US Treasury says money transmitter rules apply to initial coin offerings
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The U.S. Department of Treasury raised a potential hurdle for those offering or allowing for the trade of initial coin offerings (ICOs).
In a letter from Drew Maloney, the assistant secretary for legislative affairs for the Financial Crimes Enforcement Network (FinCEN) to U.S. Sen. Ron Wyden, D-Ore., and the ranking member of the Senate Finance Committee, Maloney wrote that under existing law and current interpretation, “a developer that sells convertible virtual currency, including in the form of ICO coins or tokens, in exchange for another type of value that substitutes for currency is a money transmitter.”
Under U.S. law, money transmitters must comply with anti-money laundering rules, as well as regulations combating the financing of terrorism.
“Make no mistake, this is a highly consequential interpretation,” Peter Van Valkenburgh, director of research at Coin Center, wrote in a blog post.
According to Van Valkenburgh, people or organizations that have sold new tokens, like in the case of an ICO, to a U.S. citizen, without registering with FinCEN as a money transmitter and without undertaking the required regulatory obligations can be charged with unlicensed money transmission, a felony that carries up to five years imprisonment.
Van Valkenburgh also addressed potential constitutional and policy questions in Maloney’s letter, including whether it was wise to use a letter to a senator rather than go through agency rulemaking or Congressional legislation.
An ICO, sometimes called a token sale or token generation event, is a funding mechanism that issues cryptocurrency coins or “tokens” to investors and purchasers that can be sold for government-backed money or used to access a blockchain network’s utility, like a smart contract or digital marketplace. Even with FinCEN’s interpretation, the letter notes that if an “ICO is structured in a way that it involves an offering or sale of securities or derivatives,” then it could fall under the jurisdiction of the Securities and Exchange Commission or the Commodity Futures Trading Commission.
According to Token Report, a research firm, ICOs raised nearly $5.96 billion in 2017.
With increased popularity has come increased enforcement actions from federal agencies.
In February, the Wall Street Journal reported that the SEC had issued dozens of subpoenas and information requests to companies and individuals involved in the ICO market.
The letter from FinCEN, says that the agency, the SEC and the CFTC are working together to clarify and enforce anti-money laundering and anti-terrorism funding regulations.
See also: Blockchain-based initial coin offerings chart uncertain legal terrain
