United States

In 2019, FinCEN issued guidance on convertible virtual currencies (digital assets), emphasising that the Travel Rule was in effect. With that, cryptocurrency could be legally bought and sold from another person, crypto exchanges, bitcoin ATMs, and some banks throughout the United States.

Major US-based exchanges and financial institutions — such as Coinbase, Kraken, Gemini, and Fidelity — have since strengthened their compliance efforts by joining the TRUST network, which facilitates secure and standardised Travel Rule data exchange.

The Bank Secrecy Act (BSA), overseen by FinCEN, is the primary regulation for all AML/ CFT activities within the USA.

What is the scope of the Travel Rule in the US?

The U.S. Travel Rule is based primarily on the existing BSA Funds Travel Rule under 31 CFR § 1010.410(f), rather than on a separate crypto-specific Travel Rule regulation.

FinCEN's 2019 guidance confirms that when a CVC transaction constitutes a "transmittal of funds" and the relevant business is acting as a money transmitter, the Funds Transfer Rule and Funds Travel Rule may apply. For a transmittal of funds of USD 3000 or more, the relevant financial institution must obtain or provide the required regulatory information before or at the time of the transmittal.

The scope therefore depends on the activities and role of the business rather than simply whether a company operates in the crypto sector. FinCEN expressly states that whether a person is a money transmitter is a matter of facts and circumstances.

Examples of CVC business models addressed by FinCEN include:

• Peer-to-peer exchanges;
• CVC wallet providers, depending on the services provided;
• CVC kiosk operators;
• CVC payment processors, depending on the specific business model;
• Decentralised applications (DApps), where the facts and circumstances establish that the owners or operators are conducting money transmission;
• Trading platforms; and
• Other businesses that accept and transmit CVC or other value that substitutes for currency.

FinCEN's guidance does not establish that every business using one of these labels is automatically an MSB. The regulatory treatment depends on the specific activities performed.

Who are the supervisory bodies for VASPs in the US?

FinCEN plays an essential role in regulating cryptocurrencies within the USA. However, various US agencies regulate different cryptocurrency activities.

• Financial Crimes Enforcement Network (FinCEN) is responsible for the regulation of digital assets for AML/CFT purposes. 
• US Securities and Exchange Commission (SEC) oversees regulated digital asset-considered securities by applying the Howey Test. 
• Commodity Futures Trading Commission (CFTC) regulates CVCs, which are considered commodities (for example BTC + ETH). 
• Office of the Comptroller of the Currency (OCC) is responsible for banks participating in the ecosystem. 
• Internal Revenue Service (IRS) is responsible for tax collection. 
• Federal Bureau of Investigation (FBI) is responsible for crime enforcement at a federal level.
• Office of Foreign Assets Control (OFAC) is responsible for overseeing compliance of the US cryptocurrency regulation involving sanctions.

What is the Travel Rule threshold in the US (FinCEN)?

USD 3000.

What are FinCEN's requirements for Travel Rule information to be exchanged? 

For qualifying transactions equal to or above USD 3000, the following data must be collected before or at the time of the transaction:

• originator’s name;
• originator's account number (when available);
• originator's address;
• originator's financial institution;
• transfer amount and date;
• beneficiary’s name (when available);
• beneficiary’s account number (when available);
• beneficiary's address (when available);
• beneficiary's financial institution. 

FinCEN's 2019 CVC guidance confirms that the required regulatory information must be obtained or provided before or at the time of the transmittal of value. The parties do not necessarily need to use the same system or protocol for transmitting the value and transmitting the regulatory information.

The Travel Rule does not prescribe a particular technology or protocol for exchanging the required information. Consequently, businesses may use appropriate technical solutions to exchange Travel Rule information, provided the applicable regulatory requirements are satisfied.

MSBs also have broader BSA recordkeeping obligations. For covered transmittals of funds, the applicable records must generally be retained for five years.

Does the US Travel Rule apply to self-hosted wallets?

Self-hosted or unhosted wallets are not automatically subject to the Travel Rule.

FinCEN's 2019 guidance defines a self-hosted wallet as software hosted on a person's computer, phone or other device that allows the person to store and conduct transactions in CVC without an additional third party controlling the value.

When a transaction involving a self-hosted wallet also involves an MSB, the regulatory treatment depends on whether the transaction constitutes a "transmittal of funds" and on the role played by the MSB. Where a transaction constitutes a qualifying transmittal of funds, the MSB must comply with the applicable Funds Transfer and Funds Travel Rules according to its role in the transaction chain.

Therefore, self-hosted wallets do not automatically fall under the Travel Rule when an MSB is involved, only if the applicable BSA requirements are triggered.

When do you need to comply with the US Travel Rule?

Now - the Travel Rule is live.

Which regulations are applicable to the US Travel Rule?

Application of FinCEN’s Regulations to Certain Business Models Containing Convertible Virtual Currencies.

Department of the Treasury: Financial Crimes Enforcement Network [Docket No. FINCEN–2020–0002 ; RIN 1506– AB41]

Department of the Treasury Semiannual Agenda

What else do you need to know about the Travel Rule in the US?

• While the FATF uses the terms virtual asset and virtual asset service provider, FinCEN uses the terms convertible virtual currency (CVC) and Money Services Business (MSB). 
• A “transmittal of funds” is defined as a series of transactions beginning with the transmittor's transmittal order, made for the purpose of making payment to the recipient of the order (CFR § 1010.100(ddd)). The term includes any transmittal order issued by the transmittor's financial institution or an intermediary financial institution intended to carry out the transmittor's transmittal order.  
• The term transmittal of funds includes a funds transfer. A “funds transfer” is a series of transactions beginning with the originator’s payment order, made for the purpose of making payment to the beneficiary of the order. The term includes any payment order issued by the originator’s bank or an intermediary bank intended to carry out the originator’s payment order (CFR § 1010.100(ddd)).
• Cryptocurrency exchanges that do not register as an MSB will be in breach of the Bank Secrecy Act and AML/CFT regulations.
• Crypto fund managers who invest in crypto futures must be licensed by the Commodity Futures Trading Commission (CFTC) as Commodity Trading Advisors and Commodity Pool Operators.
• Cryptocurrency is taxed under capital gains or losses (if the CVCs are held for less than a year, short-term capital gains are applied, and the opposite for long-term investments). Moreover, cryptocurrency is classed as property.
• US taxpayers must retain detailed records for crypto transactions and report them to the IRS.
• The IRS taxes cryptocurrency mining and payment for services/goods with cryptocurrency as income.