FinCEN, OFAC fine crypto exchange Bittrex nearly $30 million on AML, sanctions failings, missed SARs, links to darknet markets, mixers, ransomware gangs – CFCS

Does FinCEN enforcement action signify more penalties to come – and from more regulators?

In the U.S., a panoply of government oversite bodies have claimed dominion of the nascent and volatile virtual value ecosystem.

In recent years, federal and state regulators – including the Securities and Exchange Commission and Commodities Futures Trading Commission – have increased their scrutiny of crypto exchanges related to fraud, trading and fincrime compliance failings, according to Katherine Lemire, a partner at Quinn Emanuel Urquhart & Sullivan LLP.

She previously served as Executive Deputy Superintendent at the New York State Department of Financial Services. 

That may well be a glimpse of the present – and future of AML compliance tied to the virtual value world.

“Cryptocurrencies undoubtedly will be subject to increased regulation in the future,” she wrote in an analysis of crypto enforcement trends published last month. “Likewise, current trends point to increased AML regulation by multiple government agencies in the near future.”

Several recent actions by FinCEN drive home her point.

In October 2020, FinCEN announced a $60 million civil money penalty against Larry Dean Harmon, the founder, administrator, and primary operator of Helix and Coin Ninja, convertible virtual currency “mixers,” or “tumblers,” for violations of the BSA and its implementing regulations.

In April of 2019, FinCEN levied a penalty of more than $35,000 against Eric Powers for AML violations and failing to register as an MSB for operating as a peer-to-peer virtual currency exchanger between December 2012 and September 2014.

While the overall penalty seems paltry compared to fines in the hundreds of millions of dollars FinCEN has been a part of against banks, the penalty is more of an “attention getter” for the P2P crypto trading space.

In such an arena, localbitcoins would be an example of this, individuals trying to transact beyond themselves can easily, maybe even accidentally, turn themselves into a business – therefore tripping AML duties.

For Powers, according to FinCEN, his actions were not a mistake, nor innocent.

He engaged in 1,700 transactions as a money transmitter of a convertible virtual currency bitcoin, purchasing and selling bitcoin to and from others, according to FinCEN.

Powers was not simply a “user” of virtual currency – i.e., someone who obtains and uses convertible virtual currency to purchase real or virtual goods or services for his own benefit.

“Through postings made on web fora, such as bitcointalk.org and bitcoin-otc.com, Mr. Powers advertised his intent to purchase and sell bitcoin for others,” according to penalty documents.

He completed sales and purchases by either “physically delivering or receiving currency in person, sending or receiving currency through the mail, or coordinating transactions by wire through a depository institution.”

Ironically, he could also not claim he was unaware of the intersection of crypto and AML.  

“Internet postings Mr. Powers made also indicate that he would direct transactions at other virtual currency exchangers (such as Mt. Gox) on behalf of his customers,” according to FinCEN.

He also participated in online discussions “pertaining to AML compliance, including specific conversations about registering as an MSB, which demonstrate his awareness of the relevant BSA requirements.”

In short: busted.