(This is neither legal nor investment advice).
There are few things on which the majority of the developed world can agree. One point is that the prevention of money laundering and terrorism is a worthy goal. The G20’s recent pronouncement on aligning standards for Anti-Money Laundering underscores this point.
To that end, financial institutions in most countries have complied various KYC requirements for quite some time. KYC is not new. It is however, newly thrust into popular culture. At least if you trade cryptocurrency. If you are new to the concept of KYC, likely it is at best an inconvenient set of hoops to jump through, and at worst, a nightmarish cloud of uncertainty.What is KYC anyways?
Briefly, “KYC” or “know your customer” laws require financial institutions, securities and commodity brokers and like participants in the transfer of assets to verify the identity of their customers and screen for suspicious transactions. In the United States, the principal regulatory scheme stems from the Bank Secrecy Act (“BSA”), but the concept is also included in other regulatory schemes. The effect is more or less that any facilitator of a transaction in fiat currency or any other thing of value that is convertible to fiat currencyneeds to verify (or verify that someone else verified) that the participants in the transaction have the proverbial clean bill of legal health.
Under the BSA, if a bank thinks that a transaction is suspect, it must file a suspicious activity report (a “SAR”) with the Department of Treasury. What makes a transaction suspect? There is not much guidance on that. An unsuspecting bank can find themselves on the wrong end of an action by the Financial Crimes Enforcement Network (“FinCEN”). Also, the penalties for failing to file a SAR are very stiff.