All eyes may have been on Ukraine this week, but in major economies around the world, crypto’s use as a tool for money laundering tool came under renewed attack this week as prosecutors and politicians stepped up the use of criminal charges to fight the flow of dirty money through blockchains — as well as any unregulated and unidentified use of cryptocurrencies.
Starting in the West, the U.S. Department of Justice announced two guilty pleas in its groundbreaking prosecution of the leaders of the BitMEX cryptocurrency derivatives exchange for ignoring anti-money-laundering (AML) regulations. Meanwhile, the European Union reportedly plans to give its new bloc-wide AML agency oversight of crypto, and Canadian authorities referred a complaint about the CEOs of two major exchanges tweets about the seizure of Freedom Convoy protestors’ crypto donations to law enforcement.
Chinese authorities, meanwhile, added jail sentences to the penalties for illegally raising funds by selling cryptocurrency to the public, Russia reportedly plans to criminalize peer-to-peer trading, and a key Brazilian Senate committee approved legislation including new AML oversight and criminal penalties for virtual asset violations.
Add in India’s recent determination to ban the use of crypto for payments and you’ve the largest and richest countries around the world putting sharp teeth in the oversight of crypto.
Read more: RBI Supports a Full Ban on Cryptocurrencies in India
BitMEX CEO Pleads Guilty
In issuing arrest warrants for the top four executives of Seychelles-based crypto derivatives exchange BitMex, the Department of Justice (DOJ) announced the first major AML prosecution of a mainstream cryptocurrency business in late 2020.
On Thursday, Damian Williams, the United States Attorney for the Southern District of New York, announced that BitMEX’s CEO, Arthur Hayes, and COO, Ben Delo, had each pleaded guilty to one count of violating the Bank Secrecy Act. Both agreed to a $10 million fine, the DOJ said in a release. The charges have a maximum penalty of up to five years in prison. And while the final determination of sentencing belongs to the judge, the pair will likely avoid jail.
In October, the Department of Justice charged Hayes and Delo, along with BitMEX co-founder Samuel Reed and head of business development Gregory Dwyer of “willfully failing to establish, implement, and maintain an anti-money laundering program at BitMEX.”
As Hayes was by far the biggest name in crypto and the face of BitMEX, and Delo quickly turned himself in while the others negotiated with authorities, the DOJ’s past tactics suggest they may face lighter penalties.
In the wake of the charges, all four executives resigned and BitMEX brought in new leadership that installed strong AML procedures and in August 2021 made peace with authorities via a $100 million fine.
Calling cryptocurrency firms “critical gatekeepers in efforts to ensure that U.S. markets are fair, efficient, and secure,” Williams said Hayes and Delo built a company “designed to flout” their obligation to “help in driving out crime and corruption.”
The U.S. Attorney added, “they willfully failed to implement and maintain even basic anti-money laundering policies. They allowed BitMEX to operate as a platform in the shadows of the financial markets. Today’s guilty pleas reflect this Office’s continued commitment to the investigation and prosecution of money laundering in the cryptocurrency sector.”
Read also: Crypto Exchange BitMEX to Buy 268-Year-Old German Bank to Deliver ‘Banking 2.0’
EU Oversight
A half dozen EU governments have proposed giving the bloc’s new AML watchdog agency oversight of cryptocurrency exchanges and other virtual asset service providers, or VASPs, Bloomberg reported on Feb. 22.
Concerned about crypto’s use in hiding illicit funds, the German-led group wants to be sure the agency — set to be up and running in 2024 and fully operational by 2026 — has oversight of cryptocurrency firms as well as banks and other financial institutions. Virtual assets are only mentioned “obliquely” in the proposal to create the agency, it noted.
“It is key that the scope of the new EU authority explicitly includes crypto-assets, given that this is one of the fields more prone to money laundering activities,” said Spanish European Parliament member Luis Garicano, a leader of the group proposing the change.
The new body is being created in the wake of a series of money laundering scandals aided by EU member’s “patchwork of regulations,” the article said.
Emergency Orders
Meanwhile, north of the border, the Ontario Securities Commission “shared” tweets by Coinbase CEO Brian Armstrong and Kraken CEO Jesse Powell with the Royal Canadian Mounted Police, or RCMP, as well as “relevant federal authorities,” Canadian news outlets reported. The CEOs of the two leading U.S. exchanges — who have long histories of cooperating with regulators — advised cryptocurrency investors hold their assets in private wallets rather than on exchanges that can be forced to freeze accounts after Canada’s first-ever invocation of its Emergency Act to cut off funds to Freedom Convoy protestors on Feb. 14.
“Concerning to see stuff like this happening in any country, especially such an economically free place like Canada,” Armstrong said, linking to a news report about the government’s action. “Self-custodial wallets are important!”
Noting that “Crowdfunding platforms now regulated under the Canadian Terrorist Financing Act,” Powell tweeted, “Do you see where this is going? Please do not fund causes directly from custodial wallets. I’m sure freeze orders are coming. Withdraw to non-custodial before sending.”
Those comments were in response to Canadian orders that required financial institutions, including cryptocurrency exchanges, to actively monitor and report any transactions involving “designated persons” named in the Emergency Act order.
Russian Surveillance
The Russian government’s forthcoming legislation on the regulation of cryptocurrencies includes a provision that “in effect renders peer-to-peer trades illegal,” a lawyer who has seen the as-yet-unpublished proposal told CoinDesk on Feb. 24.
That legislation comes despite over the Bank of Russia’s objections. The central bank wants an outright ban on cryptocurrency trading and ownership.
The bill would require all cryptocurrency transactions go through licensed exchanges or other operators. Those exchanges, payments processors and other businesses acting as on- and off-ramps for crypto transactions to be licensed, follow AML reporting requirements including the identification of customers, and only allow the purchase of digital assets using funds from Russian bank accounts. Russian crypto miners would be subject to similar reporting requirements.
In addition, all privately held cryptocurrency wallets would have to be certified, identifying their owners. Effectively, it means that all crypto transactions must include identification of the participants or be illegal.
Chinese Crypto Fundraising Ban
China’s top court, meanwhile, announced a ruling on Feb. 23 that would effectively add criminal penalties for initial coin offerings, or ICOs, and any other use of virtual assets to raise money from the public. While such fundraising has been banned for five years, lower courts can now jail violators form as much as 10 years under the new ruling. All crypto transactions were banned in September.
Read more: China Declares All Cryptocurrency, Related Transactions Illegal
New Brazilian Crypto Regulator
The Brazilian Senate’s economic affairs committee has approved legislation that would have the government create a crypto regulator overseeing all transactions — except initial coin offerings, which remain under the purview of its Securities and Exchange Commission — and licensing crypto firms, CoinDesk reported on Feb. 22. It will also mandate AML reporting and establish criminal penalties of up to eight years in prison for financial crimes carried out with digital assets.
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