If you have a business that operates with cryptocurrencies, there are certain requirements that you must meet to keep it legal. The process of cryptocurrency compliance involves various regulations and laws that might include filing reports with regulators, monitoring transactions, anti-money laundering (AML), or customer identification (KYC). Specific requirements vary from one jurisdiction to another in addition to federal regulations.
Implementing cryptocurrency compliance solutions is a must if you want to keep your business in operation and avoid legal problems. A good cryptocurrency lawyer can help you keep your company in compliance. They are an invaluable resource for helping you adhere to crypto tax laws, remain in compliance with crypto regulations, and help with other legal issues that may affect your business.
A good crypto legal team will not only help you if your business goes into litigation, but it will also help you avoid it. Experienced legal support is a smart business investment. It is especially important for a crypto business because the field is so new and growing rapidly with often changing laws. Your attorney will keep up with the evolving crypto laws so you can focus on what’s important – running your business.
What are the compliance standards for crypto?
There are several regulatory bodies that govern cryptocurrency and crypto businesses. The roles of these agencies are focused on ensuring that the businesses operate in a manner that is legal and ethical. They also have regulations that are intended to prevent fraud, money laundering, and other financial crimes involving crypto.
These agencies not only help to keep crypto businesses legal and honest; they also are integral in keeping the crypto world as a whole safe and transparent. They institute rules that make everyone safe, from customers to business owners and everyone in between. They build trust while stopping financial crimes so that the market maintains its integrity.
Businesses in the cryptocurrency field must have a clear understanding of the laws and regulations for using cryptocurrencies and carrying out crypto transactions. They must stay up to date with any changes in these regulations because they can face serious legal consequences for just a single compliance issue. You can’t afford for anything to slip through the cracks, especially in this field.
Compliance can be challenging because the regulations in this field are changing, and crypto businesses are expected to keep up. It is important to know what the regulations are and how they affect the business. This requires some flexibility as businesses make changes according to the new regulations. However, it is necessary to build trust with your customer base as well as build people’s trust in cryptocurrencies as a whole.
In a nutshell, crypto businesses must implement policies covering the trading, transfer, issuance, and custody of crypto that include:
- Watching for and quickly identifying any activities that are illegal or risky
- Maintaining clarity and transparency regarding all crypto transactions
- Creating rules that combat the financing of terrorism
- Implement a strong program designed to prevent money laundering
- Setting conduct rules that reflect and enhance the integrity of the business and the crypto field
- Instituting policies that increase the financial stability of the crypto company
At its core, this is what the regulating agencies require. Your attorney can help you identify what policies and procedures you need to implement in your own business as well as help you create them. A good attorney will help keep your business compliant which means keeping it as a legally operational organization.
New York Department of Financial Services
There are two main laws in New York that oversee cryptocurrency businesses.
These function similarly to federal governing bodies but at the state level. New York has consistently worked to improve and strengthen its crypto laws, including licensing. While this strengthens the crypto market which in turn strengthens the business, it does present another layer of compliance that business owners must wade through to stay in legal compliance.
Furthermore, crypto business owners may not have clear state regulations that provide a formal position on one or more aspects of virtual currency. In those cases, the owners must make their determination by reviewing court rulings on the topic because the regulations do not yet exist.
A cryptocurrency attorney is a good fit here because it could mean the difference between a crypto company thriving or shuttering. Failure to be compliant with even one regulation can mean high fines and in some cases closure. But even if a business is not closed for non-compliance, the fines, attorney fees, and court costs alone are enough to cause many businesses to close.
What are AML requirements for crypto?
Anti-money laundering, or AML, refers to the regulations, laws, and policies that are created to prevent criminals from using cryptocurrency they’ve obtained illegally to convert to fiat currencies.
The Financial Action Task Force (FATF) is a global agency that sets the standards for regulations surrounding AML. The agency’s guidance is used by policymakers to strengthen laws and increase the security of cryptocurrencies. Other agencies have employed FATF’s recommendations on AML in their own regulations.
The responsibility for stopping money laundering and other financial crimes lies with the crypto business owners, crypto exchanges, traders, issuers, and more. Businesses are required to monitor transactions involving cryptocurrency to identify suspicious activity.
AML is important because, despite all the regulations to prevent it, crypto crimes still occur. The nature of the market is conducive to causing fraud because users can send funds anywhere they want and they can do it without using their real names. These transactions can be difficult to trace. AML significantly reduces money laundering and other crypto crimes while making it a much less risky endeavor. It also provides investigators and law enforcement with better, more efficient avenues for prosecuting financial crimes.
