'Firsts' For The World Of Virtual Currencies

There have been two recent virtual currency-related actions worthy of note: (1) the Financial Crimes Enforcement Network ("FinCEN") announced its first civil enforcement action against a virtual currency exchanger, and (2) the New York Department of Financial Services ("NYDFS") granted its first license to a Bitcoin exchange.

FIRST VIRTUAL CURRENCY EXCHANGER ENFORCEMENT ACTION

On May 5, 2015, FinCEN announced an enforcement action against a virtual currency exchanger to settle alleged violations of the Bank Secrecy Act ("BSA") and its implementing regulations. The virtual currency exchanger facilitates the sale and exchange of a particular virtual currency for fiat currency. A Statement of Facts and Violations issued concurrently alleges that the virtual currency exchanger previously engaged in these activities without registering as a money services business ("MSB") and failed to comply with other BSA requirements. Under the terms of the settlement, the virtual currency exchanger agreed to pay a $700,000 civil money penalty and take certain remedial actions. A settlement between the virtual currency exchanger and the U.S. Attorney's Office was also announced to resolve criminal charges associated with the alleged BSA violations.

FinCEN alleges that the virtual currency exchanger facilitated transfers of virtual currency and provided virtual currency exchange transaction services without registering as an MSB from March 2013 through April 2013. During this time period, FinCEN alleged that the virtual currency exchanger "sold convertible virtual currency" in violation of the BSA. FinCEN also alleged that the virtual currency exchanger failed to comply with BSA requirements during this period because it:

Failed to develop a written anti-money laundering ("AML") program; Failed to report transactions at or above $2,000 in value that it knew, suspected, or had reason to suspect were suspicious; and Engaged in a series of transactions in which the virtual currency exchanger either failed to file suspicious activity reports, or filed them in an untimely manner. The enforcement action follows FinCEN's March 2013 guidance, which clarified the application of the BSA and its implementing regulations to virtual currency businesses. Based on the March 2013 guidance, an "exchanger" or "administrator" of virtual currency is considered a money services business ("MSB"), and as such, must register with FinCEN, develop and implement an AML program, report...