U.S. Treasury proposes rules on cryptocurrency wallets

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The U.S. Department of the Treasury announced Friday that the Financial Crimes Enforcement Network (FinCEN) has proposed new rules “aimed at closing anti-money laundering regulatory gaps for certain convertible virtual currency [CVC] and digital asset transactions.”

The announcement came several weeks after Treasury Secretary Steven Mnuchin was rumoured to be rushing out regulations for self-hosted crypto wallets before Trump’s term expires.

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Mnuchin tweeted Friday:

FinCEN is proposing a rule on certain digital currencies that will protect national security, assist law enforcement and increase transparency while minimizing the impact on responsible innovation.

In its proposal, FinCEN explained that it “assesses that there are significant national security imperatives that necessitate an efficient process for proposal and implementation of this rule.”

The bureau of the U.S. Treasury Department added that “U.S. authorities have found that malign actors are increasingly using CVC to facilitate international terrorist financing, weapons proliferation, sanctions evasion, and transnational money laundering,” among other things, including ransomware attacks.

Crypto Experts Break Down the Proposed Wallet Rules

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A slew of people in the crypto community has been commenting on the proposed rules on social media. Anderson Kill partner Preston Byrne noted that “FinCEN calls wallets managed by a service like Coinbase’s ‘hosted.’ It does not use the term ‘self-hosted’ but rather the term ‘unhosted’ to refer to bitcoiners’ DIY wallets and your nodes at home.”

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Lawyer Jake Chervinsky explained in some detail that “The rule would impose new obligations on virtual asset service providers (VASPs) like exchanges & custodians,” elaborating:

For deposits & withdrawals > $3k involving a non-custodial wallet, VASPs would have to record the name & physical address of the wallet owner … VASPs would also have to report any deposit or withdrawal > $10k to FinCEN in the form of a currency transaction report (CTR).

In contrast, he described that “Before now, the Travel Rule only imposed these record-keeping & reporting requirements on transactions from VASP-to-VASP.” However, “Today’s proposal follows a global trend of extending AML regulation to transactions from VASP-to-wallet, as we’ve seen from Switzerland, France, & others.”

While emphasizing the challenges VASPs would face to comply with FinCEN’s proposal, Chervinsky also pointed out that the new rule “is vague & ambiguous.” He said it raises questions such as “How exactly can a VASP obtain the name & physical address of the owner of a non-custodial wallet? How does someone prove that they ‘own’ a private key? What about non-custodial smart contracts — who owns them?”

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