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In the territory of the USA, as institutions providing money services (Money Service Business or MSB) and as agencies for transferring money at the state level, crypto exchanges are regulated by the Banking Secrecy Act (BSA) at the federal level. However, it is noteworthy that only companies registered in the US or companies whose US tax residents hold more than 10% of the share of ownership (whether direct or indirect) are considered Legal US tax residents.
The Anti-Money Laundering Act (AML) which came into force in 1994 obliged all MSB’s to register with the FinCen of the US Treasury every two years. Later, in 2001, in order to prevent the financing of terrorism, the USA Patriot Act made it a federal crime for MSB’s to operate without a В proper license. Both laws paved the way for the US civil and criminal regulation of crypto exchanges.
In the last research, we found out that nowadays KYC procedures on most crypto exchanges are often formalities.
The first actions utilizing the above-mentioned regulations was against a company issuing a virtual currency called E-gold. In only a few years, the organization had carried out transactions worth billions of dollars annually. Unfortunately, the owners did not realize how the virtual currency could be used by criminals. Consequently, the company’s owners were fined approximately $4 million. As a result of this case, the courts expanded the definition of a money transfer as transferring the value of the currency in any formќ.
A similar case occurred with the company BTC-e. The company’s cryptocurrency transactions reached about $300 million in В Bitcoin alone. The government proved that most of these transactions were used for criminal offenses. As a result, the company was fined more than $110 million.
Except the State of New York, almost none of the states have determined the regulatory status of cryptocurrencies. In New York, regulators created a special law “ Uniform Regulation of Virtual Currency Business Act or URVCBA. It only regulates wallet operations and exchanges. However, the State of New York has issued a special license for cryptocurrency exchange operations called a Bitlicense. It has strict requirements regarding AML, accounting, cybersecurity systems, software, customer protection, and marketing.В As a result of the regulations, American exchanges have taken leading positions in CER rating on cybersecurity parameters.
В В В 1 transaction amounting to $2000 or more;
В В В 2 receiving or issuing more than $10,000;
В В В 3 money transfers of more than $3000;
В В В 4 currency exchange transactions of $1000 or more.
Consequently, all companies falling under the MSB definition in the US law that are not physically located in the territory of the United States of America but provide services fully or partly in the US are required to comply with the same requirements as the companies that are physically located in the country under the Bank Secrecy Act.
As you can see, the USA regulates the cryptocurrency exchanges quite strictly. This is the reason why many platforms do not want to deal with US residents by stating it clearly in the Terms & Conditions or excluding the United States in the country registrationќ graph.
It is noteworthy that those exchanges complying with all the legal requirements in the US are in great demand due to their safety, transparency, and reliability.
This material is prepared in cooperation with Mykhailo Grydzhuk, the associate of Moris Group Law Company.