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Virtual Currencies

New FinCEN Guidance Affirms Its Longstanding Regulatory Framework for Virtual Currencies and a New FinCEN Advisory Warns of Threats Posed by Virtual Currency Misuse

Contact
Public Affairs, 703-905-3770
Immediate Release

WASHINGTON—To provide regulatory certainty for businesses and individuals engaged in expanding fields of financial activity, the Financial Crimes Enforcement Network (FinCEN) today issued the following guidance, Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies (CVC). The guidance is in response to questions raised by financial institutions, law enforcement, and regulators concerning the regulatory treatment of multiple variations of businesses dealing in CVCs.

FinCEN today also issued an Advisory on Illicit Activity Involving Convertible Virtual Currency to assist financial institutions in identifying and reporting suspicious activity related to criminal exploitation of CVCs for money laundering, sanctions evasion, and other illicit financing purposes. The advisory highlights prominent typologies, associated “red flags,” and identifies information that would be most valuable to law enforcement if contained in suspicious activity reports.

“Treasury is committed to helping financial institutions better detect and prevent bad actors from exploiting convertible virtual currencies for money laundering, sanctions evasion, and other illicit activities.” said Sigal Mandelker, Under Secretary of the Treasury for Terrorism and Financial Intelligence. “The comprehensive advisory FinCEN issued today highlights the risks associated with darknet marketplaces, peer-to-peer exchangers, unregistered money services businesses, and CVC kiosks and identifies typologies and red flags to help the virtual currency industry protect its businesses from exploitation.”

“FinCEN was the first financial regulator to address virtual currency and the first to assign obligations to related businesses to guard against financial crime,” said FinCEN Director Kenneth A. Blanco. “The money transmitter definition we published in 2011 and the guidance we issued in 2013 clarifying how that definition applies to transactions involving virtual currency have proven to be exceptionally durable. Our regulatory approach has been consistent and despite dynamic waves of new financial technologies, products, and services, our original concepts continue to hold true. Simply stated, those who accept and transfer value, by any means, must comply with our regulations and the criminal misuse of any methodology remains our fundamental concern.”

Today’s guidance does not establish any new regulatory expectations. It consolidates current FinCEN regulations, guidance and administrative rulings that relate to money transmission involving virtual currency, and applies the same interpretive criteria to other common business models involving CVC. FinCEN’s rules define certain businesses or individuals involved with CVCs as money transmitters subject to the same registration requirements and a range of anti-money laundering, program, recordkeeping, and reporting responsibilities as other money services businesses.

Links:

FINCEN Press Release

Guidance (Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies)

FinCEN Advisory on Illicit Activity Involving Convertible Virtual Currency

Cybercrime Squad and AUSTRAC remind digital currency exchanges of reporting obligations

This is a joint media release between the NSW Police Force and AUSTRAC.

The NSW Police Force and the Australian Transaction Reports and Analysis Centre (AUSTRAC) are reminding digital currency exchange providers to be aware of their obligations following amendments to Commonwealth legislation last year.

 

In April 2018, amendments to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 were introduced, which included expanding the scope of the Act to include regulation of digital currency exchange providers.

 

These changes included registering with AUSTRAC, verifying customer identity, reporting suspicious matters and over-threshold cash transactions; and complying with record-keeping requirements.

 

AUSTRAC National Manager for Regulatory Operations, Dr Nathan Newman, said AUSTRAC worked closely with digital currency exchange providers to prepare them for these laws, which are in place to protect industry from criminal exploitation and in turn, the Australian community.

 

“Digital currency exchange providers have had adequate time and opportunity to comply with these new laws and AUSTRAC has already refused the registration of two digital currency exchange providers. We continue to actively monitor the sector’s compliance,” Dr Newman said.

 

“It’s important that digital currency exchange providers meet their obligations so we can identify any instances of criminal activity using their services to launder money, fund terrorism or commit other serious crimes.”

 

Cybercrime Squad Commander, Detective Superintendent Matt Craft, said this is a timely reminder to those who deal in digital currencies to ensure they are meeting their obligations.

 

“While cash is still ‘king’, digital currencies are fast becoming the preferred choice for organised criminal networks involved in money laundering, funding terrorism, and cybercrimes,” Det Supt Craft said.

 

“These amendments were implemented to ensure digital currencies were being monitored in the same ways as cash exchanges and transfers.

