CFTC, DOJ Accuses BitMEX Owners of Illegal Operations and Money Laundering Violations
October 1st the US D.Ministry of Justice announced the charges against four BitMEX Executives who accuse the group of violating the Banking Secrecy Act (BSA) and conspiracy to violate the BSA by “willfully failing to establish, implement and maintain an adequate anti-money laundering (” AML “) program. On the same day, the Commodity Futures Trading Commission (CFTC) has filed a civil enforcement lawsuit against five companies and three individuals who own the. own and operate BitMEX Trading platform, including BitMEX CEO Arthur Hayes. These fees include operating an unregistered trading platform and violating several CFTC regulations, such as: B. the non-implementation of AML procedures while generating $ 1 billion in transaction fees.
BitMEX has been investigated by the CFTC since early 2019 because it allowed Americans to trade their exchange. While to have claimed the platform improved their customer identification program to effectively exclude US personsThe CFTC complaint claims otherwise. According to the complaint, BitMEX is a maze of corporate entities all owned and controlled by the same people who do business under the same name. These businesses include: HDR Global Trading Limited, 100x Holdings, ABS Global Trading, Shine Effort and HDR Services.
According to the CFTC HDR Global Trading Limited operated the BitMEX Trading platform. Despite its establishment in the Seychelles, “HDR has and has not had any operations or employees in the Seychelles.” Although Hayes was based in the Seychelles, he continued his involvement BitMEX Company through a Delaware Limited Liability Company that maintains bank accounts with financial institutions in the United States. Despite serving at least 85,000 US customers and managing much of its commercial infrastructure from the US – with half of its employees based in San Francisco or New York –BitMEX never registered with the CFTC.
Shop by jurisdiction to maintain operations in a country that has AML regulations looser is not an uncommon practice. New CipherTrace Research found that three quarters of the A cryptocurrency (or cryptocurrency) is a digital asset that … more Companies registered in the Seychelles have poor or porous KYC policies, making the tiny island country a boon for potential money launderers. These individual executive charges serve as a warning to similarly modeled offshore companies doing business with US clients.
AML defects and
failure to report suspicious activity
Tthe lawsuit also alleges that BitMEX Not only did the record-keeping requirement fail, the company was also actively deleting critical customer identification information. In certain cases, these records were “specifically deleted because a user was determined to be in the United States or another restricted jurisdiction.” The DOJ complaint adds that by BitMEXs Starting at the end of 2014 until at least September 2020, the exchange has not submitted any suspicious activity reports and has not reported suspected illegal activities on the platform.
Speaking of the DOJ’s indictment, Audrey Strauss, the acting US attorney from Manhattan, said: “With the opportunities and benefits of operating a financial institution in the United States, these companies are making a commitment to do their part in the fight against crime and corruption. As alleged, these defendants have disregarded this obligation and pledged to operate an allegedly “off-shore” crypto exchange while deliberately failing to implement and maintain even basic anti-money laundering policies. In doing so, they allegedly allowed BitMEX to act as a platform in the shadow of the financial markets. Today’s indictment is another push by this office and our partners at the FBI to unearth money laundering platforms. “
BitMEX responded to the allegations on their website, stating, “We disagree with the US government’s crude decision to bring these charges and we intend to vigorously defend the allegations. Since our beginnings as a start-up, we have always tried to comply with applicable US laws, as these laws were understood at the time and are based on available guidelines. “
Steps to improve AML compliance
To improve compliance, BitMEX has already taken steps to improve its AML practices. Since the indictment, BitMEX has hired Malcolm Wright, an Associate Fellow of the Center for Financial Crime and Security Studies at Britain’s Royal United Services Institute, as the company’s chief compliance officer. Wright will oversee the exchange’s global compliance activities and report directly to Vivien Khoo, acting interim CEO and COO of BitMEX. It is still unclear whether BitMEX had a CCO before Wright.
In re-evaluating BitMEX’s KYC, CipherTrace noted that the exchange has already improved its practices and has been swapping from a “porous” (yellow) score to a “strong” (green) KYC since we released our geographic risk report earlier this month. has postponed result. This further validates BitMEX’s position in strengthening its compliance procedures and proves that the effort to hire a new CCO is no joke.
Why it matters: personally liability
While the executive branch is responsible for inadequate anti-money laundering controls a With long precedent among traditional financial institutions, enforcement agencies are increasingly turning their attention to the world of virtual assets. BitMEX is just the latest example of how the heads of a virtual asset service provider have serious consequences for the AML deficiencies in their exchange.
The defendants face up to 10 years in prison each, and the CFTC’s injunction can exceed $ 1.3 billion, making it one of the most expensive money laundering fines ever paid by any financial institution.
Press reports and sources:
Crypto Exchanges Memo: KYC Compliance Can Be a Competitive Advantage https://cointelegraph.com/news/memo-to-crypto-exchanges-kyc-compliance-can-be-a-competitive-advantage
BitMEX CTO Samuel Reed released on $ 5 million bond https://www.theblockcrypto.com/post/80296/bitmex-cto-samuel-reed-released-on-bond
The case against BitMEX is a compass that points into the future of crypto regulation https://cointelegraph.com/news/the-case-against-bitmex-is-a-compass-pointing-toward-crypto-regulation
Read the CFTC announcement: https://www.cftc.gov/PressRoom/PressReleases/8270-20
Read the full CFTC complaint: https://www.cftc.gov/media/4886/enfhdrglobaltradingcomplaint100120/download
Read the DOJ’s indictment: https://www.justice.gov/usao-sdny/press-release/file/1323316/download
Read CipherTrace’s Geographical risk report: https://ciphertrace.com/2020-geo-risk-report-on-vasp-kyc/