US Regulation may Require ICOs to Report Suspicious Investors

Initial Coin Offerings must comply with laws associated with money laundering and anti-terrorism that require reporting suspicious investors to authorities according to a newly released letter from the treasury department.

New Information on Old Regulations

In December 2017 Senator Ron Wyden (OR-D) requested information from the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) about its efforts at oversight and enforcement related to cryptocurrency.

FINCEN’s response to the senator was published yesterday though originally dated Feb. 13. The letter explained that companies offering ICOs may be legally considered as money transmitters and therefore be subject to laws set up to combat money laundering and the financing of terrorism which apply to money services businesses under the Bank Secrecy Act (BSA).

FINCEN goes on to broadly explain that these acts apply to any project involved in “convertible virtual currency” which “either has an equivalent in real currency or acts as a substitute for real currency” as laid out in a 2013 guidance from the Treasury Bureau.

The letter then obfuscates things by adding that depending on the particulars of an ICO project, regulation may fall under the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC).

In order to comply, companies must register with FINCEN as a money transmitter business and will then be held responsible to investigate and report suspicious customer activity to the proper authorities.

While some companies involved in ICOs have already registered anticipating this sort of regulation many more have not. Not doing so according to the BSA can carry up to five years in a federal penitentiary. For states that have not yet created their own regulations on digital currency this ruling may be used as a guideline for the future, requiring newly launching ICOs to obtain a money transmitters license.

Regulations Need Clarification

While some see this as old news that relates to the 5-year-old guidelines laid out by the Treasury Bureau and welcome regulation that looks to curb burgeoning crypto-crimes others are worried about the ambiguous nature of the letter.

“In general it will continue to chill that (ICO) activity in relation with U.S. purchasers,”

Said Peter Van Valkenburgh, director of research at industry advocacy Coin Center.

ICOs by startups and individuals raised $4 billion in 2017 and judging by projects like Telegram’s TON ICO project, which has raised nearly two billion US alone so far this year, 2018 will see a big uptick.

This information may prove especially problematic for companies that do business in the US but are registered offshore and don’t strictly fall under the guidelines, but may still be held responsible for the actions of their investors.

It may also become a burden that keeps some very small ICO projects, started by just a couple of people, from seeing fruition because of legal costs needed to unravel the various regulations that come into play.

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