THE CONTROVERSY OVER WHETHER CRYPTO IS A SECURITY OR A COMMODITY IGNORES THE TOTAL LACK OF COMPLIANCE IN THE INDUSTRY

When I went to law school, I was fortunate enough to be taught by some of the giants in legal scholarship. One of those was Professor Hugh Sowards, whose treatises and casebooks can still be found in the libraries of America's law firms involved in the practise of Securities Regulation. Sowards, who was at one time a serious contender to head the Securities & Exchange Commission, would most certainly be weighing in on the controversy over whether cryptocurrency is a security or a commodity, were he still among us. Does crypto meet the classic Howey-in-the-Hills* test for determining if it is a security, and therefore subject to SEC regulation and registration?

The contest between the SEC and the Commodity Futures Trading Commission (CFTC) has not as yet been resolved, but in the meanwhile,  we must win our readers that, for the most part the crypto industry gets a failing grade, when it comes to compliance. The vast majority of crypto vendors either have no AML/CFT programme, or purport to maintain one, although it is ineffective or completely bogus. Sellers of crypto are simply not doing due diligence upon their customers before onboarding them, taking advantage of the fact that the industry is not yet adequately regulated.  I don't see any compliance on the cryptocurrency trading platforms I have observed, with rare exceptions.

The problem is, if there is not a speedy resolution to the SEC-CFTC dispute, we can only estimate how much dirty money will be cleaned through cryptocurrency. Right now, it's open season for professional money launderers, to be sure. If you are a bank compliance officer, and your crypto clients have not shown you an effective, and actually operational, compliance programme is in place, you are violating banking best practises, regarding your risk-based operation. Don't be facilitating financial crime because of the glamour of a new class of clients in a new industry; watch yourself here.

It is humbly suggested that those cryptocurrency firms reading this article on LinkedIn contact those professionals who have reported online on cryptocompliance to assist them in creating an effective programme.

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*S.E.C. vs. W.J. Howey Co., 328 U.S. 293, 66 S.Ct. 1100 (1946).