Financial institutions report large cash and crypto transactions differently. That loophole led to a controversial rule proposal by the Financial Crimes Enforcement Network (FinCEN) late last year, an official said Monday.
In a virtual panel hosted by compliance firm TRM Labs, FinCEN’s deputy director Michael Mosier referred to a rule that allows crypto exchanges to carry out transactions on private wallets (sometimes referred to as non-hosted wallets) in the Must report over $ 10,000 a day worth collecting counterparty information for wallets receiving over $ 3,000 worth of crypto per day.
If crypto is like cash, “why does the CTR, the reporting requirement for currency transactions, apply to cash, banks and money service providers, but you have this loophole with crypto,” he asked. “… There are concerns at the top government level, including domestic and international leaders. “
The proposed rule, which was introduced on December 18, 2020, would impose strict data collection requirements on exchanges within the United States
While the CTR aspect is in line with the requirements for cash transactions, the industry has strongly opposed the requirements for counterparty information, finding that under compliance burdens, this would prevent US crypto holders from sending funds to smart contract wallets, which by their nature do not exist. There are no names or addresses associated with them.
Map old laws to new technologies
One problem, according to Jai Ramaswamy, director of risk, compliance and regulatory policies at cLabs, is that much of US financial regulation focuses on the use of intermediaries in financial transactions.
Ramaswamy is a former head of the US Department of Justice’s money laundering division and has penned a statement on how unfettered wallet restrictions could backfire for industry group Coin Center over the past year.
In Monday’s speech, he said the core regulation of the Banking Secrecy Act focuses on these intermediaries identifying malicious or illegal activity and reporting it to the federal government.
“When you move into a world where these financial intermediaries are no longer gatekeepers, if you will, and individuals are conducting peer-to-peer transactions, there are concerns about what you will do in a disintermediate world when the regulatory regime is in place I focused on that these financial intermediaries play a pretty important and crucial role in managing the risk of bad money in the system, ”he said.
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He later added that he did not think it was clear whether the clauses of the Bank Secrecy Act could work well with a system based on peer-to-peer transactions.
However, he said that “even criminals” would have to convert their cryptocurrency back into fiat in order to use them, pointing out that regulations regarding these conversion points might be enough to meet legal requirements.
“At some point in the value chain, they need to get cash and currency as it is legal tender,” he said.
Future comments
Mosier said FinCEN staff realized that the 15-day comment deadline typically wouldn’t shorten them – the public needed more time. They first added 15 more days. With the arrival of the Biden administration, FinCEN tackled another 60.
The additional time gives members of the industry the opportunity to better work through and criticize a rule proposal that is as complex as it is controversial. Many have already submitted detailed counter-arguments complaining about the proposal’s original expedited comment period. Coin Center even submitted a second volley.
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Mosier said that the distinction between cash and crypto was a central goal of the ongoing comment phase. The discussion about the comment phase can help FinCEN to apply the old guard rails if necessary and to develop new protective measures for new technologies.
He also stressed that the proposed rule had several components and encouraged respondents to discuss the various aspects.
“It’s a suggestion, it’s not all or nothing, tell us what works,” and what doesn’t technically and conceptually, said Mosier.
Comments that used practical and technical examples would be more helpful than just comments that focused on conceptual issues, he said.
Stay forward
The rulemaking process could also help FinCEN stay one step ahead of lawmakers, which Mosier said could “overreact” to incidents involving what appears to be a suspicious cryptocurrency.
One example is the $ 500,000 bitcoin payments made to far-right individuals a month before the Capitol was sieged. This payment, which is under investigation by federal law enforcement, has little to do with non-hosted wallets, but it plays at the same overarching angle that crypto can be used for crime.
“This is the type of low probability, high impact event that can cause lawmakers and others to overreact on laws and regulations, and we want to be ahead of that,” Mosier said.
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Some lawmakers are already calling for a closer look at the digital asset space following the January 6 uprising. Rep. Josh Gottheimer (DN.J.) released a statement earlier this month calling on the Justice Department to investigate the Bitcoin transaction.
“Are foreign units paying right-wing extremists to try to overthrow the US government? Are there any other cryptocurrency transfers to extremist groups that we don’t know about yet? “Said the congressman in a statement.
