An issuer of a coin or token in an initial coin offering “generally” is a money transmitter under Financial Crimes Enforcement Network’s regulations, FinCEN indicated in a letter it made public on March 6, 2018. The statement appeared in letter signed by the Treasury Department’s Assistant Secretary for Legislative Affairs, Drew Maloney, (the “Treasury Letter”) in response to questions posed to FinCEN by Senator Ron Wyden in a December 14, 2017 letter. The statement does not appear to be consistent with past FinCEN interpretations concerning the status of issuers of virtual currency and highlights a need for greater regulatory clarity in this dynamic space.
Among the questions, Senator Wyden asked:
How will FinCEN apply existing anti-money laundering laws such as the Bank Secrecy Act to participants in the ICO market, like token developers?
Apparently responding to that question, the Treasury Letter states:
Generally, under existing regulations and interpretations, a developer that sells convertible virtual currency, including in the form of ICO coins or tokens, in exchange for another type of value that substitutes for currency is a money transmitter and must comply with AML/CFT requirements that apply to this type of MSB.
The 2013 Guidance that the Treasury Letter cited in its answer does not clearly support this conclusion. That guidance states that administrators of centralized virtual currencies are money transmitters. However, the guidance defines an “administrator” as
a person engaged as a business in issuing (putting into circulation) a virtual currency, and who has the authority to redeem (to withdraw from circulation) such virtual currency.
Developers of coins or tokens may not have the authority to redeem or withdraw from circulation the coins or tokens sold in an ICO and, therefore, appear to fall outside the definition of an “administrator.” That suggests the Treasury Letter’s statement is not supported by existing regulations and interpretations.
Unpacking the Treasury Letter’s description further, it says that “a developer that sells convertible virtual currency” through an ICO “for another type of value that substitutes for currency” is a money transmitter. On its face, this description implies that a person who sells an ICO token for fiat currency is not a money transmitter.
Treasury has not yet answered Senator Wyden’s last question: “When will FinCEN provide clear guidance describing its enforcement intentions concerning digital token exchanges and initial coin offerings?”
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