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In one of our recent webinars, Sarah Hody, of the law firm Perkins Coie stated that “If a token is administrating or exchanging virtual currencies, FinCEN could deem the ICO issuer a money transmitter, which would require them to be registered under the federal BSA guidelines.”

Well, FinCEN recently revealed a letter where they state that they consider non-security ICOs as Money Service Businesses (MSBs) per previous FinCEN guidance.

Why would they make this determination?

If a company exchanges a virtual currency for another currency, virtual or otherwise, then the company is an MSB. That is, they are offering services to exchange a currency of one value for a different currency that also has value. A company conducting an ICO is issuing and exchanging their token with a different virtual currently. This is not unlike converting from US Dollars to Euros.

What does this mean?

All ICOs that are not registered securities must now:

  • Register with FinCEN as a money transmitter
  • Register with each US state that requires a Money Transmission License. (This is just for the ICO).
  • Comply with regulations pertaining to money transmission, such as having a risk-based Know Your Customer (KYC) process in place

State licenses for MSBs take two years and several million dollars, on average. It is unlikely that a company conducting an ICO is going to do this.

Here’s what we recommend:

  • Working with firms like Tokensoft or Securitize that can help you launch a security instead of an utility token. In the meantime, learning about exceptions such as Reg A+ and Reg S.
  • Blocking US contributors. IdentityMind helps companies block US contributors by looking at IP, Device, Address and Documents. 
  • Have a good lawyer. Our clients and partners have spoken highly about these firms: Marc Boiron at Fisher Broyles (securities) and Kathryn Graham, Esq. (MSB).

IdentityMind for Token Sales

What’s next?

  • This regulation impacts all companies conducting an ICO in the US or to US contributors.
  • The last time FinCEN got involved, it brought a civil enforcement action against Ripple for not complying for 60 days.

This may mean the end for utility tokens in the United States. It’s hard to imagine that releasing a letter to a Senator can do that, but FinCEN does have the authority. Likely the next course of action is a lawsuit against a company who had a large ICO to show that they are serious and to send a message to other companies.