When is a crypto business a money transmitter under FinCEN's 2019 virtual currency guidance?

A crypto business is a money transmitter when it accepts currency, funds, or value that substitutes for currency (which includes convertible virtual currency, or CVC) from one person and transmits it to another location or person by any means, and it is not exempt from MSB status or covered by an exclusion. Exchangers and administrators of CVC generally qualify; users do not.

What the guidance says:

• Exchangers and administrators generally qualify as money transmitters under the BSA, while users do not. A user obtains virtual currency to purchase goods or services on the user's own behalf (FIN-2019-G001, section 3).
• The question turns on facts and circumstances, and labels such as "cryptocurrency" or "digital asset" are not dispositive (FIN-2019-G001, sections 1.1 and 1.3).
• The technology and the formal business status do not decide it. Receiving value first or sending it first, and transactional or account-based dealings, can all be money transmission (FIN-2019-G001, sections 1.3 and 2).
• A platform that completes reciprocal transfers once agreed conditions such as an exchange rate and amount are met is engaged in money transmission each time (FIN-2019-G001, section 2).
• Exclusions are read strictly, and an activity that does not fully conform gets no exemption (FIN-2019-G001, section 2). Banks and SEC or CFTC registered persons are not MSBs but follow the BSA rules for their own institution type (FIN-2019-G001, section 1.2.2).

What to do:

• Map each activity against the accept-and-transmit test and the exchanger, administrator or user roles, and test any claimed exclusion against its full wording.
• If you are a money transmitter, you must register with FinCEN within 180 days of starting to engage in money transmission, and maintain a written AML program (FIN-2019-G001, section 2.1).
• CVC transactions qualify as transmittals of funds, so a transmittal of $3,000 or more (or its CVC equivalent) may trigger Funds Travel Rule requirements (FIN-2019-G001, section 2.1).

Sources

1. FinCEN FIN-2019-G001: https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf

This answer is general information, not legal advice. Forteris is not a law firm.