The Financial Crimes Enforcement Network (FinCEN) published a letter Tuesday that indicates the U.S. agency will apply its regulations to those who conduct initial coin offerings (ICOs).

In the letter, which was sent to U.S. Senator Ron Wyden last month, FinCEN’s assistant secretary for legislative affairs, Drew Maloney, explained that both developers and exchanges involved in the sale of an ICO-derived token would be liable to register as a money transmitter and comply with the relevant statutes around anti-money laundering and know-your-customer (KYC) rules.

The letter reads:

“…a developer that sells convertible virtual currency, including in the form of ICO coins or tokens, in exchange for another type of value that substitutes for currency is a money transmitter and must comply with AML/CFT requirements that apply to this type of [money services business]. An exchange that sells ICO coins or tokens, or exchanges them for other virtual currency, fiat currency, or other value that subsitutes for currency, would typically also be a money transmitter.”

The distinction is a notable one given the recent regulatory developments around the blockchain funding model. Washington, D.C.-based Coin Center, which published the letter after it became available today, explained in a blog post that, under this interpretation of the law, a group that conducts an ICO that involves U.S. residents but hadn’t registered with FinCEN as a money transmitter and adhere to KYC regulations may be charged with a felony under federal law.

Coin Center later told CoinDesk in an email: “We do not agree with their assessment and believe such a decision should be subject to the open rulemaking process.”

That said, the FinCEN letter goes on to note that “ICO arrangements vary” and that there are jurisdictional differences depending on the make-up of an ICO and its associated token. Token sales structured as a sale of securities or derivatives would fall under U.S. Securities and Exchange Commission (SEC) or Commodity Futures Trading Commission (CFTC) regulations, respectively.

FinCEN indicated that it such regulatory obligations as they relate to ICO participants would depend on the relevant circumstances as well.

“The application of AML/CFT obligations to participants in ICOs will depend on the nature of the financial activity involved in any particular ICO. This is the matter of the facts and circumstances of each case.”

According to Maloney, FinCEN is working with other U.S. agencies on this issue, explaining:

“FinCEN is working closely with the [SEC] and the [CFTC] to clarify and enforce the AML/CFT obligations of businesses engaged in ICOs activities that implicate the regulatory authorities of these agencies.”

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