On January 8, 2019, the ACAMS New York Chapter hosted an event titled Regulatory Landscape for Virtual Currency, which was sponsored by Chainalysis, Inc. and hosted at Fordham University. The event was a panel discussion, moderated by Angel Swift (Enigma Technologies, Inc.), and included the following speakers: Jeff Horowitz (Chief Compliance Officer, Coinbase); Jesse Spiro (Head of Policy & Regulatory Affairs, Chainalysis; Michael Sachs (Executive Assistant District Attorney and Chief of the Investigations Division, New York County District Attorney’s Office); and Lana Schwartzman (Chief Compliance Officer, Paxful).
The panel speakers first presented an overall landscape of the industry, including a discussion of baseline definitions and an overview of regulations. The audience was also informed that there are over 2,000 different types of crypto currencies, and that the level anonymity differs by currency. Download event materials here.
There was then a focus on “de-bunking myths” regarding crypto currencies. For example, the notion that crypto currencies aren’t regulated was stated as being untrue. One of the issues currently experienced by crypto currency exchangers is that they are regulated unequally throughout the world. It’s often difficult for US domestic exchanges to compete with exchanges overseas that are less strictly regulated, and there is concern that this uneven playing field will set the US behind in terms of innovation in this area.
Other myths include: “We have no visibility of what’s going on”. As the panelists noted, software exists - currently in use by both financial institutions as well as law enforcement - to track and monitor virtual currency payments. Standard AML procedures, such as KYC and transaction monitoring, can also help mitigate risk.
Lastly, the myth that that virtual currency is primarily used mainly for illegal activities was also refuted. Recent analysis by Chainalysis explains that only 1% of all cryptocurrency transactions are considered to be involved in illicit activity.
The panelists also spoke about how cryptocurrency companies are experiencing technical difficulties in terms of compliance with the US Travel Rule. These compliance difficulties may push what was intended to be a decentralized system to conform with a centralized system.
A review of case studies that came to law enforcement’s attention through companies such as Coinbase was presented by Michael Sachs. These cases involved significant illicit drug manufacturing and child pornography, and Mr. Sachs expressed the great gratitude that law enforcement agencies felt towards ability to receive and investigate this information.
In conclusion, the panel also advised that cryptocurrency businesses need to engage with regulators, both to keep dialogue open between the industry and the regulators, and also to continue to educate them in this complicated and evolving space.
The panel noted that industry is heading towards increased transparency, which is beneficial for all parties conducting in licit trade.
Finally, it was discussed that the cryptocurrency industry needs access to traditional banking services, including the widespread acceptance by financial institutions. This will help demystify the industry but also provide critical resources for legitimate businesses.