Two recent guilty pleas involving a cryptocurrency exchange serve as a reminder to all money services businesses (MSBs)including those ostensibly located outside the United States but that conduct business thereof the importance of implementing anti-money laundering (AML) programs and registering as MSBs with the U.S. Treasury Departments Financial Crimes Enforcement Network (FinCEN). Last week, two founders and executives of BitMEXa virtual currency derivatives exchange whose parent company was registered in the Seychelles but operated globally, including in the United Statespled guilty to criminal Bank Secrecy Act (BSA) violations stemming from the companys willful failure to establish, implement, and maintain an AML program.[1]
The BitMEX enforcement action also highlights sanctions non-compliance risks. Without a Know Your Customer (KYC) program, BitMEX carried out transactions for customers based in Iran, a jurisdiction comprehensively sanctioned by the U.S. Treasury Departments Office of Foreign Assets Control (OFAC). As OFAC has made clear, sanctions compliance obligations remain the same regardless of whether transactions are denominated in virtual currency or fiat. A focus on sanctions compliance may become even more critical for cryptocurrency companies in the wake of the new far-reaching Russia-related sanctions imposed by the United States, the European Union, and the United Kingdom, among other governments, in response to Russias invasion of Ukraine. OFAC and the New York State Department of Financial Services (NYSDFS) have warned that as sanctioned persons and jurisdictions become more desperate for access to the U.S. financial system, they are likely to turn to cryptocurrency to minimize the crippling effect of sanctions.
The two BitMEX founders guilty pleas on February 24, 2022 follow the companys settlement with U.S. regulators in August 2021, which was one of the largest-ever resolutions with a cryptocurrency exchange. While BitMEX was incorporated in the Seychelles, it had connections to the United States, including maintaining offices there and soliciting and accepting orders from U.S. customers. FinCENand theCommodity Futures Trading Commission found that BitMEX was operating as an unregistered futures commission merchant under the BSA, and that it failed to comply with the BSAs AML program requirements, including by failing to maintain an adequate customer identification program. BitMEX resolved the allegations for $100 million, with a $20 million suspended penalty pending the companys remediation and prevention measures, including ending all operations within the United States and no longer serving any U.S. customers.
The Department of Justice charged four of the companys founders and executives in October 2020. In announcing that two of them, Arthur Hayes and Benjamin Delo, had pled guilty to willfully violating the BSA, the Department of Justice alleged that these two founders closely followed the U.S. regulatory developments and were aware of their BSA obligations due to U.S. customers trading on BitMEX. Yet, they allegedly took affirmative steps purportedly designed to exempt BitMEX from the application of U.S. laws like AML requirements and KYC requirements. For example, according to prosecutors, the defendantscaused BitMEX to formally incorporate in the Seychelles, a jurisdiction they believed had less stringent regulation, and from which they could still serve U.S. customers and operate within the United States without performing AML and KYC. Without even basic AML policies in place, BitMEX became in effect a money laundering platform and a vehicle for sanctions violations.
This development illustrates the significant risks to which foreign-located MSBs expose themselves if they have U.S. customers but fail to comply with the BSA. Incorporating in a friendlier jurisdiction, like the Seychelles in the BitMEX case, does not protect an MSB from BSA liability if it operates in the United States. The BSA applies to MSBs wherever located if they conduct business wholly or in substantial part within the United States. Thus, all MSBs, including those transmitting cryptocurrencywith any U.S. nexusshould take note of the BSA requirements. Those include registering with FinCEN; implementing a written AML program with policies, procedures, and internal controls, including regarding customer identification and verification; and controls to detect and report suspicious activity. The AML programs must be commensurate with the risks posed by the location, size, nature and volume of the services provided by the MSB and be effective in preventing the MSB from being used to facilitate money laundering and the financing of terrorist activities.
An effective AML/KYC program will also help ensure compliance with sanctions regulations. As noted, cryptocurrency exchanges will likely face increased sanctions risks due to the sweeping sanctions recently imposed against Russian banks, entities, and individuals by the United States, European Union, United Kingdom, and other governments, and additional measures that may be imposed in the coming days or weeks. As such, cryptocurrency exchanges may face, and must address, unique risks.
