FinCen: Social Media Crypto Projects Can’t Endorse Money Laundering

The deputy director of the United States Financial Crimes Enforcement Network (FinCEN) says that crypto industry must not endorse a “slide backward” in the battle against money laundering.

FinCen deputy director Jamal El-Hindi stated that in his speech at the Securities Industry and Financial Markets Association 20th Anti-Money Laundering (AML) and Financial Crimes Conference in New York City on February 6.

FinCen will prevent AML regulation from sliding backward

El-Hindi started his speech stating that modern securities and futures industry is particularly complex and encompasses an intricate web of transactions and interactions between inter-related parties.

He noted that this “amazingly complex” system comprises but is not limited to primary brokerages, futures commission merchants, executing dealers, transfer agents, clearing firms and mutual funds.

This complexity, he said, poses a problem to the transparency — the information collection and due diligence processes — required to combat money laundering and prevent financial crimes.

In most cases, information sharing and KYC (know your customer) procedures may be overlooked, as the landscape is highly competitive — only 14% of all entities in the securities sector which can register for one of the central business-to-business information sharing mechanisms choose to do so, he stated.

Within this extremely intricate sphere, El-Hindi maintained that nascent technologies may further aggravate the situation.

Cryptocurrency-interested social media and messengers — the most prominent of which is Facebook’s Libra project — must comply with the same regulations as traditional financial sector actors, he highlighted:

“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 exerted by these private sector actors, and the emerging technology brought about by cryptocurrencies, carries these 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

At the beginning of December, Kenneth A. Blanco, director of FinCEN, said that the cryptocurrency industry has begun to increasingly comply with the organization’s regulations on money transmission services.

He mentioned FinCEN’s guidance from May 2019 as having well-pronounced and positive influence on the organization’s oversight of the crypto industry.