Blockchain for the Good, but is its Use Good Enough for FinCEN?

By Erik Lascano

              The evolution of blockchain technology as a foundational and transformational technology has provided not only lucrative investment opportunities into cryptocurrency[1], but has potential of bettering the social good in the United States. Blockchain, the technology behind cryptocurrency may be understand by examining the technology’s two components: the block and the chain.[2] A block is a collection of data that is linked to other blocks chronologically in a virtual chain, and each block also contains a timestamp, and so it’s clear when the data was recorded and stored.[3]

As Professor Kaal notes in his article, “blockchain’s public interface is made up of a mere string of timestamped, immutable, and shared data.”[4] He goes on to note blockchain’s consensus protocol which is “peer-to-peer interactions and transactions in a decentralized network, where all participants are equal and verification and validation of each transaction is provided by all parties in the network through the blockchain technology.”[5] One altruistic use case of blockchain technology for improving the social good, as noted in Professor Kaal’s article, is his section on “Charitable Donations.”[6]

In the section, he explains that blockchain may provide supervisory and tracking functions for charitable donations. These supervisory and tracking functions may then enhance the public’s trust as to tracing their charitable transactions and would be willingly to continue on giving knowing their charity dollars are going to the right place.[7] Lastly, another use case of blockchain is it would give the public the opportunity to attach strings or conditions to their donations that are “then efficiently paired with interested recipients or charities using distributed consensus to achieve both donation transparency and donor anonymity.”[8] While these use cases do point to the potential of blockchain technology for good, not mentioned in the article are the regulatory agencies which have an interest in controlling the potential fraud, money laundering, and other illicit criminal activity that follows from the use of cryptocurrency transactions. Indeed, non-profits, charity organizations should be weary of both accepting cryptocurrency transactions and redeeming it for fiat currency, like US dollars, because they may be liable for their lack of compliance and due diligence.[9] As of now, regulatory agencies in the US, such as the Financial Crimes Enforcement Network (FinCEN), has issued controlling guidance over the transactions of virtual currency, which cryptocurrency is, through enforcing the Bank Secrecy Act (BSA).[10]

Indeed, Jeremey Coffey, has noted two important due diligence requirements that non-profits and charitable organizations should be mindful in accepting donations of virtual currency like cryptocurrency in following FinCEN guidance.[11] The particular due diligence requirements, noted by Mr. Coffey, stem from Money Service Businesses (MSB) and Money Transmitter (MT) state and federal regulations as to businesses that use virtual currencies.[12] According to  FinCEN’s 2013 Guidance, it defines an administrator as “a person engaged as a business in issuing a virtual currency, ad who has the authority to redeem such virtual currency.”[13] As Jeremey notes “[t]his means that any entity that accepts virtual currency from one party and transmits it to another party could be considered a money transmitter subject to the federal rules.”[14] However, the determination of a money transmitter is a “facts-and-circumstance-determination”, but the definition according to FinCEN is interpreted broadly.[15] Thus, non-profit organizations who accept cryptocurrency and redeem it for fiat, will be an MST and must comply with FinCEN’s 2019 Guidance, which is to conduct both “KYC” (know your customer) and “AML” (anti-money laundering) due diligence requirements.[16] Lastly, as noted by Mr. Coffey, non-profits who do crypto-fundraising should further inquire whether their partner has registered as a money transmitter so as to make sure they are not liable with their partner.[17] Notably, legal guidance has been developing for how charitable organization’s appointed trustees should comply with KYC and AML in accepting cryptocurrency funds.[18]

Ultimately, blockchain has potential for social good use cases for US organizations that accept virtual currency, such as non-profits, but these organizations should be privy of FinCEN’s guidance requirements or else risk a claw back of the social good use case, given the potentially illegal nature stemming from the transaction, and be potentially liable with FinCEN.

[1] Total Cryptocurrency Market Cap, CoinMarketCap, (last visited Sept. 2, 2022).

[2] Annika Feign, What Is Blockchain Technology?, CoinDesk (Mar. 9, 2022),

[3] Id.

[4] Wulf A. Kaal, Blockchain Technology For Good, 17 U. St. Thomas L.J. 878, 880. (2022)

[5] Id. at 880-881.

[6] Id. at 896.

[7] Id.

[8] Id.

[9] Jeremy T. Coffey, What Nonprofits Should Be Asking About Virtual Currency Regulation and Fundraising, Perlman+Perlman (Oct. 11, 2021),

[10] U.S. Dep’t Of The Treasury, FinCEN, FIN-2013-G001, Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies (Mar. 18, 2013) (“FinCEN 2013 Guidance”).

[11] Coffey, supra note 9

[12] Id.

[13] U.S. Dep’t Of The Treasury, supra note 10.

[14] Coffey, supra note 9

[15] Id.

[16] Id.

[17] Id.

[18] Crypto Philanthropy: What Charity Trustees Need to Know About the Rise in Cryptocurrency Donations, Mishcon (May 18, 2022),