There’s a reason why Japan gets to have nice (blockchain) things and the U.S. doesn’t. Japan is creating a regulatory environment conducive to blockchain innovation. The U.S. isn’t. The latest example of this is a letter written by Drew Maloney, the Financial Crimes Enforcement Network’s (FinCEN) assistant secretary for legislative affairs, that says most companies making ICOs will be considered “money transmitters.”
This, of course, is a very specific legal definition that requires companies acting as money transmitters to comply with anti-money laundering regulations and other financial regulations — including those that apply to fighting the financing of terrorism. (American Bar Association)
Be smart: I was in Washington attending a presentation being made by a blockchain company when news of the FinCEN letter broke. The person handling legislative affairs for the company had just finished explaining how a grab bag of different federal regulatory agencies were taking wildly different approaches to regulating tokens, ICOs and cryptocurrencies — ranging from relative benign to chilling. And how that regulatory uncertainty — especially the more aggressive and unhelpful approaches being taken by the SEC and Department of Homeland Security — is driving good actors out of the U.S. blockchain and crypto market.
Then the news about the FinCEN letter broke and people threw up their hands. The fear is the U.S. has fallen behind the rest of the world because the federal government is creating an unfriendly environment for growth and innovation.
It’s a legitimate fear. At the dawn of the Internet era, the Clinton administration made a conscious and deliberate decision to take a hands off approach to regulating the Internet and e-commerce. As a result of that decision, the U.S. became the global leader in Internet innovation, building a massive industry that has changed the world.
Now, the U.S. is headed in the other direction with cryptocurrencies and the remaining good actors in the U.S. space are trying to figure out how to play by the constantly changing rules.
When you combine the new FinCEN reporting requirements with the SEC’s insistence on treating ICOs as securities that need to be regulated, you get a truly difficult business environment — one that makes doing business in the U.S. more expensive and complicated and one that potentially blocks U.S. residents from lucrative investment opportunities overseas (many ICO offerings are simply blocking U.S. residents from investing)
Additionally, the government’s “rule by letter” shows just how off the radar cryptocurrencies and ICOs are on the federal policy level. FINCEN’s approach to ICO offerings was revealed in a letter from FinCEN to a Democratic senator on the Senate Finance Committee.
While it’s not unusual for significant regulations or policies to be made by sidestepping the usual rule making process (online gambling, for example, was authorized at the state level when the Department of Justice offered a new interpretation of the Wire Act), it’s disappointing that decisions dictating the future of the industry aren’t following a more rigorous decision making process or being decided by legislators in an open manner.
Get engaged: The bottom line is the Uber approach to doing business — ask for permission when you’ve grown so large it’s not in the public interest to shut you down — won’t work here. The industry needs to reach out and educate regulators and politicians at the state and federal level. If that outreach doesn’t happen, there’s going to be another “FinCEN letter incident” and it’s going to be a long, hard slog for the industry.