 

“Any information about illicit activity by digital currency exchange providers that is provided to our squad – whether related to organised crime, terrorism, or technology-enabled crime – will be actively pursued in partnership with AUSTRAC.

 

“Let this be a warning to digital currency exchange providers: if you fail to comply with your obligations, your actions will not go unnoticed.”

 

Det Supt Craft added that an increase in popularity of Dark Net marketplaces will also mean increased targeting by law enforcement.

 

“Given the perceived anonymity of the Dark Net, Australian criminal groups are starting to favour the online environment to conduct illicit business,” Det Supt Craft said.

 

“With police and our partners proactively targeting this space, I’ll assure these networks that their anonymity is no longer guaranteed.”

 

More information about digital currency exchange providers’ obligations under the Act is available at: http://www.austrac.gov.au/digital-currency-exchange-providers.

 

Anyone with information about non-compliant digital currency exchanges or the facilitation of serious and organised crime is urged to contact Crime Stoppers: 1800 333 000 or https://nsw.crimestoppers.com.au. Information is treated in strict confidence. The public is reminded not to report crime via NSW Police Force social media pages.

Contact:

NSW Police Force Media Unit (02) 8263 6100
AUSTRAC Media (02) 9950 0488

Link:

AUSTRAC Notice

FinCEN Penalizes Peer-to-Peer Virtual Currency Exchanger for Violations of Anti-Money Laundering Laws

Immediate Release

WASHINGTON—The Financial Crimes Enforcement Network (FinCEN) has assessed a civil money penalty against Eric Powers for willfully violating the Bank Secrecy Act’s (BSA) registration, program, and reporting requirements.  Mr. Powers failed to register as a money services business (MSB), had no written policies or procedures for ensuring compliance with the BSA, and failed to report suspicious transactions and currency transactions.

Mr. Powers operated as a peer-to-peer exchanger of convertible virtual currency.  As “money transmitters,” peer-to-peer exchangers are required to comply with the BSA obligations that apply to MSBs, including registering with FinCEN; developing, implementing, and maintaining an effective AML program; filing Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs); and maintaining certain records.

“Obligations under the BSA apply to money transmitters regardless of their size,” said FinCEN Director Kenneth A. Blanco.  “It should not come as a surprise that we will take enforcement action based on what we have publicly stated since our March 2013 Guidance—that exchangers of convertible virtual currency, such as Mr. Powers, are money transmitters and must register as MSBs.  In fact, there were indications that Mr. Powers specifically was aware of these obligations, but willfully failed to honor them.  Such failures put our financial system and national security at risk and jeopardize the safety and well-being of our people, as well as undercut responsible innovation in the financial services space.”

Mr. Powers advertised his intent to purchase and sell bitcoin on the internet.  He completed transactions by either physically delivering or receiving currency in person, sending or receiving currency through the mail, or coordinating transactions by wire through a depository institution. Mr. Powers processed numerous suspicious transactions without ever filing a SAR, including doing business related to the illicit darknet marketplace “Silk Road,” as well as servicing customers through The Onion Router (TOR) without taking steps to determine customer identity and whether funds were derived from illegal activity.

Mr. Powers conducted over 200 transactions involving the physical transfer of more than $10,000 in currency, yet failed to file a single CTR.  For instance, Mr. Powers conducted approximately 160 purchases of bitcoin for approximately $5 million through in-person cash transactions, conducted in public places such as coffee shops, with an individual identified through a bitcoin forum.  Of these cash transactions, 150 were in-person and were conducted in separate instances for over $10,000 during a single business day.  Each of these 150 transactions necessitated the filing of a CTR.

FinCEN notes that this is its first enforcement action against a peer-to-peer virtual currency exchanger and the first instance in which it has penalized an exchanger of virtual currency for failure to file CTRs.  FinCEN also notes that since his infractions, Mr. Powers has cooperated with FinCEN efforts.  In addition to paying a $35,000 fine, Mr. Powers has agreed to an industry bar that would prohibit him from providing money transmission services or engaging in any other activity that would make him a “money services business” for purposes of FinCEN regulations.



Links:

FinCEN Press Release

Assessment of Civil Monetary Penalty

FINMA ascertains illegal activity by envion AG

The Swiss Financial Market Supervisory Authority FINMA has found that envion AG (now in liquidation) unlawfully received public deposits on a commercial basis from at least 37,000 investors. The company is currently being liquidated by the Zug bankruptcy authority.

