The rising prevalence of crypto and digital currencies has invited the scrutiny of a number of regulatory our bodies who proceed to grapple with the distinctive challenges posed by blockchain expertise, FinCEN being one prime instance. The Monetary Crimes Enforcement Community (“FinCEN”) is an arm of america Division of Treasury that seeks to impede monetary crimes equivalent to cash laundering and terrorist financing, and was the primary monetary regulator within the U.S. to address digital forex.

Unsurprisingly, the potential misuse of blockchain expertise to hide cash laundering actions—amongst different monetary crimes—is a central challenge for FinCEN, which is tasked with implementing and imposing rules relevant to those actions. Sport builders and publishers monetizing the evolving ecosystem of blockchain video games ought to take specific word—particularly because it pertains to video games that facilitate in-game fungible or non-fungible token exchanges.

As background, FinCEN serves to manage cash transmitters below the federal Bank Secrecy Act. A cash transmitter is often a person or enterprise that engages within the switch of funds whether or not they be primarily based in actual or digital currencies. Such a switch can happen by any means together with by wire or digital switch. FinCEN requires all cash transmitters to register with FinCEN and adjust to plenty of compliance obligations together with common reporting to FinCEN (significantly because it pertains to person/buyer identification and transaction information). On high of that, a myriad of state laws additionally exists that impose extra rules on cash transmitters. For example, many states have instituted costly licensure necessities.

To this point, FinCEN has revealed guidance in a number of situations concerning its view on how convertible digital currencies must be handled. First, in 2013, FinCEN defined that “[t]he definition of a cash transmitter doesn’t differentiate between actual currencies and convertible digital currencies” and famous that “[a]ccepting and transmitting something of worth that substitutes for forex makes an individual a cash transmitter below the rules implementing the [Bank Secrecy Act].” Then, in 2019, FinCEN’s update to its authentic steering in actual fact affirmed its 2013 interpretation and didn’t set up any new regulatory expectations or necessities. 

Thus, below FinCEN’s interpretation, a enterprise that serves as a intermediary, accepting fee by way of digital forex from one person and passing it alongside to a different, seemingly qualifies as a cash transmitter. Within the context of blockchain video games, if a recreation writer performs a task as a cash transmitter in an alternate of tokens—which are deemed a convertible digital forex—between gamers, the sport writer is probably going additionally topic to the Financial institution Secrecy Act and different cash transmitter legal guidelines. Because of this, every recreation developer that facilitates token exchanges ought to consider which authorized and regulatory obligations are relevant to it, with the intention to preserve compliance with federal legal guidelines. 

As for state cash transmitter legal guidelines, such a recreation may or may not qualify as a cash transmitter primarily based on these details. For example, California’s Department of Financial Protection and Innovation regulates cash transmitters within the state below California’s Cash Transmission Act (Cal. Fin. Code § 2000 et seq.), however the steering round classifying and commercializing sure digital forex companies remains to be evolving. Thus, if a recreation developer resides in California and his or her recreation contains any type of token alternate utilizing digital currencies, then consulting with an legal professional to contemplate the precise details could be extremely suggested to find out whether or not a license to transmit cash is required in California. Nonetheless, even when a California license just isn’t required, the sport developer may nonetheless have to adjust to federal and different states’ licensure necessities.

As well as, recreation builders who’ve constructed exchanges for the sale and switch of NFTs ought to monitor how FinCEN’s steering concerning NFTs evolves below these rules. As of now, FinCEN’s steering has not particularly addressed NFTs, and, arguably, most NFTs don’t qualify as currencies, nonetheless, it stays potential for an NFT to have attributes of a forex, relying on how it’s designed and used.

Earlier this 12 months, the Division of the Treasury published a report on the facilitation of cash laundering and terrorist financing by the artwork commerce and set forth choices to deal with these points. Amongst different issues, the report mentioned the dangers of monetary crimes in reference to high-value artwork, together with NFTs (see our article on tokenization here). The research discovered that the high-value artwork market has sure inherent qualities that make it doubtlessly susceptible to a variety of monetary crimes. Entities dealing in NFTs ought to take into account this report whereas we await additional regulatory readability going ahead.

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