Does a Decentralized P2P Fiat Onramp Need to Handle KYC/AML for Its Users in the USA?

Question from greg, Does a Decentralized P2P Fiat Onramp Need to Handle KYC/AML for Its Users in the USA?

Answer from AI:

The question of whether a decentralized peer-to-peer (P2P) fiat onramp that does not engage in, hold custody of, or facilitate any financial transactions and is made up entirely of publicly deployed smart contracts has any legal requirement to handle Know Your Customer (KYC) and Anti-Money Laundering (AML) for its users is complex and depends on the specific circumstances.

General Legal Requirements for KYC/AML

In the United States, the Bank Secrecy Act (BSA) and the USA PATRIOT Act require financial institutions to implement KYC and AML procedures. These laws are enforced by the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.

However, whether these requirements apply to a decentralized P2P fiat onramp depends on whether it is considered a “financial institution” under these laws.

Definition of a Financial Institution

The BSA defines a financial institution broadly to include banks, credit unions, securities brokers, money services businesses (MSBs), and other entities. MSBs include any person doing business in one or more of the following capacities: currency dealer or exchanger; check casher; issuer of traveler’s checks, money orders, or stored value; seller or redeemer of traveler’s checks, money orders, or stored value; or money transmitter.

Decentralized P2P Fiat Onramp as a Financial Institution

If a decentralized P2P fiat onramp does not engage in, hold custody of, or facilitate any financial transactions, it may not fall under the definition of a financial institution or an MSB. However, the determination would depend on the specific facts and circumstances, and the interpretation of the law by FinCEN and the courts.

Consultation with a Legal Professional

Given the complexity of these issues and the potential penalties for non-compliance with KYC/AML laws, it is strongly recommended that entities operating a decentralized P2P fiat onramp consult with a legal professional who is knowledgeable about financial regulation and blockchain technology.

Resources

For more information, you can refer to the following resources:

• FinCEN Guidance on the Application of Regulations to Certain Business Activities
• FinCEN Statutes and Regulations

Please note that this information is intended to provide a general understanding of the law, not to provide specific legal advice. Always consult with a legal professional for personalized advice.