By implementing a KYC program, which includes sanctions screening, cryptocurrency companies can help ensure they do not engage, directly or indirectly, in transactions prohibited by sanctions, such as dealings with blocked persons or property, or engaging in prohibited trade- or investment-related transactions. To ensure compliance, cryptocurrency exchanges should also employ geolocation and IP-address blocking to prohibit access by parties from sanctioned jurisdictions, perform transaction monitoring to detect suspicious activity, and file required reports with FinCEN and OFAC. Exchanges operating outside the United States that do not yet have but want to attract U.S. users should also consider implementing such measures.
[1]Also last week, on February 25, 2022, BitConnect founder Satish Kumbhani was indicted in a cryptocurrency Ponzi scheme, which the government alleges deprived investors worldwide, including in the United States, of over $2 billion. According to the indictment, to avoid regulatory scrutiny and conceal BitConnects fraudulent scheme, Kumbhani evaded and circumvented U.S. regulations, including those enforced by the FinCEN. Among other things, BitConnect never registered with FinCEN, as required under the BSA.
See the original post here:
- Seychelles to send 3 sportspeople to Olympics in Paris - Seychelles News Agency - April 20th, 2024 [April 20th, 2024]
- Seychelles working towards One Health platform for humans and animals - Seychelles News Agency - April 20th, 2024 [April 20th, 2024]
- Seychelles' Authorities Offering Reward for Info On Suspected Gas Attacks - AllAfrica - Top Africa News - April 20th, 2024 [April 20th, 2024]
- Photo Feature: College of Education faculty visit University of Seychelles - Communique - March 22nd, 2024 [March 22nd, 2024]
- High Seas Treaty Will Help Defend Small Island Nations' Fisheries - The Maritime Executive - March 22nd, 2024 [March 22nd, 2024]
- The best time to visit the Seychelles - Cond Nast Traveller India - March 22nd, 2024 [March 22nd, 2024]
- Mauritius and Seychelles are the only African countries eligible for visa on arrival to the UAE - Business Insider Africa - March 22nd, 2024 [March 22nd, 2024]
- Tanzanian national sentenced 12 years in prison in Seychelles for importation of cocaine - Seychelles News Agency - March 22nd, 2024 [March 22nd, 2024]
- Hilton Announces the Opening of Canopy by Hilton Seychelles - Franchising.com - March 22nd, 2024 [March 22nd, 2024]
- Hilton opens first Canopy branded Seychelles resort - TravelMole - March 22nd, 2024 [March 22nd, 2024]
- Why Mauritius and Seychelles are the only African countries granted visa-on-arrival access to the UAE - Ventures Africa - March 22nd, 2024 [March 22nd, 2024]
- Seychelles and US complete 2nd bilateral military operation within EEZ - Seychelles News Agency - March 22nd, 2024 [March 22nd, 2024]
- Seychelles participates in the 22nd Extraordinary Session of the Executive Council - Africa.com - March 22nd, 2024 [March 22nd, 2024]
- Tourism Seychelles and Turkey Tourism Enhance Relationship - eTurboNews | eTN - March 22nd, 2024 [March 22nd, 2024]
- Seychelles and Bahrain Enjoy Tourism Networking Dinner - eTurboNews | eTN - March 22nd, 2024 [March 22nd, 2024]
- Implementing the debt-for-nature swaps for marine protected areas: case studies from Seychelles and Belize ... - Nature.com - February 29th, 2024 [February 29th, 2024]
- Seychelles introduces world of immersive experiences offering profound insight into local culture - Travel Trade Jouurnal - February 29th, 2024 [February 29th, 2024]
- Appointment of the new Commissioner General of the Seychelles Revenue Commission - Office of the President of the Republic of Seychelles - February 29th, 2024 [February 29th, 2024]
- Air Seychelles cancels direct flights to Tel Aviv as of October 13 ... - Seychelles News Agency - October 13th, 2023 [October 13th, 2023]
