Disclaimer – I know better than to use these deceptive images of shiny, gold “bitcoins” – see for example my LinkedIn rant where I wrote:
“Stop with the Bitcoin “coin” pictures, please!
At the risk of alienating even more cryptonistas, I’m in the same camp as Stefan Homes, the author of the article “please stop illustrating Bitcoin as a physical gold coin”. I cringe every time I see a Bitcoin-related article that has a picture of a shiny gold Bitcoin “coin”. These pictures perpetuate the myth that Bitcoin is something other than computer code … a myth that may trace its roots to the old #Casascious coins (the last one sold in November 2013, right about the time Bitcoin hit USD$1,000 for the first time).
For those that are promoting Bitcoin, keep using the shiny gold coin pictures; but those that are involved in the legal and compliance side of the business, you should find something else to illustrate your articles and posts. IMO.”
But for the purposes of this article, these physical representations of the computer code we call bitcoin are appropriate, because of the question I am asking:
US anti-money laundering laws require the reporting of the transportation into or out of the United States of more than $10,000 in virtual currencies: can virtual currencies be physically transported?
On March 23, 2022, the US Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, published a notice in the Federal Register seeking comments from the public on a very routine renewal, without change (so FinCEN said), of one of many reports that are required under the US anti-money laundering laws and regulations. That report must be filed when more than $10,000 of currency or monetary instruments (think traveler’s checks) are transported into or out of the United States.
NOTE: As you read this, keep in mind (or learn for the first time) that any reference to “U.S.C.” is a reference to the United States Code, or a law, passed by Congress. A law describes what must be done, and why. But it is the regulations – published by federal agencies in the Executive branch of government – that set out the details of how those laws must be implemented. The regulations are denoted by CFR, or Code of Federal Regulations. The number preceding both laws (USC) and regulations (CFR) is the title number of the law and regulation. In this case, title 31 is “Money and Finance”. The US anti-money laundering laws are (mostly) in Title 31.
The March 23rd Federal Register notice (the “Notice”)[1] requests public comments on renewing, without change, the Currency and Monetary Instruments Report, or CMIR. It describes the CMIR as follows:
31 U.S.C. 5316 requires, with limited exceptions, that a person, or an agent or bailee of the person, file a report when the person, agent, or bailee knowingly: (i) Transports, is about to transport, or has transported monetary instruments of more than $10,000 at one time from a place in the United States to or through a place outside the United States, or to a place in the United States from or through a place outside the United States; or (ii) receives monetary instruments of more than $10,000 at one time transported into the United States from or through a place outside the United States. The regulations implementing this statutory requirement are found at 31 CFR 1010.340.
As the Notice provides, “for purposes of 31 U.S.C. 5316, monetary instruments is defined in 31 U.S.C. 5312(a)(3) as amended by section 6102(d)(1)(C) of the AML Act.”
So although FinCEN is seeking to renew the CMIR without changing it, it appears that the CMIR has recently been changed by the AML Act, which was passed on January 1, 2021. That change was significant, as it added virtual currencies to the definition of “monetary instruments”. Virtual currencies are, as their name suggests, virtual. And the term “transports” suggests something physical being moved from one location to another.[2] So this begs the question: can something virtual, such as a virtual currency, be physically transported across a border?
Let’s start with the current definition of “monetary instruments”.
31 USC s. 5312(a)(3) defined “monetary instruments” as “(A) United States coins and currency; (B) as the Secretary may prescribe by regulation, coins and currency of a foreign country, travelers’ checks, bearer negotiable instruments, bearer investment securities, bearer securities, stock on which title is passed on delivery, and similar material; and (C) as the Secretary of the Treasury shall provide by regulation for purposes of sections 5316 and 5331, checks, drafts, notes, money orders, and other similar instruments which are drawn on or by a foreign financial institution and are not in bearer form.”
But as the Notice provides, that section of the US Code was changed by section 6102(d)(1)(C) of the AML Act of 2020. What did that section change?
Section 6102(d) is titled “value that substitutes for currency”, and subsection (1) lists three changes to the definition of “monetary instrument” in 31 USC s. 5312(a):
(A) in paragraph (1), by striking “, or a transaction in money, credit, securities, or gold” and inserting “, a transaction in money, credit, securities or gold, or a service provided with respect to money, securities, futures, precious metals, stones and jewels, or value that substitutes for currency”;
(B) in paragraph (2)— (i) in subparagraph (J), by inserting “, or a business engaged in the exchange of currency, funds, or value that substitutes for currency or funds” before the semi-colon at the end; and (ii) in subparagraph (R), by striking “funds,” and inserting “currency, funds, or value that substitutes for currency,”; and
(C) in paragraph (3)— (i) in subparagraph (B), by striking “and” at the end; (ii) in subparagraph (C), by striking the period at the end and inserting “; and”; and (iii) by adding at the end the following: “(D) as the Secretary shall provide by regulation, value that substitutes for any monetary instrument described in subparagraph (A), (B), or (C).”.
