Last week, the leaders of the U.S. Commodity Futures Trading Commission, the Financial Crimes Enforcement Network, and the U.S. Securities and Exchange Commission (the “Agencies”) issued a joint statement to remind persons engaged in activities involving digital assets of their anti-money laundering and countering the financing of terrorism (AML/CFT) obligations under the Bank Secrecy Act (BSA).
AML/CFT obligations apply to entities that are defined as “financial institutions” by the BSA, which includes futures commission merchants and introducing brokers obligated to register with the CFTC, money services businesses (MSBs) as defined by FinCEN, and broker-dealers and mutual funds obligated to register with the SEC.
AML/CFT obligations also require the establishment and implementation of an effective anti-money laundering program (AML Program). Additional requirements include recordkeeping and reporting practices, as well as suspicious activity reporting (SAR).
As defined for the purposes of this joint statement, “digital assets” include instruments that may qualify under applicable U.S. laws as securities, commodities, and security-or commodity-based instruments such as futures or swaps. The group is aware that market participants refer to digital assets using many different labels. The labels or terms used to describe a digital asset or a person engaging in or providing financial activities or services involving a digital asset, however, may not necessarily align with how that asset, activity or service is defined under the BSA, or under the laws and rules administered by the CFTC and the SEC.
Regardless of the label or term that market participants may use, or the type of technology employed, the facts and circumstances underlying an asset, activity or service determine the way an asset is categorized. Therefore, the specific regulatory treatment of the activity involving the asset and whether the participants involved are “financial institutions” is what matters for the purposes of the BSA.
In addition, it is the nature of the digital asset-related activities a participant engages in that is a key factor in determining whether and how that participant must register with the CFTC, FinCEN, or the SEC. For example, if a person falls under the definition of a “financial institution,” its AML/CFT activities will be overseen for BSA purposes by one or more of the Agencies (and potentially others). Certain BSA obligations that apply to a broker-dealer in securities, mutual funds, futures commission merchant, or introducing broker, such as reporting suspicious activity, apply quite broadly and without regard to whether the particular transaction at issue involves a “security” or a “commodity” as those terms are defined under the CEA or federal securities laws.