FinCEN Proposes Institutions To Report Crypto Transactions Above Threshold

The U.S. Treasury Department’s financial crimes unit – FinCEN – is seeking to address gaps in cryptocurrency transaction reporting by requiring financial institutions and crypto exchanges to report the movement of crypto funds above certain amounts. 

Under the new proposed rule from the Financial Crimes Enforcement Network (FinCEN), financial institutions and exchanges would have to submit transaction reports verifying the identities of customers transferring crypto worth more than $10,000 or receiving more than $3000 in a single day from unhosted wallets.

The rule aims to address the concerns primarily surrounding the so-called unhosted crypto wallets of individual users (wallets which user control with private-key), which are not subject to the same regulations as those under the custody of U.S. financial institutions, according to FinCEN.

FinCEN hopes once the regulation gets approved would close the current loopholes in reporting and recordkeeping that allow bad actors to transfer funds into unhosted wallets and into darker, unregulated corners of the cryptocurrency ecosystems, often exchanging the funds for fiat currency at a later date. 

In ransomware attacks, victims send cryptocurrencies to an account or address designated by the perpetrator of the attack. This activity can occur through regulated crypto financial institutions.

For example, across 2017 and 2018, FinCEN observed at least seventeen separate transactions over $10,000 conducted between U.S. financial institutions and unhosted wallets affiliated with the Lazarus Group, a malign actor engaged in efforts to steal and extort cryptocurrency as a means of generating and laundering large amounts of revenue for the North Korean regime.

What’s the plan and is it effective:

The intention is that once cryptocurrency leaves an account, there should be a tracking mechanism that governments can use to monitor potential money laundering. But, the real criminals will be able to work around the rules. For e.g. a malicious actor who wants to transfer coins can buy a KYC account from the darknet, create a cold storage wallet, transfer it there, and then transfer wherever they want thereafter.
   
Therefore, what it does is create a barrier to wrongdoers and perhaps trap the low-hanging fruit, but anyone with nefarious intentions will find a workaround.