- Condor Airlines Becomes Latest Airline To Resume Flights To ... - Simple Flying - October 13th, 2023 [October 13th, 2023]
- Seychelles Opposition Leader Patrick Herminie Arrested for ... - Bitter Winter - October 13th, 2023 [October 13th, 2023]
- Seychelles' 5 Leaders of the Opposition in the Third Republic - Seychelles News Agency - October 13th, 2023 [October 13th, 2023]
- 5 customs administrations from Indian Ocean agree to create ... - Seychelles News Agency - October 13th, 2023 [October 13th, 2023]
- Ocean Science as a Pillar of Sustainable Ocean Management: - IOC-UNESCO - October 13th, 2023 [October 13th, 2023]
- Supreme Court ruling tells LGBTQ people in Mauritius that their ... - OHCHR - October 13th, 2023 [October 13th, 2023]
- Bitget Lists Big Time (Big Time) in the Innovation and GameFi Zone - PR Newswire - October 13th, 2023 [October 13th, 2023]
- Governor General to welcome new heads of mission to Canada - Gouverneure gnrale du Canada - October 13th, 2023 [October 13th, 2023]
- Letters of Credence Ceremony | The Governor General of Canada - Gouverneure gnrale du Canada - October 13th, 2023 [October 13th, 2023]
- Seychelles Breweries "fully committed" to campaigns against obesity ... - Seychelles News Agency - October 9th, 2023 [October 9th, 2023]
- Air Seychelles denies flight to Israel made emergency landing in ... - The Times of Israel - October 9th, 2023 [October 9th, 2023]
- Free sterilisation of dogs camp in Seychelles to start in October - Seychelles News Agency - October 9th, 2023 [October 9th, 2023]
- Seychelles: Small Islands With Big Aspirations - AllAfrica - Top Africa News - October 9th, 2023 [October 9th, 2023]
- Observer Group lauds Elections Commission of Maldives in its ... - Commonwealth - October 9th, 2023 [October 9th, 2023]
- 25 of the best hotels in the Indian Ocean - The Times - October 9th, 2023 [October 9th, 2023]
- Danny Faure, Former President of the Republic of Seychelles to ... - Commonwealth - August 24th, 2023 [August 24th, 2023]
- Appointment of the Board of Seychelles Licensing Authority and its ... - African Business - August 24th, 2023 [August 24th, 2023]
- Seychelles launches national survey on cardiovascular and non ... - Seychelles News Agency - August 24th, 2023 [August 24th, 2023]
- Ehi Braimah: Blue economy will boost Nigeria's revenue -- no ... - TheCable - August 24th, 2023 [August 24th, 2023]
- Saudi women's football teams could play in Oceania under new deal - RNZ - August 24th, 2023 [August 24th, 2023]
- Nuveen Q&A: There is lack of understanding over the potential of ... - ESG Clarity - August 24th, 2023 [August 24th, 2023]
- Russia and Seychelles Consider Increasing Direct Flights Amidst ... - RusTourismNews - August 14th, 2023 [August 14th, 2023]
- Russia steps up the pressure in northeast Ukraine - Seychelles News Agency - August 14th, 2023 [August 14th, 2023]
- Joint Press release : Seychelles hosts the first African Peer Review ... - African Business - August 8th, 2023 [August 8th, 2023]
- Good governance: Seychelles takes part in APRM with African ... - Seychelles News Agency - August 8th, 2023 [August 8th, 2023]
- Seychelles' year-on-year inflation goes down to -1.3% as of June 2023 - Seychelles News Agency - August 8th, 2023 [August 8th, 2023]
- Around the World in 50 Destinations - Cruising World - August 8th, 2023 [August 8th, 2023]
- Iceland, Hungary helped shelter Belarusian businessman from EU ... - EURACTIV - August 8th, 2023 [August 8th, 2023]
- Rwanda, Seychelles Waive Visas, Ink Five Pacts to Deepen Relations - AllAfrica - Top Africa News - June 30th, 2023 [June 30th, 2023]
- Seychelles' fiscal performance in Q1 much better year-on-year - Seychelles News Agency - June 30th, 2023 [June 30th, 2023]
- Harnessing Renewable Energy in Seychelles: Challenges and ... - EnergyPortal.eu - June 30th, 2023 [June 30th, 2023]
