Three Major 2021 Enforcement Actions Signal Increasing Crypto Regulation Pressure

1) BitMEX

On August 10, 2021, FinCEN announced a settlement with BitMex, one of the country’s oldest and largest fungible virtual currency exchanges, which was operating as an unregistered futures commodities merchant and engaged in repeated, willful violations of the Bank Secrecy Act which requires companies engaging in trades to comply with anti-money laundering regulations (AML) and perform regular customer due diligence to prevent scams and other illegal activity. 

The Bank Secrecy Act requires companies particularly those working with large sums of money or a large number of customers to conduct regular checks of their customer’s accounts to ensure that the trades and transactions being conducted by those customers or on their behalf are in line with that customer’s business and goals. Any transactions outside a customer’s business or goals may be an indication of money laundering and require further investigation. 

For several years, BitMex intentionally did not conduct this required customer due diligence and knowingly conducted business with money launderers and on the dark web. In fact, FinCEN estimated that in the six years involved in the lawsuit, Bitmex did at least $209 million worth of transactions on the dark web.

In addition, BitMex claimed that they were immune from the US AML regulations required by the SEC as they did not engage or do business with people located in the US. However, because they failed to do proper customer due diligence, BitMex had no way of verifying those claims and was found to be regularly engaging with users in the United States.

These willful violations of the Bank Secrecy Act and SEC anti-money laundering regulations resulted in a $10 million settlement with FinCEN. In addition to the civil monetary penalty, as part of the settlement, BitMex has agreed to hire independent consultants to help them establish an anti-money laundering compliance program. Like all AML compliant programs, BitMex’s new program must:

• put procedures and structures in place to catch transactions that are potentially illegal, 

• have an independent outside party conduct a compliance audit of these regulations every year, 

• report to FINRA the person or people responsible for implementing and monitoring your compliance protocols within your business,

• ensure that the appropriate personnel dealing with transactions that might violate the Banking Securities Act receive training and updated training when the regulations change as well as providing training when any of your procedures and protocols change, and 

• put protocols in place to conduct ongoing customer due diligence as well as training your employees on those procedures and what to do if red flags arise.

The independent consultants will also go through BitMex’s records for the past six years and help the company fill out Suspicious Activity Reports (SAR) for any potentially violative transaction to bring the company into further AML compliance.