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FinCEN Director: Cryptocurrency Complaints Exceed 1500 Per Month

Cryptocurrency–Despite the call for Exchange Traded-Funds and other SEC regulated options for investors, cryptocurrency continues to remain a largely lawless place. A new report from the U.S. Financial Crimes Enforcement Network has shed a damning light on the industry in terms of suspicious activity and other forms of foul play.

In a speech delivered to the 2018 Chicago-Kent Block Legal Tech Conference last Thursday, Director of the FinCEN Kenneth A. Blanco dropped a relative bombshell when he told the public his investigative arm receives over 1500 cryptocurrency related complaints each month. Classified as Suspicious Activity Reports (SARs), complaints have continued to grow throughout the year, indicating a need for greater oversight. While members of the cryptocurrency industry rightly shun the centralized presence of further government regulation, the sheer volume of reported cryptocurrency scams and the growing number of complaints being levied at FinCEN and the SEC has painted a landscape wrought in some turmoil. While cryptocurrency still represents a gray space in terms of enforcing and regulating financial behavior, the department is working with the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC).

Blanco told conference attendees,

“innovation in financial services can be a great thing… we also must be cognizant that financial crime evolves right along with it, or indeed sometimes because of it, creating opportunities for criminals and bad actors, including terrorists and rogue states.”

Rather than condemning the industry of cryptocurrency for its role in producing epidemic numbers of scams and complaints, Blanco still finds the technology innovative and recognizes the need to foster that growth despite the current lack of regulation. He stated the field of fintech and cryptocurrency was filled with “incredible innovations,” but needed to find a way to work with regulators to implement certain guidelines for protecting investors and avoiding fraud,

“harm can be done with devastatingly increasing speed, breadth, and obscurity in the digital world.”

In addition to giving specific examples of cryptocurrency exchanges who had failed to comply with FinCEN regulations, despite falling under the umbrella of companies that accept transfers of value in fiat or fiat substitutes, Blanco commented that most crypto businesses take the necessary steps to meet regulation when given a nudge that an examination is forthcoming. However, Blanco made it clear that meeting regulatory requirements when under examination is not a substitute for following the law on a regular basis. For these exchanges, Blanco had harsh words,

“Let this message go out clearly today:  This does not constitute compliance.”

Blanco also spent time to comment upon the nature of the ICO industry, a market that has taken off substantially over the last two years. Despite a finding earlier in the year concluding that 80 percent of all ICOs could be classified as a ‘scam,’ the market has continued to see exponential growth. Through the first two quarters of 2018, total ICO volume already doubled that of the previous year, with 2018 looking to continue a strong trend of growth for initial coin offerings. Blanco contended that the current model for ICOs is convoluted enough to fall under several regulatory umbrellas, but that firms behind the offering are still required to meet anti-money laundering and anti-terrorist funding obligations.

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