In March 2019, FINMA concluded the enforcement proceedings against envion AG, which it launched in July 2018 (press release). As part of its proceedings, FINMA appointed an investigating agent to investigate suspicious activity on site. It was discovered during this that the company had unlawfully accepted funds amounting to over 90 million francs from at least 37,000 investors in the context of an initial coin offering (ICO) without the necessary statutory licence. The company was thus acting illegally and seriously violated supervisory law. 

ICOs can fall within the scope of the Banking Act

In the context of its ICO envion AG issued so-called EVN tokens. Investors were able to purchase these tokens by making payments in US dollars as well as in the Ethereum and Bitcoin cryptocurrencies. Envion AG granted the token owners a claim to repayment after thirty years. Furthermore, the conditions for the EVN tokens issued in a bond-like form were not equal for all investors, the prospectuses did not meet the minimum statutory requirements and there was no internal audit unit as required by law. In the present case, this acceptance of US dollars and the Ethereum and Bitcoin cryptocurrencies therefore amounted to an acceptance of public deposits for the purposes of the Banking Act. This however requires a banking licence. 

No further intervention by FINMA necessary

While the FINMA proceedings were ongoing, the Cantonal Court of Zug opened bankruptcy proceedings against envion AG on grounds of organisational shortcomings. As a result, further supervisory measures against the company by FINMA will not be required. FINMA cannot provide information regarding the financial situation of envion AG as the bankruptcy proceedings are controlled by the Bankruptcy Office of Zug. 

FINMA will continue to focus on ICOs

FINMA will continue to consistently take action against ICO business models which violate or circumvent supervisory law. Ultimately, this can lead to the company being liquidated by FINMA. FINMA is committed to ensuring that serious innovators can launch their ICO projects lawfully and has published guidelines to this effect. In addition, FINMA informs FinTech service providers about requirements under financial market law on its website. FINMA has also already repeatedly pointed out the risks associated with ICOs to investors. Specifically, FINMA warns about unclear provisions or overly optimistic promises made in the whitepapers or published by companies which are planning to conduct an ICO.

Contact

Vinzenz Mathys, Media Spokesperson 
Tel. 031 327 19 77
vinzenz.mathys@finma.ch

Link:

FINMA Notice

News

26 July 2018 

Press release

FINMA launches proceedings against ICO issuer

The Swiss Financial Market Supervisory Authority FINMA has launched enforcement proceedings against envion AG. FINMA has evidence that the company may have breached financial market law in relation to an ICO.

FINMA launched enforcement proceedings against envion AG in July 2018. The proceedings focus in particular on possible breaches of banking law resulting from the potentially unauthorised acceptance of public deposits in connection with the Initial Coin Offering (ICO) for the EVN token. Investigations carried out by FINMA to date indicate that, in the context of its ICO, envion AG accepted funds amounting to approximately one hundred million francs from more than 30,000 investors in return for issuing EVN tokens in a bond-like form. FINMA will make no further comment on the proceedings until they are concluded. 

Focus on ICOs

FINMA is committed to ensuring that serious innovators can launch their ICO projects lawfully and published guidelines to this effect in February 2018. However, it also consistently takes action against ICO business models, which violate or circumvent supervisory law. FINMA has also repeatedly drawn attention to the risks that ICOs pose for investors. 

Contact

Tobias Lux, Media Spokesperson 
Phone +41 (0)31 327 91 71 
tobias.lux@finma.ch 

Links:

FINMA NoticePDF version

SEC Obtains Emergency Order Halting Fraudulent Coin Offering Scheme 

Charges “Blockchain Evangelist” Behind Alleged Scam

FOR IMMEDIATE RELEASE
2018-94

Washington D.C., May 29, 2018 —

The Securities and Exchange Commission today announced it has obtained a court order halting an ongoing fraud involving an initial coin offering (ICO) that raised as much as $21 million from investors in and outside the U.S.  The court also approved an emergency asset freeze and the appointment of a receiver for Titanium Blockchain Infrastructure Services Inc., the firm behind the alleged scheme.

An SEC complaint unsealed today charges that Titanium President Michael Alan Stollery, a/k/a Michael Stollaire, a self-described “blockchain evangelist,” lied about business relationships with the Federal Reserve and dozens of well-known firms, including PayPal, Verizon, Boeing, and The Walt Disney Company.  The complaint alleges that Titanium’s website contained fabricated testimonials from corporate customers and that Stollaire publicly – and fraudulently –claimed to have relationships with numerous corporate clients.  The complaint alleges that Stollaire promoted the ICO through videos and social media and compared it to investing in “Intel or Google.”  