The result is that the definition of monetary instruments now reads:
31 USC s. 5312(a)(3) defines “monetary instruments” as “(A) United States coins and currency; (B) as the Secretary may prescribe by regulation, coins and currency of a foreign country, travelers’ checks, bearer negotiable instruments, bearer investment securities, bearer securities, stock on which title is passed on delivery, and similar material; (C) as the Secretary of the Treasury shall provide by regulation for purposes of sections 5316 and 5331, checks, drafts, notes, money orders, and other similar instruments which are drawn on or by a foreign financial institution and are not in bearer form; and (D) as the Secretary shall provide by regulation, value that substitutes for any monetary instrument described in subparagraph (A), (B), or (C).”
So it appears that FinCEN is renewing the CMIR requirement for another year and that Treasury needs to publish a final rule (“as the Secretary shall provide by regulation”) to add virtual currencies to the definition of monetary instruments for purposes of the CMIR.
I’ll ask the question again: can virtual currencies be transported anywhere, let alone across borders? Or, if by their very nature virtual currencies are incapable of being physically transported, can a regulation that requires something to be transported across the US border even apply to something that cannot be transported?
We’re back to the rule, or regulation – which tells us how a law will be implemented. The rule that the Secretary needs to address – either directly through a revision or indirectly by a new rule – is 31 CFR 1010.340 (this rule, and all of the “FinCEN” rules, can be found at 31 CFR Chapter X).
Subsection (a) requires each person who physically transports, mails, or ships, or causes to be physically transported, mailed or shipped, or attempts to cause to be physically transported, mailed or shipped, currency or other monetary instruments [Footnote – FinCEN regulations define monetary instruments in 31 CFR 1010.100(dd).] in an aggregate amount exceeding $10,000 at one time from the United States to any place outside the United States, or into the United States from any place outside the United States, to file a CMIR.
Subsection (b) requires each person in the United States who receives at any one time currency or other monetary instruments exceeding $10,000 in the aggregate, which have been transported, mailed, or shipped to such person from any place outside the United States, to file a CMIR if the CMIR has not already been filed pursuant to 31 CFR 1010.340(a). The CMIR must include the amount, the date of receipt, the form of monetary instruments, and the person from whom the funds were received.
Subsection (c) includes a list of persons that are not required to file a CMIR, even if they satisfy the conditions of 31 CFR 1010.340(a) or (b).
Subsection (d) clarifies that a transfer of funds through normal banking procedures, which does not involve the physical transportation of currency or monetary instruments, is not required to be reported on the CMIR.
According to the CMIR instructions, each person who receives currency or other monetary instruments in the United States must file a CMIR within 15 days after receipt of the currency or monetary instruments with the United States Customs and Border Protection (CBP) officer in charge at any port of entry or departure, or by mail. Travelers carrying currency or other monetary instruments with them must file the CMIR at the time they enter the United States or at the time they depart the United States with the CBP officer in charge at any port of entry or departure.
Conclusion
It appears that US law requires that: anyone who physically transports, mails, or ships virtual currencies in an amount exceeding $10,000 at one time from the United States to any place outside the United States, or into the United States from any place outside the United States, must file a CMIR; anyone in the United States who receives at any one time virtual currencies exceeding $10,000 in the aggregate, which have been transported, mailed, or shipped to such person from any place outside the United States, must file a CMIR; and travelers “carrying” virtual currencies exceeding $10,000 with them as they enter or leave the United States must file a CMIR.
That is what is required by law. But the Treasury Department has not yet published the regulations that will describe how that will be done. Treasury faces a vexing question:
Can virtual currencies be transported anywhere, let alone across borders? Or, if by their very nature virtual currencies are incapable of being physically transported, can a regulation that requires something to be transported across the US border even apply to something that cannot be transported?
I don’t have an answer.
[1] Published March 23, 2022 at 87 FR 16548 – 2022-06157.pdf (govinfo.gov)
[2] The CMIR regulation includes the term “physical transportation”, and excludes transfers of cash or monetary instruments if there is no “physical transportation”.