Will crypto chancers finally be subjected to AML and KYC rules? An oxymoron if ever there was one - FinanceFeeds

Will crypto chancers finally be subjected to AML and KYC rules? An oxymoron if ever there was one

Andrew Saks

The US government considers cryptocurrency and the industry behind it to be a massive threat to national security and financial stability…. and they are right!

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We all know that most cryptocurrency orientated enterprises are either operated by shysters, mavericks or rebels, none of whom have the background, corporate ethics or expertise of those who have spent their careers building and evolving the electronic financial markets industry.

When will the cryptocurrency silliness end?

Ever since the bow tie-wearing, waistcoat-toting mavericks began to parade their anarchistic attempts to circumvent the established financial markets system by introducing various hairbrained digital currency schemes, there has been one catastrophe after another, ranging from fake exchanges stealing from depositors to illicit marketplaces being closed down by the US Department of Justice.

Ten years is a very long time, and certainly long enough for the general public to understand that a non-existent currency traded on a non-existent exchange is the equivalent to snake oil, only with massive self-imposed volatility and leverage, making the inevitable losses more significant than simple, old fashioned snake oil.

It took a very long time. Long enough for some retail brokers to get themselves involved in trading cryptocurrency CFDs which in some cases cost them tens of millions of dollars in a short time. FinanceFeeds is privy to inside information that showed losses at two firms of $17 million and $40 million respectively within one week at the end of 2017, one of which was a publicly listed entity which hid this unfortunate scenario by reporting the entire year in one quarter, presumably to avoid shareholder furore.

Then came all the ICO fraud, and inability to withdraw from various ‘exchanges’ that the proponents who all came out of nowhere with no industry expertise and were uttering the word ‘crypto’ at every opportunity with almost foaming-at-the-mouth obsession, all of which are now either under sanctions, in jail or on the run.

Surely by now, with the penny finally dropping at the FCA, the world would finally begin to understand that any digital currency is a fraud.

There is to be no technology revolution, no bitcoin-fueled empowerment of the masses and no removal of the properly established banks and non-bank trading entities in the name of non-existent, unbacked garbage peddled under the false premise of distributed blockchain ‘fintech’.

We have seen the self-appointed ne’erdowells attempting to call regulators out on their curtailing of cryptocurrency related activities, which has come far too late, claiming that the Financial Conduct Authority’s (FCA) recent decision to ban the sale of derivatives and exchange traded notes (ETNs) linked to cryptoassets to retail customers is a huge setback for the UK in maintaining its dominant position as a global fintech hub.

Seriously? Surely they mean that it is quite the opposite, and represents a welcome and long overdue step toward protecting the entire electronic trading and financial services sector in the United Kingdom along with its clients from crypto villains.

The FCA has not given up, however, and has given rise to a number of regulators following suit.

This week, FinCEN, which is the financial regulation department of the United States Department of Treasury is now looking toward establishing a uniform Anti-Money Laundering (AML) structure for cryptocurrency transactions.

FinCEN has proposed a new rule looking to subject cryptocurrency transactions to similar AML reporting requirements placed on other financial institutions by the Bank Secrecy Act.

Through this proposed rule, FinCEN is seeking to address the illicit finance threat created by one segment of the CVC market and the anticipated growth in LTDAs based on similar technological principles. FinCEN proposes to address this threat by establishing a new reporting requirement with respect to certain transactions in CVC or LTDA, that is similar to the existing currency transaction reporting requirement, and by establishing a new recordkeeping requirement for certain CVC/LTDA transactions, that is similar to the recordkeeping and travel rule regulations pertaining to funds transfers and transmittals of funds.

FinCEN is providing a 15-day period for public comments with respect to this proposed rule. FinCEN has determined that such a comment period is appropriate for several reasons.

First, FinCEN assesses that there are significant national security imperatives that necessitate an efficient process for proposal and implementation of this rule. As explained further below, 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.

In addition, ransomware attacks and associated demands for payment, which are almost exclusively denominated in CVC, are increasing in severity, and the G7 has specifically noted concern regarding ransomware attacks “in light of malicious actors targeting critical sectors amid Covid19″.

Second, the new requirements FinCEN is proposing to adopt represent a targeted expansion of BSA reporting and recordkeeping obligations, and FinCEN has engaged with the cryptocurrency industry on multiple occasions on the AML risks presented in the cryptocurrency space and carefully considered information and feedback received from industry participants.

These engagements have included a FinCEN Exchange event in May 2019, visits to cryptocurrency businesses in California in February 2020, an industry roundtable with the Secretary of the Treasury in March 2020, and a FinCEN Exchange event on cryptocurrency and ransomware in November 2020.

FinCEN also has received outreach on unhosted wallets in response to anticipated FinCEN regulatory action, including letters from CoinCenter, the Blockchain Association, Blockchain.com, Global Digital Asset & Cryptocurrency Association, Circle, and the Association for Digital Asset Markets.

Third, although FinCEN is publishing this proposal in the Federal Record and invites public comment, FinCEN has noted that notice-and-comment rulemaking requirements are inapplicable because this proposal involves a foreign affairs function of the Start Printed Page 83842United States and because “notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.”

The proposal seeks to establish appropriate controls to protect United States national security from a variety of threats from foreign nations and foreign actors, including state-sponsored ransomware and cybersecurity attacks, sanctions evasion, and financing of global terrorism, among others.

Furthermore, undue delay in the implementation of the proposed rule would encourage movement of unreported or unrecorded assets implicated in illicit finance from hosted wallets at financial institutions to unhosted or otherwise covered wallets, such as by moving CVC to exchanges that do not comply with AML/CFT requirements.

Given that the US Department of Justice has got involved in the past in seizing the assets of certain cryptocurrency marketplaces, and the US Treasury has expressed its dim view of cryptocurrency schemes, it is only a matter of time before this ruse gets the death knell it deserves, along with its thick-accented, foaming at the mouth advocates.

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