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  • Writer's pictureMichael Bacina

Defining "money": digital currency draws closer to cash

Updated: May 3

The US Treasury, Financial Crimes Enforcement Network (FinCEN) and the Board of Governors of the US Federal Reserve banks (the FRB) have proposed a new rule which would include digital currency (or as they are calling it "convertible virtual currency") and digital assets as legal tender.

However, before digital currency fans get all excited about insisting they can pay for things with bitcoin, this is not so much about pushing the use of digital currency forward so much as bringing more reporting obligations on those businesses involved in digital currency dealings. The change to the definition of money would include:

[digital currencies] and a medium of exchange currently authorized or adopted by a domestic or foreign government, including any digital asset that has legal tender status in any jurisdiction

In May 2019, which seems like years ago at this point, FinCEN published guidance indicating that nonbank financial institutions processing transfers of digital currency may fall within the Bank Secrecy Act's Recordkeeping Rule and Travel Rule.

The Recordkeeping Rule and Travel Rule are regulations which require banks and nonbank financial institutions to keep and pass on information concerning funds transfers and transmittals of funds in amounts of $3,000 or more including: the name and address of sender; the amount of the payment or transmittal order; the execution date of the payment; payment instructions received from the sender; and the identity of the beneficiary's bank or the recipient's financial institution. As well as this, personal information about the beneficiary has to be retained by the sending institution including account information.

The new proposed change both brings digital currency into the definition of "money" but also lowers the threshold for US nonbank financial institutions from US$2,500 to $250 for cross-border transactions. It will apply where a sending bank or nonbank financial institution has "reason to know" a transaction begins or ends outside the USA.

Many involved in the blockchain world have challenged whether digital currencies should be considered "money" for the purpose of AML/CTF reporting requirements. The area of international transaction reporting for digital currency transactions has been a vexing one, particularly given the peer-to-peer and borderless nature of digital currencies and information transmitted with a blockchain transfer on a public chain could be exposed to third parties.

FATF proposed that the Travel Rule apply to digital currencies in 2019 and FATF recently met to gauge and discuss how AML regulations are shaping up in a world of increasing digital currency usage. In Australia, digital currency businesses may be required to report transactions of over AUD$1,000. reported last year that digital currency exchange businesses were struggling to comply with the Australian implementation of the Travel Rule. The ongoing challenge of rules designed for a centralised world adapting to a decentralised one is likely to continue.


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