FinCEN (Financial Crimes Enforcement Network), a financial crimes unit in the United States Treasury Department, has shared its regulatory thoughts around Decentralized applications. The guidelines were provided under the topic “Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies (CVCs)” on May 9.
As per FinCEN’s guidelines, a decentralized application “refers to software programs that operate on a P2P network of computers running a blockchain platform, designed such that they are not controlled by a single person or group of persons.”
The Financial Crimes Enforcement Network notes that Dapps that fall under its regulatory control include those that are not for profit; as long as it is designed to facilitate money transmission. The regulations can apply to the Dapp, its operator/owner, or both.
FinCEN stated that it’s not adding new regulations, but it is consolidating “current FinCEN regulations, and related administrative rulings and guidance issued since 2011.” It then applies the rules on business models involving convertible virtual currencies. The Financial Crimes Enforcement Network empowers the reach of the regulations defined in the Bank Secrecy Act by interpreting how the Act spreads over to cryptocurrencies. However, the regulatory body admits that the Act may fail to cover every “combination of facts and circumstances.”
Recently, FinCEN has been tightening the implementation of regulations on money transmitters using virtual currencies. For example, a P2P exchange operator, Eric Powers, parted with $35K as fine for neglecting money transmission laws in his business as defined in the Bank Secrecy Act.
The unit which is under the United States Treasury Department noted that Powers facilitated the buying and selling of BTC for customers between Dec 2012 and Sep 2014. During this time, the P2P exchanger handled more than 1,700 transactions.
FinCEN also accused the exchanger of advertising his services on crypto forums such as bitcointalk.org and his involvement with some of Mt. Gox customers before the exchange collapsed. In some of Powers transactions, FinCEN noted, a Currency Transaction Report (CTR) was not filed.