ICO's in Violation of FinCEN

Scott Purcell |


In February, the Financial Crimes Enforcement Network (FinCEN) made it very clear that ICO issuers need to get registered as a money services business (MSB). This means that before you launch your ICO you need to go through the expensive, time-consuming process of...

  1. Creating a BSA program, including a written AML compliance program;
  2. Hiring an experienced compliance officer;
  3. Training all staff on AML and KYC obligations;
  4. Getting registered as an MSB;
  5. Performing AML on all persons, on every transaction;
  6. Filing SAR's and CTR's;
  7. Retaining training, compliance and reporting records; and,
  8. Accommodating an annual audit by FinCEN agents.

Fortunately, there is a work-around. Simply use a trust company, bank, or clearing firm (a type of broker-dealer that is permitted to carry customer accounts, cash and other assets). These types of financial institutions are exempt from registering as an MSB as their types of charter already require extensive BSA compliance programs and they are permitted by regulation to handle money and other assets. Thus, using their services accomplishes the objectives of FinCEN and the US Treasury.



In Short:

  • Don't Touch the Money (or the investors BTC, ETH or other Coins as they are by definition "another type of value that substitutes for currency")
  • Let regulated financial institutions ensure that KYC and AML is performed on every investor, every time, in every transaction

Escrow, really? I hear Reg D issuers often say "we don't need to use escrow as there is no minimum and no contingency in our offering". And that is 100% correct. Just keep in mind that any Reg D token issuers who are not using a trust, bank or clearing firm to process funds via an escrow account must hire an experienced compliance officer, establish internal BSA procedures, write their anti-money laundering program, train their staff, and obtain a money-services business license before they can begin their offering. => Trust me, you'll spend $10 to try to save a dime by avoiding the cost of escrow.

With all the legal fees you've paid, and all the marketing expenses you will soon incur, the costs of running things through escrow...while certainly not free...is cheap by comparison.

As Bitcoin Magazine pointed out, "anyone who sells tokens to U.S. residents while, at the same time, failing to register with FinCEN as an MSB...could also face several years in prison under a felony conviction." Not to mention extensive fines.

Also see the discussion in the National Law Review by clicking here.

About the Author: Scott Purcell is the CEO and Chief Trust Officer of Prime Trust, the leading tech-driven trust company. He is also the CEO of FundAmerica, the fintech services provider to the equity and debt crowdfunding industry. His firms provide escrow, payment processing, and compliance technology for numerous broker-dealers, investment advisers, portals and others who make a business of online capital formation pursuant to rules now in effect thanks to the JOBS Act. He is a founding Board member of the Crowdfunding Intermediary Regulatory Association (CFIRA) and the author of the book “The Definitive Guide to Equity and Debt Crowdfunding” as well as the “Industry Best Practices for Funding Portals”.

Legal Disclaimer: These materials are my personal opinions and for informational purposes only and not for the purpose of providing legal or tax advice, nor are they a recommendation or an offer of any securities. I am not advocating, advising or recommending anyone purchase or not-purchase any specific or general investment of any type, ever. The issues discussed above include complicated areas of law and legal advice should only be obtained and relied upon from a securities attorney about your specific circumstances.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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