Peter’s Crypto Compliance Corner: Addressing All the Noise

Welcome to my Crypto Compliance Corner of the universe! I’m Peter and here’s the first of several articles that’ll cover some of what I want to talk about and some of what you want to talk about. My goals are to (1) demystify what’s happening in the fintech/regtech space for virtual currency and (2) be a resource to the brother and sisterhood of my fellow compliance professionals.

To begin, I’d like to address all the noise and varying opinions in the crypto world. I’ll start with a story to help visualize the concept of being pulled in multiple directions: My daughter goes to high school and was telling me about her experience at lunch the other day. She wanted to sit with one group of friends at one table, but another set of her friends were sitting in a different spot. They all wanted her to sit with them. As with any decision, there were many potential consequences. So what did she do? She made the best choice she could with the least consequences, which ended up being sitting somewhere in the middle.

In a very similar fashion, compliance professionals are getting pulled in multiple directions with virtual currency. The Security and Exchange Commission (SEC) says “Kinda looks like virtual currency, might be a security, so we’ll make the rules for it.” The Commodity and Future Trading Commission (CFTC) says “Hold on there, virtual currency is a commodity so we’re making the rules.” Financial Crime Enforcement Network (FinCEN) has stepped in with “Sorry everyone — virtual currency falls under our definition of a money services business, and they have to listen to us.” OFAC has published definitions in their FAQs regarding virtual currency and wallets, and unfortunately, that’s about as good as it gets right now.

Finally, the IRS says, “Just FYI, virtual currency is property and subject to capital gains tax” and that can be problematic for businesses accepting bitcoin. For example, I watched a 2013 YouTube video of a guy paying for a Subway® sandwich. He paid .03934 BTC for a $12.35 meal, which means that the shop owner must record the value of the BTC at the time of receipt for when they decide(d) to sell it.

With all of these competing voices, how do we advise our companies, board, and colleagues on what to do? For now, we’re just going to have to sit somewhere in the middle until we figure it out.

This blog is the first in a series from our Chief Compliance Officer, Peter Singer.

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