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Blockchain and FinCEN Game Developers: When Do Government Money Transfer Laws Apply?

The growing proliferation of crypto and virtual currencies has led to scrutiny from many regulators that continue to face the unique challenges posed by blockchain technology, with FinCEN being one of the prime examples. The Financial Crimes Enforcement Network (“FinCEN”) is an arm of the US Treasury that seeks to disrupt financial crimes such as money laundering and terrorist financing, and was the first financial regulator in the United States to address virtual currency.

Not surprisingly, the potential misuse of blockchain technology to disguise money laundering activities – among other financial crimes – is a central issue for FinCEN, which is tasked with implementing and enforcing the regulations applicable to such activities. Game developers and publishers investing in the evolving blockchain gaming ecosystem should pay special attention — particularly with regard to games that facilitate the exchange of in-game or non-fungible tokens.

As a background, FinCEN is regulating money senders under the federal government bank secrecy law. The sender of money is usually an individual or a company that is involved in transferring money whether it is in real or virtual currencies. Such transfer can take place by any means including by wire or electronic transfer. FinCEN requires all money transfer devices to Register with FinCEN and comply with a number of compliance obligations including regular reporting to FinCEN (particularly in relation to user/customer identification and transaction data). Moreover, countless State laws There are also additional regulations imposed on senders of money. For example, many states have set expensive licensing requirements.

So far, FinCEN has been published guidance In several cases regarding its opinion on how to deal with convertible virtual currencies. First, in 2013, FinCEN explained that “[t]The definition of a money transfer device does not differentiate between real currencies and virtual convertible currencies, and noted that “[a]Accepting and transferring anything of value in exchange for currency causes a person to transfer money under the Regulations [Bank Secrecy Act]. Then, in 2019, FinCEN’s Modernization In fact, its original guidance confirmed its 2013 interpretation and did not specify any new expectations or regulatory requirements.

Thus, under FinCEN’s interpretation, a company that acts as an intermediary, accepting payment by virtual currency from one user and passing it on to another, would likely qualify as a money sender. In the context of blockchain games, if a game publisher plays a role as a money sender in exchanging tokens — which are convertible virtual currency — between players, the game publisher will likely also be subject to bank secrecy and other money sender laws. As a result, every game developer that facilitates token exchanges must evaluate the legal and regulatory obligations that apply to them, in order to maintain compliance with federal laws.

For government money transfer laws, such a game may or may not qualify as a money sender based on these facts. For example, file Department of Financial Protection and Innovation State senders of money are regulated under the California Money Transfer Act (Cal. fin. Code § 2000 et seq.), but the guidelines on the classification and marketing of some virtual currency services remain evolve. Thus, if the game developer is based in California and their game involves any form of token exchange using virtual currencies, it is highly recommended that you consult an attorney to consider the specific facts to determine if a money transfer license is required in California. However, even if a California license is not required, a game developer may still need to comply with federal licensing requirements and other state licensing requirements.

In addition, game developers who have built exchanges for the sale and transfer of NFTs must monitor how FinCEN’s guidance regarding NFTs under these regulations evolve. As of now, the FinCEN Guidelines do not specifically address NFTs, and it can be argued that most NFTs do not qualify as currencies, however, NFTs can still have currency attributes, depending on how they are designed and used.

Earlier this year, the Treasury published Report on facilitating money laundering and terrorist financing through art trade and identifying options for addressing these issues. Among other considerations, the report discussed the risks of financial crime in relation to high-value arts, including NFTs (see our article on tokens). over here). The study found that the high-value art market has some inherent traits that make it vulnerable to a range of financial crimes. Entities dealing in NFTs should consider this report while we await further regulatory clarity moving forward.

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