A recently released letter from the Treasury Department shows initial coin offerings will have to worry about more government oversights.

The agency might go after participants in the ICO market retroactively.

It looks like participants in the initial coin offering market will have to worry about more government oversight.

A letter recently released from the Department of the Treasury indicates folks who issue and invest in ICOs will have to follow certain rules aimed at fighting money laundering and terrorist financing, according to a Bloomberg News report.

In an ICO, a company issues their own digital currency or token in order to raise funds. Such tokens, according to a letter to Sen. Ron Wyden, are money transmitters, which means they have to comply with know-your-customer and bank secrecy rules.

"Generally, under existing regulations and interpretations, 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," the letter said. Initial coin offerings raised more than $1.5 billion in January 2018. Autonomous NEXT

This is a "highly consequential interpretation," according to Coin Center, the Washington DC-based cryptocurrency think tank. It means the Treasury's Financial Crimes Enforcement Network could go after companies and individuals retroactively.

"If found guilty one could face up to five years in prison," the think tank said in a blog post. "Criminal liability may also extend to employees of, and investors in, the business that sold tokens."

ICOs raised more than $5 billion in 2017, according to fintech analytics provider Autonomous NEXT. The US Securities and Exchange Commission hit the ICO market, which is known for its share of fraud and big dreams, with a string of subpoenas, asking for information from companies and individuals involved in the fundraising method.

John-Paul Thorbjornsen, the chief executive officer of Canya, told Business Insider most initial coin offerings since August 2017 have registered with FinCEN and complied with know-your-customer and secrecy laws as a way to distinguish themselves from less legitimate offerings.

"Currently all good ICOs are already compliant with these regulations," he said.