Bitcoin Features in Latest FinCEN Suspicious Activity Report

The US financial crimes agency has published a new analysis covering positive and negative aspects of bitcoin.

AccessTimeIconJul 17, 2014 at 1:44 p.m. UTC
Updated Sep 11, 2021 at 10:59 a.m. UTC
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The US Financial Crimes Enforcement Network (FinCEN) has published a new Suspicious Activity Report (SAR) analysis and, notably, the bulletin covers bitcoin.

, which is a bureau of the Department of the Treasury, has already weighed in on bitcoin in the past. In the last six months, it has ruled that bitcoin miners and investors, as well as cloud mining and escrow services built on the bitcoin protocol, are not money transmitters.

FinCEN is tasked with policing financial transactions in the US and all money transmitters are expected to register with the bureau. This issue has hampered the development of several bitcoin initiatives and businesses in the US, as many bitcoin-related businesses had to register as money transmitters and meet the exacting standards required for FinCEN registration.

Suspicious bitcoin activity

In its latest technical bulletin FinCEN outlines the potential benefits offered by digital currencies, but also warns that the same attributes that make them attractive to lawful users also happen to attract illicit actors.

FinCEN explains why it has started covering digital currencies in its bulletins:

“FinCEN is observing a rise in the number of SARs flagging virtual currencies as a component of suspicious activity. Like all emerging payment methods, understanding virtual currencies is key to insightful SAR preparation and filing, and for that reason we explore virtual currencies, and Bitcoin in particular, in this Industry Snapshot.”

FinCEN goes on to explain how different components of the bitcoin network can unintentionally become involved in suspicious transactions.

“Each institution has a unique vantage point from which to observe these transactions and identify suspicious activity. FinCEN encourages the use of information sharing under 314(b) in this context,” said FinCEN.

FinCEN points out different financial institutions are likely to see different elements of the same suspicious activity due to their different roles in the system. Therefore it is vital to share information, it says.

Tracking down suspects

FinCEN says that provided information on users is “very useful” for the analysis of suspicious activity involving digital currencies. Some of these users can be engaged in illicit marketplace activity and the wire data that can trace them back to digital currency exchanges used is important.

Although bitcoin speculation is not illegal, FinCEN warns that speculation can share a transaction footprint with other suspicious activities, such as High Yield Investment Programmes (HYIP) or Ponzi schemes involving bitcoin. Depository institutions, brokers and dealers are the most likely participants to notice such activity. Dealers can be traced by using information from depository institutions, helping uncover unregistered businesses.

Banks hold vital information on market participants and FinCEN says those institutions have a “unique vantage point” as they are able to see aggregate fund transfers to and from foreign-based exchanges. Money transmitters and intermediaries have a similar vantage point, as they accept various payment mechanisms that can be used to identify customers and dealers in the US and abroad.

Bitcoin exchanges can help

The use of digital currencies by hackers and other cyber criminals involved in account hijacking is another concern. FinCEN says money service businesses (MSBs) are uniquely placed to help in such investigations, as they can track where the money from compromised bank accounts was channelled and where it was converted into digital currency. Digital currency exchanges and other operators in the space offer the other piece of the puzzle, as they conduct transactions within the crypto economy.

“For example, exchangers may know when users send Bitcoin to other users who are customers of that same exchange or may be able to compare Bitcoin addresses associated with illicit activity against the activity of addresses they have issued to their customers,” FinCEN explained.

FinCEN concludes that SAR reports filed by various entities can provide valuable information related to accounts, ownership and other identifying information, including bitcoin addresses associated with suspicious activity.


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