Cryptocurrency company in USA
USA is currently one of the most attractive markets for provision of financial services. For that reasons, it is quite logical, that companies providing cryptocurrency based services wish to enter the market of USA.
But as in any other case, provision of financial services in USA is many ways depend on the requirements of the local regulation, the most important aspects of which will be reviewed in this article.
Regulation of the cryptocurrencies in USA is subject to regulation both on the Federal and state level. As such, in any event, it is useful to study the nuances of regulation in every particular state where the company wants to operate.

On the Federal level, the cryptocurrencies are mostly regulated by the Securities and Exchange Commission (SEC) and Commodities and Futures Trading Commission (CFTC). Also, the United Stated Federal Trade Commission (FTC) and Department of Treasure addressed the issue of cryptocurrency regulation.

When a company sells cryptocurrency, it generally only falls under any form of regulation if he cryptocurrency that is being sold constitutes the sale of security under the state Federal law. Also, futures, options, swaps and other derivative contracts that make direct reference to the price of the cryptocurrency are subject to regulation by CFTC in accordance with the active Commodity Exchange act.
SEC has regulatory authority over any cryptocurrency token or other digital asset, if it is considered a security.

Thus, it is important to note, that under the US law in order to see if the cryptocurrency is a security or not, one must look at the substance of the transaction and not the form of the transaction. Currently, SEC considers any cryptocurrency token that was issued through an ICO and which has utility, as a security, which is subject to regulation from the Securities act.

So, in order to say if a company must receive a license in USA, the nature of the cryptocurrency must be studied, along with the nature of the transactions associated with it.

If the cryptocurrency is considered as a security the company must register with the SEC. To sell the cryptocurrencies with fewer restrictions, the company must sell only to persons, who have the active status as "accredited investors" in USA under the SEC Rule 501.

It is also possible to sell tokens to registered broker-dealers or trade them through the licensed securities exchange trading system.

Should be noted that under the currently active FATCA regulations states, that Foreign Financial Institutions (FFIs) may register with the IRS and agree to report to the IRS certain information about their U.S. accounts, including accounts of certain foreign entities with substantial U.S. owners.

The purpose of this registration is to ensure that the US government structure have all the information about the financial operations and assets of their US citizens for the purpose of taxation, as US citizens pay taxes from their worldwide income. The FATCA registration is employed for the purpose of preventing tax avoidance.

In other words, the company will still be obligated to provide the US state authorities will all the data they may require in order to prevent tax avoidance from the US citizens.

There is also a limitation on how much business such companies can do in US, without being subject to local licensing requirements. The FFI may receive no more than $50,000,000 over the recent accounting year. Exceeding this limit will make the company subject to licensing.

The states may also have their own specific laws regulating this matter (so called blue sky laws). Such laws may implement additional requirements or regulations.

The application of the existing Money Laundering prevention legislation to the companies depends on if they are considered "Money Services Business" (MSB) under the Bank Secrecy Act.

Currently cryptocurrency exchanges, administrators of cryptocurrency repositories, persons with the right to issue or redeem cryptocurrencies are considered MSB. This also applies to companies that buys or sells convertible cryptocurrencies, accepts and transmits cryptocurrencies.

Any MSB that operates in USA must implement an anti-money laundering program basic on proper risk assessment. The regulations states, that MSB must develop, implement and maintain a written program, reasonably designed to prevent money laundering through the business.

The AML policy must:

• Incorporate written policies, procedures and internal controls for ongoing compliance;
• Designate an individual compliance officer;
• Provide training to personnel, including detection of suspicious transactions;
• Provide independent review to maintain an adequate program.

Also, it is prohibited to do business with persons in SND List. Assets of such persons must be blocked/frozen.

AML laws are applicable to decentralized finance systems, for example decentralized exchanges in the form of smart contracts hosted through blockchain, as well as public open source front-end client (for example Uniswap).

Cryptocurrency fund managers, may be required to register as commodity trading advisors or commodity pool operators, depending on the types of contracts they make.

Also, any cryptocurrency fund manager will be subject to anti-fraud regulations from SC.

Thus, currently the US legislation provides various requirements to the companies operating with cryptocurrencies. The exact requirements depend on the nature of the cryptocurrency itself and the nature of transactions made, along with the form of the contracts formed.

Either way, the company must receive an appropriate license of registration, depending on the nature of business and must also keep in mind the possible restrictions of the available clients.

The relevant AML rules apply in any event, with the company being obligated to implement proper AML policy and rules, including KYC procedures.

Also any company that works with clients from USA must implement and strictly adhere to the money laundering prevention standards that are active in USA.

The minimal requirements under the USA legislation state the company must:

• Establish the identity of a customer;
• Understand the nature of a customer's activities (ultimately to be satisfied that the source of the customer's funds is legitimate);
and
• Assess the money laundering (ML) and terrorist financing (TF) risks associated with that customer.

A KYC program, also referred to as an on boarding program or customer acceptance and maintenance program, generally includes the following components:

• Customer identification program (CIP) – CIP requires the collection, verification and recordkeeping of customer identification information and the screening of customers against lists of known terrorists. For additional guidance on CIP, please refer to the Section 326 – Verification of Identification section of the USA PATRIOT Act section.
• Customer due diligence (CDD) – CDD, also referred to as simplified due diligence, is information obtained for all customers. Information obtained for CDD should enable a financial institution to verify the identity of a customer and assess the risks associated with that customer.
• Enhanced due diligence (EDD) – EDD, also referred to as special due diligence, refers to additional information collected for higher-risk customers to provide a deeper understanding of customer activity to mitigate the associated heightened ML/TF risks.

As such the company is obligated to identify and verify the identity of the client and also perform the due diligence of this activities to rule our potential risks of illegal activity.

A financial institution may consider the following when developing its KYC program:

• Complying with AML/CFT laws and regulations:
- USA PATRIOT Act's Section 312 – Special Due Diligence for Correspondent Accounts and Private Banking Accounts (including Politically Exposed Persons [PEPs])
- USA PATRIOT Act's Section 326 – Verification of Identification (also known as Customer Identification Program [CIP])

• Incorporating international standards, including, but not limited to, the following:

- FATF Recommendations 10 and 22 – Customer Due Diligence and DNFBPs: Customer Due Diligence
- FATF Recommendations 11 and 17 – Recordkeeping and Reliance on Third Parties
- FATF Recommendation 12 – Politically Exposed Persons
- FATF Recommendation 13 – Correspondent Banking
- FATF Recommendation 14 – Money or Value Transfer Systems
- FATF Recommendation 24 and 25 – Transparency and Beneficial Ownership of Legal Persons and Legal Arrangements
- Wolfsberg Anti-Money Laundering Principles for Correspondent Banking (2014)
- Wolfsberg Anti-Money Laundering Principles for Private Banking (2012)

• Collecting relevant information to enable the assessment of ML and TF risks of all customers
• Understanding the extent to which public data sources can be used to obtain reliable information about customers
• Collecting relevant information to provide business line and compliance personnel adequate context to determine if monitored transactions are consistent with the customer's nature of business/occupation
• Understanding information available to verify customer identity, which may differ across customer and geographic markets
• Understanding technology available to collect, store, screen and risk rate customer information, including both internal and third-party solutions.

If you have any questions – please contact!

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