Despite the popularity of cryptocurrencies, these firms have often operated in a murky legal environment. Over the first decade of Bitcoin's existence, many exchanges and related service providers did not incorporate Know Your Customer (KYC) or Anti-Money Laundering (AML) protocols.
But this is changing. And quick.
Under Scrutiny: Bitcoin & Crypto in the Eyes of FinCEN's Director
Speaking to Addressing attendees at a fintech gathering at Georgetown University's Law Center, Kenneth Blanco from FinCEN made it clear that cryptocurrency businesses are not outside the realm of AML compliance.
Blanco pointed out that digital asset companies fall under the Bank Secrecy Act's jurisdiction, applicable to all—from stablecoins to decentralized cryptocurrencies—because the individuals involved in crypto trades could potentially engage in illegal actions like narcotics or human trafficking.
Blanco's comments come amid a global push by regulators to enforce strict KYC and AML protocols for the backbone operations within the cryptocurrency sector.
One significant move in this direction is the implementation of the Financial Action Task Force's (FATF) 'Travel Rule', mandating that exchange platforms track detailed transaction information for crypto trades exceeding $1,000, including data on buyers and sellers.
Although these recommendations aren’t legally binding, nations that fail to impose such standards on local crypto entities risk alienation from FATF member countries or losing specific economic benefits.
In line with new FATF guidelines, a consortium of 15 nations, including the U.S. and G7 members, disclosed plans to the Nikkei Asian Review, announcing intentions to create a centralized monitoring system for crypto transactions.
This initiative aims to align with FATF’s worries about Bitcoin and similar digital assets, with the system expected to be functional within a few years.
‘Kowtowing’ Has Begun
Compliance actions with regulatory authorities have started, as evidenced by reported by Blockonomi previously crypto exchange leader OkEx, which recently initiated the removal of privacy-focused cryptocurrencies from its Korean platform.
In a mid-September announcement, they disclosed plans to delist privacy-centric cryptocurrencies such as Dash (DASH), Monero (XMR), Super Bitcoin (SBTC), Horizen (ZEN), and Zcash (ZEC) that enable more confidential transactions compared to mainstream options like Bitcoin or Ethereum.
As FATF guidelines and equivalent measures progressively come into play, it's anticipated that other significant exchanges may follow, potentially tightening their KYC processes further to deter illegal activities.
Furthermore, cryptocurrency mixing services have been targeted by legal authorities. Earlier this year, the privacy service Bestmixer was shut down investigated by Europol and its collaborators for open advertisements of 'money laundering services' and false claims of being legally based in Curacao.
Mixers represent a prominent technique utilized by privacy-inclined users hoping to evade tracking by law enforcement or analytical firms.
Additionally, in August, the White House highlighted the role of cryptocurrencies like Bitcoin and Ethereum in facilitating drug trafficking.
Following this, the Treasury placed sanctions on certain Bitcoin and Litecoin wallets linked to alleged Chinese traffickers Xiaobing Yan, Fujing Zheng, and Guanghua Zheng.
With cryptocurrencies continuing to grow in popularity—evidenced by the buzz surrounding Libra—regulatory efforts to curb the industry's expansion show no signs of stopping.
However, there's concern that excessive government intervention could stifle an industry considered by many to be pivotal to the future of finance and commerce. Who wants to see that happen?
