Bitcoin Exchanges Must Comply with U.S. Laws

Mar 28, 2017 at 11:48 // IMO as an Expert

Bitcoin exchanges, miners, and cryptocurrency-payment processors, operating in the United States are required to comply with federal Anti-Money Laundering (AML) laws.

That means a cryptocurrency user can be prosecuted for violating a number of federal laws. Anybody who converts BTC to USD and sends the money to or from the United States must comply with all AML laws and regulations.

Such laws and regulations are imposed by the U.S. Treasury Department affiliate, FinCEN. The Financial Crimes Enforcement Network is in charge of enforcing the policies and regulations, which serve as a security measure for conducting any financial activity within the U.S. borders.

All money service businesses, including Bitcoin exchanges, come within the provisions of these laws and guarantee a strong bank secrecy, as well as money laundering control. In the case a financial organization fails to abide by the policy, FinCEN is entitled to recourse through competent legal authorities like the FBI or the U.S. Secret Service. 

Why Abide by U.S. AML Policy?

According to the U.S. Government, digital currency trading is regarded as electronic money transfer, and thus cryptocurrency exchanges need to follow Anti-Money Laundering laws. That means any business that engages in bitcoin or ethereum mining, money transfers, trading or currency exchanges will need to file the appropriate paperwork via BSA E-Filing. Fortunately, FinCEN is willing to work with all organizations that want to do business in the USA.

The Essence of the Law

As the name implies, money laundering takes place when an individual tries to turn criminal proceeds into clean money by disguising the true origin of funds through a number of fake transactions.

A popular money-laundering tactic is to move cash through a number of different accounts. Bitcoin is an option for laundering because it can be moved fast, and makes it more complicated to identify transaction parties.

It comes as no surprise that the government considers cases of this nature a direct threat to the national security and public safety. To prevent money laundering the authorities oblige money-related businesses to collect data about their customers by virtue of law. Therefore, all Bitcoin exchanges, serving American customers, should strictly follow AML laws.

Understanding U.S. Anti-Money Laundering Laws

The first step in AML compliance is to understand what is required of MSBs. Here are the main provisions of the current American Anti-Money Laundering laws bitcoin users need to understand:

  • Money laundering is a federal crime under the Money Laundering Control Act of 1986.
  • Exchangs must report transactions of more than $10,000, issuing Currency Transaction Reports (CTR).
  • Exchanges must keep a clear record or a paper trail of each financial transaction.
  • Exchanges must possess knowledge about the identity of a person, conducting financial transactions.
  • The government has the right to seize funds from transactions regarded as money laundering.
  • This means federal authorities can seize bitcoin if they suspect money laundering.
  • Businesses, including auto dealers, real estate agencies, brokerages, traders and cryptocurrency exchanges, are obliged to report transactions, involving large amounts of money.
  • Any person, purchasing or selling more than $3,000 worth of bitcoin, falls under identity verification.
  • If a transaction is regarded as suspicious or criminal, the provider of services files a report about suspicious activity.

Abiding by Anti-Money Laundering Laws

Fortunately, abiding by the U.S. Anti-Money Laundering Laws is easier than most people think. All the exchanges need to do is use FinCEN’s BSA E-Filing System.

To use this system an exchange much register as a BSA E-Filer. Only BSA E-Filers can submit forms through the system. This includes SAR and CTR forms.

What about requirements?

The first step in becoming an E-Filer is to make sure that your system is compatible with FinCen’s requirements.

There are two categories of issuers for the BSA E-Filing System:

  • Institutions and Individuals.
  • Institutions are defined as banks, publicly-traded corporations, financial service businesses, insurance underwriters, casinos and brokerages.
  • Individuals includes everybody else.

Under current FinCEN practice bitcoin exchanges are regarded as Institutions. That means exchanges will have to register for the BSA-Filing System as Institutions.

How to Become a Filer for the BSA E-Filing System?

To register the exchange as a filing organization, it is necessary to identify a representative, who will further act as the BSA point of contact, as well as an intermediary between the exchange and FinCen. This representative is called a Supervisory User.

The Supervisory User will be in charge of BSA filing and will assign IDs and create user accounts. He or she will have to keep track of all BSA filings.

To be approved by FinCEN the exchange rep should fill out a dedicated application form and submit it for further consideration.

Getting Started with the E-Filing System

FinCEN approval of the Supervisory User is finalized when the applicant receives an email with his User ID and login instructions. That email will also contain a document called Next Steps. The document contains the guidelines for accessing the BSA E-Filing site and submitting appropriate forms.

Having registered for BSA E-Filing System, the Supervisory Unit may learn about privileges available for a regular user and a supervisor from the detailed user manuals, as well as grant access to other members of the organization.

On top of all that, the BSA E-Filing System supports a so-called batch filing procedure, which allows exchanges, having a lot of customers, to save their time and effort. All it takes is using Batch File Testing Procedures to set everything up.

About the author

Oleksandr Lutskevych, CEO of CEX.IO. 17 years ago, Oleksandr started his career in IT as a software developer. Now, he leads CEX.IO, a UK-based cryptocurrency exchange. Oleksandr values his users' privacy and intentionally invests heavily in customers’ personal data protection & internal security. Thus, he worked tirelessly to ensure CEX.IO passed PCI DSS Level 2 Certification and has already started preparing for Level 1 (the top security accolade in the field). 

Oleksandr Lutskevych, CEX.IO

Along with CEX.IO, Oleksandr was influential in the founding of the GHash.IO Mining Pool, and finds peers among the group of developers who invented cloud mining.

Despite giving 110% of himself to his CEX.IO exchange business, Oleksandr is still able to explore his passions of viticulture, and winemaking techniques during his down time.

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