US Treasury Considers Applying Bank Secrecy Act To Crypto Wallets

The US Treasury considers applying the Bank Secrecy Act rules to crypto wallets as it requires all money services businesses to record transactions to private crypto wallets as we are reading more in today’s crypto news.

FinCEN which is a part of the US Treasury Department issued the proposed rules for unhosted crypto wallets. These rules would require all money service businesses to report certain crypto transactions to these wallets to FinCEN. According to the regulator, the rules are designed to fight against illicit activity. After many weeks of speculation that the Treasury Department was working on regulations that will affect crypto wallets, the Financial Crimes Enforcement Network issued proposed rules which will require banks and other money service businesses to submit reports and keep records as well as to verify the identity of customers that make transactions into unhosted wallets.

Last week we heard rumors that the U.S. Treasury and Secretary Mnuchin were planning to rush out some new regulation regarding self-hosted crypto wallets before the end of his term. I'm concerned that this would have unintended side effects, and wanted to share those concerns.

— Brian Armstrong (@brian_armstrong) November 25, 2020

The new rules that have gone out for public comment until January 4^th, 2021, propose that the “convertible virtual currency” and “legal tender digital assets” to be classified as “monetary instruments” and are therefore subject to the requirements of the Bank Secrecy Act. Under these rules, any transactions totaling about $10,000 in the past day have to be reported to the FinCEN which is a bureau of the US Treasury Department, and that the customers’ identity has to be verified which many transactions requiring a lower threshold of $3000.

Know your customer rules apply to even private crypto wallets as well. Therefore, the US Treasury considers  applying the new rules to crypto wallets, and also the “ “targeted expansion of BSA reporting and recordkeeping obligations” will be created to stop illicit finance involving crypto, as per the notice:

“U.S. authorities have found that malign actors are increasingly using CVC to facilitate international terrorist financing, weapons proliferation, sanctions evasion, and transnational money laundering, as well as to buy and sell controlled substances, stolen and fraudulent identification documents and access devices, counterfeit goods, malware and other computer hacking tools, firearms, and toxic chemicals.”

The note highlights the anonymity-enhanced crypto or privacy coins like Monero as having a well-documented connection to illicit activity. Also, while the proposed rule was sent out for public comment, FinCEN made it clear that this is a courtesy:

“FinCEN has noted that notice-and-comment rulemaking requirements are inapplicable because this proposal involves a foreign affairs function of the United States and because ‘notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.”