FinCEN: Social Media Crypto Projects Can’t Ignore Money Laundering Risk

The deputy director of the United States Financial Crimes Enforcement Network (FinCEN) says the cryptocurrency sector must not abet a “slide backward” in money laundering prevention.

FinCEN deputy director Jamal El-Hindi made his remarks during a speech at the Securities Industry and Financial Markets Association 20th Anti-Money Laundering (AML) and Financial Crimes Conference in New York City on Feb. 6.

FinCEN won’t allow AML oversight to “slide backward”

El-Hindi opened his speech noting the particular complexity of the securities and futures industry, which comprises a dense web of transactions and interactions between inter-related parties. 

This “amazingly complex” landscape includes but is not limited to primary brokerages, futures commission merchants, executing dealers, transfer agents, clearing firms and mutual funds, he observed.

This complexity, he suggested, presents a challenge to the transparency — the information collection and due diligence processes — needed to tackle money laundering and prevent financial crimes. 

In many cases, information sharing and Know Your Customer processes may be discouraged due to the highly competitive nature of the industry — just 14% of all entities in the securities sector that are eligible to register for one of the key business-to-business information sharing mechanisms choose to do so, he noted.

Within this highly challenging climate, El-Hindi warned that new technologies may further exacerbate the situation. 

Cryptocurrency-curious social media and messaging platforms — the most high-profile of which is Facebook’s Libra project — must meet the same compliance responsibilities as traditional financial sector actors, he stressed:

“Social media and messaging platforms and others now focusing on the establishment of cryptocurrencies cannot turn a blind eye to illicit transactions that they may be fostering.”

The influence of these private sector actors, and the new technology heralded by cryptocurrencies, carries these same responsibilities back into traditional finance:

“To the extent that the financial sector chooses to move forward with [...] these emerging systems [...] we are not going to allow it to slide backward on the protections and appropriate transparency that we have collectively worked so hard to weave into the financial system.”

Steps forward

In early December, FinCEN’s director, Kenneth A. Blanco, claimed that the cryptocurrency industry has increasingly begun to fall in line with the agency’s regulations on money transmission services.

In particular, he pointed to FinCEN’s May 2019 guidance as having a marked and positive impact on the agency’s oversight of the crypto space