“This ICO was based on a social media marketing blitz that allegedly deceived investors with purely fictional claims of business prospects,” said Robert A. Cohen, Chief of the SEC Enforcement Division’s Cyber Unit.  “Having filed multiple cases involving allegedly fraudulent ICOs, we again encourage investors to be especially cautious when considering these as investments.”  

The SEC’s Office of Investor Education and Advocacy has issued an Investor Bulletinon initial coin offerings and a mock ICO website to educate investors.  Additional information about ICOs is available on Investor.gov and SEC.gov/ICO.  Investors in the Titanium ICO who believe they may be a victim should contact the SEC through www.SEC.gov/tcr and reference SEC v. Titanium Blockchain Infrastructure Services, Inc., et al., Civil Action No. 18-4315 (C.D. Cal.).

The SEC’s complaint, filed on May 22 in federal district court in Los Angeles, charges Stollaire and Titanium with violating the antifraud and registration provisions of the federal securities laws.  The complaint charges another Stollaire company, EHI Internetwork and Systems Management Inc., with violating the antifraud provisions.  The complaint seeks preliminary and permanent injunctions, return of allegedly ill-gotten gains plus interest and penalties, and a bar against Stollaire to prohibit him from participating in offering digital securities in the future.  Following the court’s entry of a temporary restraining order against them, Stollaire and his companies consented to the entry of a preliminary injunction and the appointment of a permanent receiver over Titanium.  

The SEC’s investigation, which is continuing, is being conducted by David S. Brown and supervised by Joseph G. Sansone and Diana K. Tani of the SEC’s Market Abuse Unit in coordination with supervision by Mr. Cohen.  Assisting the investigation is Morgan Ward Doran of the Cyber Unit and Roberto Grasso of the Los Angeles Regional Office.  The litigation is being conducted by David VanHavermaat and supervised by Amy Jane Longo of the Los Angeles Regional Office.

Link:

SEC Press Release

MAS warns Digital Token Exchanges and ICO Issuer

 

Singapore, 24 May 2018… The Monetary Authority of Singapore (MAS) has warned eight digital token exchanges in Singapore not to facilitate trading in digital tokens that are securities or futures contracts without MAS’ authorisation. It also warned an Initial Coin Offering (ICO) issuer to stop the offering of its digital tokens in Singapore. 

2   MAS has reminded the eight digital token exchanges to seek MAS’ authorisation if the digital tokens traded on their platforms constitute securities or futures contracts under the Securities and Futures Act (SFA). Digital token exchanges commonly allow the buying and selling of digital tokens using fiat currency, and also facilitate the exchange of digital tokens between their clients. If the digital tokens constitute securities or futures contracts, the exchanges must immediately cease the trading of such digital tokens until they have been authorised as an approved exchange or recognised market operator by MAS. 

3   MAS has directed an ICO issuer offering digital tokens to Singapore-based investors to stop doing so. MAS has assessed that the issuer had contravened the SFA as its tokens represented equity ownership in a company and therefore would be considered as securities under the SFA. The offer was made without a MAS-registered prospectus, which is a SFA requirement. The issuer has ceased the offer and has taken remedial actions to comply with MAS’ regulations. It has also returned all funds received from Singapore-based investors.

4   MAS has reiterated that digital token issuers, intermediaries and platforms that offer, facilitate or trade digital tokens are responsible for ensuring that they comply with all relevant laws.

5   Mr Lee Boon Ngiap, Assistant Managing Director (Capital Markets), MAS, said “The number of digital token exchanges and digital token offerings in Singapore has been increasing.  We do not see a need to restrict them if they are bona fide businesses.  But if any digital token exchange, issuer or intermediary  breaches our securities laws, MAS will take firm action.  The public should be aware that there is no regulatory safeguard if they choose to trade on unregulated digital token exchanges or invest in digital tokens that fall outside the remit of MAS’ rules.” 

Additional Information 

A digital token is a cryptographically-secured representation of a token-holder’s rights to receive a benefit or to perform specified functions. For more information on digital tokens and the risks involved, please refer to MoneySENSE’s consumer alerts:  (http://www.moneysense.gov.sg/Understanding-Financial-Products/Investments/Consumer-Alerts/Virtual-Currencies.aspx)

 

Link:

MAS Notice

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