- Seychelles' La Gogue Dam back in operation with 60% increased ... - Seychelles News Agency - June 30th, 2023 [June 30th, 2023]
- Seychelles' Aride Island Nature Reserve Temporarily Closes Until ... - AllAfrica - Top Africa News - June 30th, 2023 [June 30th, 2023]
- For more than a year, Russia's richest man cleverly dodged the ... - Luxurylaunches - June 30th, 2023 [June 30th, 2023]
- How debt-for-nature swaps successfully finance UNESCO World Heritage conservation in Belize and Seychelles - EIN News - February 18th, 2023 [February 18th, 2023]
- Demographics of Seychelles - Wikipedia - January 27th, 2023 [January 27th, 2023]
- Aldabra Atoll Seychelles cruise port schedule | CruiseMapper - January 27th, 2023 [January 27th, 2023]
- After oxygen therapy for 5 years, Indian doctors help Seychelles woman breathe on her own again - The Indian Express - January 27th, 2023 [January 27th, 2023]
- Air Seychelles to Launch New Route to Almaty This December - Astana Times - November 30th, 2022 [November 30th, 2022]
- Seychelles - United States Department of State - October 17th, 2022 [October 17th, 2022]
- Seychelles: Appointment of the Deputy Chief Executive Officer of the Financial Service Authority - African Business - October 17th, 2022 [October 17th, 2022]
- University of Plymouth: Changing the world, one student at a time - Study International News - October 17th, 2022 [October 17th, 2022]
- Africa & Crypto: Top 5 countries and 10 best tokens - Ventures Africa - October 17th, 2022 [October 17th, 2022]
- The treasure islands where tortoises have right of way - The Telegraph - October 17th, 2022 [October 17th, 2022]
- Gambia takes interest in Seychelles' state-owned enterprises oversight - The Point - The Point - September 9th, 2022 [September 9th, 2022]
- Oceania Cruises Announces 2025 'Around the World in 180 Days' Voyage - Cruise Radio - September 9th, 2022 [September 9th, 2022]
- What Do Ocean Preserves Really Safeguard? That Depends The Revelator - The Revelator - September 9th, 2022 [September 9th, 2022]
- An Anxious Prince William Once Confided in the Queen About Having Second Thoughts About Kate Middleton - MarieClaire.com - September 9th, 2022 [September 9th, 2022]
- Ether is strong but Bitcoin drops below $24,000 - Fortune - August 22nd, 2022 [August 22nd, 2022]
- Homosexuality Is Still Illegal in These 67 U.N. Countries - Newsweek - August 22nd, 2022 [August 22nd, 2022]
- A Menu Sample of Dishes to Try When in the Seychelles - Africa.com - August 2nd, 2022 [August 2nd, 2022]
- Committee against Torture Discusses Reports on Follow-up to Concluding Observations, Individual Communications, and Reprisals - OHCHR - July 29th, 2022 [July 29th, 2022]
- Japan's passport is the most powerful in the world where does SA rank? - Moneyweb - July 29th, 2022 [July 29th, 2022]
- Five things South Africans should do in the Seychelles - Mail and Guardian - July 25th, 2022 [July 25th, 2022]
- KuCoin Expands its Reaching in Metaverse by Launching an Immersive Metaverse Office in Ertha - Business Wire - July 25th, 2022 [July 25th, 2022]
- Emirates Hopes To Resolve 'Travel Chaos' at London Heathrow Within 2 Weeks - Aviation Pros - July 25th, 2022 [July 25th, 2022]
- Crypto Trading Firm TPS Capital Denied Ties to Insolvent Three Arrows. Court Documents Indicate a Connection - Yahoo Finance - July 25th, 2022 [July 25th, 2022]
- Crypto Exchange OKX Is Paying $20 Million-Plus To Sponsor Manchester City Training Kit This Season - Forbes - July 11th, 2022 [July 11th, 2022]
- Colombo Security Conclave agrees to tackle common threats - The Hindu - July 11th, 2022 [July 11th, 2022]
- President Ramkalawan Officially Launched the Institute of Football Seychelles - African Business - June 5th, 2022 [June 5th, 2022]
- As Growth Slows, Madagascar Needs a New Reform Drive To Steer Clear of the Economic Storm - World Bank Group - June 5th, 2022 [June 5th, 2022]