What is the FinCEN rule for crypto?
The Financial Crimes Enforcement Network (FinCEN) is a bureau that operates under the purview of the United States Treasury. It oversees crypto assets for AML and fights the financing of terrorism with crypto.
FinCEN has led the way in crypto regulations. It was the first regulatory agency in the United States to publish guidance on virtual currencies. It also provided CVC guidance regarding digital currencies which brought all guidance and administrative rulings into a single body of guidance for governmental agencies, lawmakers, business owners, and others involved in cryptocurrency.
What is the IRS threshold for crypto?
Cryptocurrency income and gains are taxable, and the IRS has issued guidance that crypto may be subject to certain taxes such as Capital Gains Tax or Income Tax. The US crypto tax laws are complex, but the amount that you will be required to pay depends on:
- The amount that was earned
- The transaction type
- Length of time the asset has been held
In a nutshell, income and short-term capital gains have a tax rate of 37% while long-term capital gains have a tax rate of anywhere from 0% to 20%. No matter what the amount of your taxable transactions that involved crypto and other virtual currencies, you are still required to report it on your federal income tax return.
And in case you are wondering, yes, the IRS does have the capability to track crypto. Exchanges are required to do Know Your Customer (KYC) checks as well as keep other records that identify customers and their transactions. In fact, the IRS has been successful in bringing some of the top exchanges like Poloniex, Kraken, and Coinbase to court and making them provide data on their customers.
What are the four regulatory agencies in the U.S. that govern crypto?
Four regulatory agencies make the rules regarding cryptocurrency in the United States. They are:
- US Securities and Exchange Commission (SEC) – Crypto assets that pass the Howey test and are deemed to be securities are regulated by the SEC.
- Financial Crimes Enforcement Network (FinCEN) – AML and preventing the financing of terrorism using crypto assets is the focus of FinCEN.
- Officer of the Comptroller of Currency (OCC) – Banks that participate in cryptocurrency ecosystems are regulated by the OCC.
- The Commodity Futures Trading Commission (CFTC) – Virtual currencies that may fall under the category of commodities are regulated by the CFTC.
Each of these agencies has its own regulations although some may overlap. This is one of the challenges that crypto businesses face. They have to comply with several agencies so there are multiple messages coming from multiple sources and the business owners must comply with each one that applies to them.
What does the FTC Consumer Protection Bureau do?
The Federal Trade Commission (FTC) oversees the Bureau of Consumer Protection which focuses on preventing or stopping fraudulent, deceptive, and unfair business practices. Consumers file reports with the agency regarding businesses that they feel have not operated appropriately and the Bureau conducts investigations. If the business is found to violate regulations, the Bureau has the authority to sue the business as well as individuals.
The Bureau also creates regulations that help to maintain a fair and safe marketplace, including in the field of cryptocurrency. It provides businesses and consumers with educational information regarding their rights, compliance, and identifying scams.
The FTC has the authority to investigate and prosecute cryptocurrency fraud and scams. Consumers can file a crypto scam report on the FTC website at www.ReportFraud.ftc.gov
Do you need a license to sell crypto?
Any individual or business that transmits currency – including crypto – is required to register at the federal level with the BSA E-filing System – https://bsaefiling.fincen.treas.gov/main.html
Then they are required to get a money transmitter license in every jurisdiction where they will be operating. This can be complicated in New York, which is one of the stricter states, but states like Wyoming that are more lax in their crypto regulations can also be difficult.
Various states have different laws regarding licensing crypto businesses. Sometimes those differences vary widely.
A business that wishes to operate within the United States needs to thoroughly research the crypto laws in their state as well as the federal laws. In some cases, they may need to review court decisions as well because regulations may not yet be on the books.
Make Sure Your Cryptocurrency Business is Compliant with a New York Crypto Lawyer
If you own a crypto business or plan to deal with crypto in any way, there are a lot of hoops to jump through. You want to ensure that you are compliant with federal and state regulations, so your best bet is to turn to the experienced, knowledgeable legal team at The Litvak Law Firm.
They have the training necessary to provide you with the cryptocurrency compliance solutions that will keep your business legal. Whether you have a large corporation or you are self-employed working out of your home, you need the knowledge, skill, and experience that The Litvak Law Firm has to offer.
Call today at 718-989-2908 to schedule a consultation to discuss your case or talk about representation and consultation. Compliance is necessary for a healthy, thriving business. You can’t afford to skip it. Call today.