such as futures or swaps. Participants in the digital asset space may refer to “digital assets” using different labels including “virtual assets,” “crypto-assets,” “digital tokens,” “digital coins,” “cryptocurrencies,” “convertible virtual currencies,” and “digital currencies.” However, the Joint Statement reminds the digital assets industry that regardless of the label or terminology that market participants may use, or the level or type of technology employed, it is the facts and circumstances underlying the asset, activity or service, including its economic reality and use, that determines: (i) the general categorization of the asset, (ii) the specific regulatory treatment of the activity involving the asset, and (iii) whether the persons involved are “financial institutions” for purposes of the BSA. An analysis of the nature of the digital asset-related activity is key in determining whether and how a person must register with the SEC, CFTC or FinCEN, according to the Joint Statement.

In terms of BSA oversight, the Joint Statement clarifies that one or more of the Agencies (and possibly other agencies) will oversee compliance with AML/CFT obligations for purposes of the BSA. For example: (i) the SEC, FinCEN, and the Financial Industry Regulatory Authority (FINRA) will oversee the AML/CFT activities of a broker-dealer in securities; (ii) the CFTC, FinCEN, and the National Futures Association (NFA) will oversee the AML/CFT activities of a futures commission merchant; and (iii) FinCEN will oversee the AML/CFT activities of an MSB.

The Joint Statement explains that the BSA obligations (including AML Program requirements) that apply to the particular type of financial institution will flow from the FinCEN regulations applicable to that type of financial institution.1 These obligations include the implementation of a risk-based AML Program and the reporting of suspicious activity.

Participants in the digital asset space seeking guidance in determining whether their activity requires registration with the SEC, CFTC, or FinCEN and/or assistance with the review or enhancement of their AML Programs may contact any of the authors in this Alert or their GT counsel of preference. GT’s financial services team can assist with any questions regarding the Joint Statement and/or any other BSA/AML compliance matters.


1 FinCEN regulations for brokers or dealers in securities (31 C.F.R. § 1010.100(h)) are covered under 31 C.F.R. § 1023, futures commission merchants (31 C.F.R. § 1010.100(x)) are covered under 31 C.F.R. § 1026, introducing brokers in commodities (31 C.F.R. §§ 1010.100(bb)) are covered under 31 C.F.R. § 1026, and mutual funds (31 C.F.R. §§ 1010.100(gg)) are covered under 31 C.F.R. § 1024.

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About this Author

Carl Fornaris, Greenberg Traurig Law Firm, Miami and Washington DC, Finance and Corporate Law Attorney
Shareholder

Carl A. Fornaris is an attorney in firm's Financial Regulatory and Compliance Practice. With 24 years of legal experience, Carl advises banks and their holding companies, investment advisers, securities broker dealers, gaming firms, money services businesses and other financial institutions on all aspects of their business. These include  licensing, capital-raising transactions, acquisitions and divestitures, USA PATRIOT Act/BSA/AML compliance and OFAC sanctions programs (including permissible financial activities in Cuba), critical examination reports and enforcement...

305-579-0626
Marina Olman Pal, Greenberg Trauig Law Firm, Miami, Corporate and Finance Law Attorney
Practice Group Attorney

Marina Olman-Pal advises foreign and U.S. financial institutions on licensing, regulatory and compliance matters. She represents clients before U.S. regulators such as the Federal Reserve, OCC, FDIC, FinCEN, OFAC, Florida Office of Financial Regulation and other supervisory authorities. Marina counsels foreign and U.S. financial institutions on a broad range of issues including the Bank Secrecy Act (BSA), anti-money laundering compliance and Office of Foreign Assets Control (OFAC) sanction programs.

Concentrations

  • Financial institution formation, corporate governance documents and business agreements
  • Financial institution compliance and regulation
  • BSA, anti-money laundering and OFAC compliance
  • Removal of Specially Designated Nationals from OFAC’s SDN list
305-579-0779
Anthony Fernandez Corporate Attorney Greenberg Traurig
Associate

Anthony J. Fernandez is a member of the Corporate Practice in Greenberg Traurig's Miami office. He focuses his practice on corporate matters advising domestic and international clients on legal issues within mergers and acquisitions, joint ventures, private offerings, corporate governance, and financing.

Prior to joining the firm, Anthony spent over six years in business within the financial technology and financial services industry, working at PayPal and Standard & Poor’s. He has deep international business and market development experience, primarily focused in Latin America...

305.579.0797