The U.S. Federal Reserve and the Treasury Department have proposed rule changes that seek to increase oversight over financial transactions. The proposed rules include redefining ‘money’ to include digital currencies and lowering the transaction data-gathering threshold for cross-border financial transactions.
Through the Financial Crimes Enforcement Network (FinCEN), the Treasury published the proposed amendments late last week.
— Federal Reserve (@federalreserve) October 23, 2020
The proposed modification will amend the Bank Secrecy Act that requires financial institutions to collect information on certain funds transfers. Existing requirements apply only to funds transfers in amounts of $3,000 or more.
“The Agencies are proposing to lower the threshold under the Recordkeeping Rule, and FinCEN is proposing to lower the threshold under the Travel Rule, to $250 for funds transfers and transmittals of funds that begin or end outside the United States.”
The proposed changes will benefit the U.S greatly, with a low effect on the cost and efficiency of the payments system, the agencies believe.
In proposing the amendments, the two agencies conducted research that proved criminals have been exploiting the threshold loophole to launder illicit funds. After combing through several suspicious activity reports (SARs) filed by money transmitters, the agencies discovered that a substantial volume of illicit transfers occur below the $3,000 threshold.
The two agencies also proposed a modification on the meaning of ‘money’ as applicable in the record-keeping and travel rules.
“The Agencies are also proposing to clarify the meaning of ‘money’ as used in these same rules to ensure that the rules apply to domestic and cross-border transactions involving convertible virtual currency (“CVC”), which is a medium of exchange (such as cryptocurrency) that either has an equivalent value as currency, or acts as a substitute for currency, but lacks legal tender status.”
The rules will also apply to digital assets that have legal tender status, the agencies added. These include sovereign digital currencies that countries such as Venezuela, Iran and Russia have created or are looking into “to engage in sanctions evasion.”
While the travel rule hasn’t been embraced by some in the digital currency industry, tax expert Jamison Sites believes it’s a leap forward for the industry. Sites, who is the digital assets tax lead at accounting giant RSM told Forbes:
“The proposed rules give greater clarity and regulatory certainty to those operating with CVCs. This will be a positive for the industry.”
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