Regulating Cryptocurrency Non-Custodial Service Providers Through the Bank Secrecy Act

Authors

Kai WangFollow

Start Page

341

Abstract

Bad actors launder dirty money through cryptocurrency non-custodial service providers, including cryptocurrency unhosted wallets, non-custodial mixers, and decentralized exchanges (DEXs). Unlike banks and other traditional financial intermediaries, these providers do not take custody of payment assets. Therefore, the Bank Secrecy Act (BSA) cannot require them to comply with its substantive obligations, such as monitoring and reporting of suspicious payment activities associated with money laundering. As a result, law enforcement agencies are unable to obtain useful reports and records to effectively investigate money laundering and prosecute bad actors.

To address this issue, this Article analyzes how cryptocurrency non-custodial service providers, despite not taking custody of payment assets, can retain a certain degree of controlling power over payment assets in three key dimensions: (1) clearing and settlement, (2) asset ownership, custody, and balance sheet recording, and (3) governance. This Article argues that the BSA should cover some of the cryptocurrency non-custodial service providers that can retain a certain degree of controlling power over payment assets. This Article argues that the BSA’s definition of “money transmitting business,” which merely considers the second dimension, is unable to accurately measure the collective degree of control a cryptocurrency service provider has over payment assets, namely cryptocurrencies. As such, this Article argues that the BSA should measure the collective degree of controlling power a service provider has over payment assets through all three dimensions. These three dimensions serve as variables within this framework: the more variables present, the greater the degree of collective control a provider has over cryptocurrency payments, and the more likely it is to fall within the scope of the regulatory perimeter of the BSA.

Recommended Citation

Wang, Kai (2025) "Regulating Cryptocurrency Non-Custodial Service Providers Through the Bank Secrecy Act," The University of Chicago Business Law Review: Vol. 4: No. 2, Article 3.
Available at: https://chicagounbound.uchicago.edu/ucblr/vol4/iss2/3