The Federal Reserve, along with the Financial Crimes Enforcement Agency (FinCEN), an agency of the United States Treasury, have called for comment on a proposed rule that lowers the reporting threshold under the Bank Secrecy Act (BSA) from $ 3,000 to $ 3,000. 250 for transactions outside the United States under what is widely known as the “Travel Rule”. Furthermore, cryptocurrency transactions would also be needed for domestic and international dealings as the rule broadens the definition of money.
Bitcoin transactions increased to $ 366 billion in 2019 and $ 312 billion in 2020 through August, under the new rule. The Fed and FinCEN explain that virtual assets will be defined as “money” under the new proposed rule to include “convertible virtual currencies” (CVC) and digital assets that are legal tender. FinCEN first approached CVC with guidance issued in 2013, notable as it was the first US agency to publicly address how crypto should be regulated.
Jamison Sites, Blockchain and Digital Asset Tax Lead at RSM, the fifth largest tax consulting, auditing and tax firm in the world in the United States, said: “The proposed rules give greater clarity and regulatory certainty to those working with CVC. This will be good for the industry. ” According to Sites, the unintended consequence of the initial guide aimed at cryptocurrency users was not the simultaneous update of the travel rule, which the proposed rule would take care of.
In 2019, the Financial Action Task Force (FATF), a powerful international body focused on preventing money laundering and terrorist activities, offered recommendations to countries to adopt a “ travel rule ” as it is known in the United States. , to be applied to digital currencies with this version of the new guide. In particular, the information that must be recorded and transmitted with these transactions should include the name and address of a customer, the amount of the transaction, the date of execution and also the data of the recipient of the transaction.
Earlier this year, CoolBitX CEO Michael Ou said, “The blockchain and cryptocurrency industry is at an important crossroads. As the Financial Action Task Force (FATF) continues to push its cryptocurrency lead. around the world, compliance and prevention of criminal activity can seem extremely daunting … The truth is that compliance with travel rules and blockchain analytics to monitor criminal activity are two sides of the same coin. “Ou spoke in reference to a partnership between the securities firm and Elliptic, a global leader in cryptocurrency risk management solutions.
The standard proposed by the Fed and the FinCEN notes that, “Consistent with the FATF guidance, in May 2019, the FinCEN issued guidelines advising that CVC-based transfers made by a non-bank financial institution could fall within the rules. on record keeping and travel, on the basis that such transfers involve the placing of a “transmission order” by the sender “, or an instruction to pay” a determinable amount of money to a recipient – a criterion for the application of the rules “.
The agencies noted that at least one industry group – although not identified in the proposed rule – has stated that crypto transactions would not apply to the “travel rule” as it is not considered “money” within a standard as defined by the Code. ” (UCC). To remedy this, the rule definition should: “… define ‘money’ … to make it explicitly clear that both payment orders and broadcast orders include any instructions from the sender to transmit CVC or any digital asset that is legal tender to a recipient. ”
Banks involved in a “transfer of funds”, “originator”, “payee” and “payment order” only apply in the context of banks; however, the term “transfer of funds” includes a transfer of funds and is the counterparty to a transfer of funds in the context of non-bank financial institutions. To effectively eliminate any ambiguity left in the UCC that defines money as “a medium of exchange currently authorized or adopted by a domestic or foreign government”, this proposed change “would make it explicitly clear that both payment orders and transmission orders include any instruction from the sender to transmit CVC or any legal tender digital resource to a recipient. ”
Along the lines of considering what industry groups see with respect to the travel rule and the idea of being able to provide public commentary on this rule, Sites proclaims, “It’s great to see FinCEN take the input of industry groups seriously.” Expected to be officially published in the federal registry on Tuesday, October 27, interested stakeholders will only have 30 days from that date to respond with public comments before the agencies issue the final rule. The draft proposal can be viewed here.
Disclosure: I am a former employee of RSM where I served as a consultant for the US Treasury Home Affordable Mortgage Program (HAMP) from 2011 to 2015.