The Financial Crimes Enforcement Network, known as FinCEN, has long been the domestic authority for MSB regulation. The regulatory body is housed under the U.S. Department of the Treasury. As of Wednesday July 2017, FinCEN is taking their power across borders. On July 27, FinCEN announced a $110 million fine against a digital currency exchange with a separate $12 million fine against its owner. The exchange, BTC-e, is headquartered in Russia.
In its action, FinCEN alleges that BTC-e failed to create and use an AML program, as required by law for money service businesses. In addition, FinCEN alleges the exchange failed to submit suspicious activity reports (SARs). Beyond the supposed misbehavior of the company, FinCEN goes further to claim that its owner, Alexander Vinnik, willfully violated the applicable regulation.
According to FinCEN, BTC-e is subject to U.S. laws after facilitating the exchange of funds between two people within the United States. BTC-e conducted another 21,000 bitcoin transactions worth more than $296 million in the United States. While the company is based in Russia, this US activity brings BTC-e under FinCEN’s watch. As an MSB regulated by FinCEN, BTC-e is required to register as an MSB, renewing this registration every 2 years. In addition, BTC-e is required to implement an effective AML program, detect suspicious transactions, file SARs, and obtain and retain certain records.
In addition to violating AML requirements, FinCEN alleges that the exchange ignored blatant crimes, overlooked the discussion of criminal activity on its discussion boards, and even courted criminals as customers. The near complete anonymity provided by the service appealed to criminals who used the exchange to carry out illegal activity including identify theft, financial fraud, and drug trafficking. Vinnik was arrested in Greece for these alleged violations and will be tried in the United States.
FinCEN announced in a statement, “This action should be a strong deterrent to anyone who thinks that they can facilitate ransomware, dark net drug sales, or conduct other illicit activity using encrypted virtual currency. Treasury’s FinCEN team and our law enforcement partners will work with foreign counterparts across the globe to appropriately oversee virtual currency exchangers and administrators who attempt to subvert U.S. law and avoid complying with U.S. AML safeguards.”
FinCEN’s 2017 fines on MSB businesses have already reached $306 million, a significant increase over the $11.8 million in penalties for 2016. One thing is clear: FinCEN plans to regulate MSBs, including nebulous digital currency businesses, with fervor. FinCEN’s willingness to cross borders to fight financial crime and prevent money laundering is yet another wakeup call for both the MSB and digital currency industries. The rash of fines levied against MSBs in 2017 alone indicates that, if anything, FinCEN is ramping up its AML efforts. If you own an MSB, now is the time to carefully evaluate your AML and compliance programs to ensure that you are meeting all federal and state requirements.
FinCEN is on the lookout for failure to comply with AML requirements, BSA violations, and failure to Know Your Customer. How can your MSB ensure compliance while protecting itself from both illegal activity and the resulting fines? You should implement strict check cashing process, design safe opening and closing procedures, and conduct regular employee training. In addition, you should employ an MSB compliance expert to design a strong compliance program. These steps will help you stay on top of AML and BSA requirements while reducing fraud at your location(s).
MSBs already face increased scrutiny from banks as a result of their “risky” reputation in the financial services market. FinCEN’s 2013 list of “risky businesses,” since dubbed Operation Choke Point, led to the trend of indiscriminate derisking. This refers to the action of banks closing MSB accounts to shut themselves off from perceived risk and regulatory burden. As a result, MSBs can experience difficulty opening and retaining a reliable MSB business bank account. Since such an account is vital to their operations, many MSBs are forced to deal with interruptions or even permanent business closures.
With this additional pressure from FinCEN MSBs are walking a thin tightrope. In the face of a changing regulatory landscape, securing a reliable MSB bank account can help you focus your energy on designing, building, and maintaining a robust MSB compliance program.
NCC works to keep you banked and keeps you ahead of (and in compliance with) all MSB regulation. The first piece of the puzzle is to secure a reliable MSB bank. NCC facilitates this through their exclusive network of trusted financial institutions. By using a network of institutions, rather than relying on just one bank, you will enjoy the security that only comes from redundant MSB banking. Redundant banking means that if one bank decides to derisk, there is a network of banks ready and willing to step in and bank your business. You no longer have to worry about indiscriminate derisking.
With banking insecurity off your plate, you can focus your time and energy on running a compliant money service business. NCC helps you do this by providing cutting edge POS technology, which allows you to easily collect comprehensive data for every transaction and customer. This data is communicated to your banking partner, checked against databases, and recorded. All of these actions keep you in compliance of AML/BSA regulation, help you prevent fraud, and strengthen your banking relationship.
NCC’s team of MSB compliance experts will help you evaluate your unique risk and implement systems to prevent criminal activity from entering your business. Supportive MSB financial services help you operate efficiently and profitably. These MSB services include extended deposit time, rapid deposit turnaround, armored cash logistics, and money wire capabilities. NCC’s financial services complement your real MSB bank account to bring you a complete MSB banking solution.
As regulation continues to evolve, NCC has your back. If you are ready for a capable and reliable partner for banking and compliance, it’s time to open an account with NCC. A team of MSB experts is standing by to walk you through the simple and expedient application process. Call us or fill out a form to secure your MSB bank account today!