How US authorities are using old AML tools to crack down on crypto

Enter FinCEN. For a long time it was unclear whether any of the traditional rules - like the BSA - were going to apply to crypto.

On Friday, FinCEN indicated that it was looking to expand the requirement for financial institutions to share customer information to international transactions as small as $250, explicitly citing crypto businesses as subject to the same rules.

FinCEN is not likely to start fining every crypto exchange that does not live up to the standards the BSA sets out for banks, and the DoJ is hardly going to start Arthur Hayes-level manhunts for the execs of every crypto exchange registered outside of the U.S. and not keeping BSA-level customer records.

Especially tricky for crypto is 31 CFR 1010.410(f) - known as the Travel Rule - which requires financial institutions to pass on information on transactions of greater than $3,000 in value - a threshold that, as mentioned before, may be on its way down to $250. That information includes the names and addresses of the people sending and receiving those funds.

"The whole notion of crypto is that there are no gatekeepers and the BSA requires that there be gatekeepers. Those two notions are very much at odds with one another. But the BSA is the best system that we've got right now. The other option would be for Congress to get involved and create a new regulatory scheme and I'm not sure that anyone in the industry wants to see that happen."

The BSA is what everyone is working from, and with the DoJ claiming authority over all crypto firms that touch American servers, it behooves everyone to pay attention.

As with so many of the interactions between crypto and regulators, there is an issue of negative PR - FinCEN and the DoJ are looking at crypto as first and foremost a tool for laundering money.

When you're talking AML regulators, they have limited real incentive to look at the positive sides of crypto at all.

FinCEN and related AML authorities are, conversely, strictly risk-averse.

There doesn't seem to be any pending legislation on the horizon to shift the duties of the BSA in crypto, and the authorities that maintain it have doubled down on enforcement in the industry.