Light penalty weakens US offshore AML effort


U.S. prosecutors planned to send a message to the largely offshore crypto industry this week about the costs of ignoring anti-money laundering (AML) laws, which lie at the core of a key piece of financial regulation form.

And they did, but it wasn’t the one they wanted to send.

On Friday (May 20), a federal judge sentenced Arthur Hayes, the former CEO of BitMEX cryptocurrency derivatives exchange, to two years of probation and six months of house arrest for ignoring requirements to collect and document customers’ personal identity information that is required to comply with anti-money laundering and counter-terrorism financing (CFT) laws.

The Department of Justice (DOJ) had requested six to twelve years in prison.

At his sentencing, Hayes said: “I deeply regret having been involved in this criminal activity. My best years are still ahead of me. … I am ready to turn the page and start over. I ask that you allow me to return home deeply repentant and ready to begin the next chapter of my life,” CoinDesk said.

That was exactly what he got and what the Justice Department didn’t want.

hard talk

Hayes, long an influential figure in the cryptocurrency industry, was indicted on October 1, 2020 along with two BitMEX founders and an executive at the Seychelles-based exchange New York, alleging that Hayes and the others “disobeyed” the law by they “operated an allegedly ‘off-shore’ crypto exchange while deliberately failing to implement and maintain even basic anti-money laundering policies.”

“By doing so,” she said, “they allegedly allowed BitMEX to operate as a platform in the shadow of the financial markets.”

Founded in 2014, BitMEX was one of the largest derivatives platforms in the crypto space at the time of the indictment. Despite falling to No. 22 according to CoinMarketCap, BitMEX still had $841 million in 24-hour volume as of Tuesday (May 17) when it launched its first spot crypto exchange. The new platform allows traders to buy and sell cryptocurrencies in addition to futures, options and other derivative contracts.

In 2020, FBI Assistant Director William Sweeney Jr. pointed to a comment attributed to Hayes, in which he said the firm was formed in the Seychelles because the cost of bribing officials was “high compared to the US and elsewhere.” just a coconut”.

“They will soon learn that the price for their alleged crimes will not be paid in tropical fruit, but could result in fines, reprisals and federal prison terms,” ​​he added.

The DOJ was successful with the fines and portion of the refund, with Hayes and co-founders Benjamin Delo and Samuel Reed each agreeing to a $10 million fine and BitMEX’s new leadership $100 million to the DOJ and the commodity Futures Trading Commission (CFTC) coughed. It also hired the CEO of Germany’s Boerse Stuttgart and began instituting aggressive AML policies.

But the real part of the indictment that scares them, a serious prison sentence? Not as much.

“Put it through vigorously”

In Friday’s release, U.S. Attorney Damian Williams said his office will “continue to vigorously enforce United States law aimed at preventing money laundering by financial institutions, including cryptocurrency platforms.”

Aside from the case against former Ethereum developer Virgil Griffith — who was sentenced to five years in prison last month for violating sanctions while attending a North Korean cryptocurrency conference — Hayes’ AML charges were the most prominent prosecution within the crypto industry.

See More: Crypto developer sentenced to 5 years in prison for helping North Korea evade sanctions

And in February, the FBI announced the creation of a National Cryptocurrency Enforcement Team, with language making it clear that using crypto for money laundering is a priority.

“With the rapid innovation of digital assets, we have seen an increase in their illicit use by criminals, who exploit them to fuel cyberattacks, ransomware and extortion schemes; Trafficking in narcotics, hacking tools and illegal contraband on the Internet; commit theft and fraud; and launder the proceeds of their crimes,” Assistant Attorney General Kenneth A. Polite Jr. said in an announcement.

Also Read: Will the FBI’s New Cryptocrime Unit Bust the Industry’s Mainstream Image?

send messages

The jail sentence comes as US regulators double down on enforcement. Most notably, earlier this month, Securities and Exchange Commissioner (SEC) Gary Gensler nearly doubled the size of the SEC’s Crypto Assets and Cyber ​​Unit Enforcement Team.

Read more: These bills could change the SEC’s crypto enforcement trend

This was followed by a record $100 million fine agreed by crypto exchange BlockFi in February for selling earnings-sapping crypto lending products. In the announcement, Gensler made it clear that the size of the settlement should be a message to the crypto industry.

“This is the first case of its kind regarding crypto lending platforms,” Gensler said. “Today’s agreement makes it clear that crypto markets must comply with well-established securities laws.”

Related News: BlockFi’s $100M settlement with SEC sparks internal discussions

That was likely a factor in the recent decision by rival exchange Coinbase — which launched a similar lending product last year after the SEC threatened a lawsuit if it launched — to register as an SEC-regulated broker.

More here: Coinbase registers with the SEC to prevent regulatory backlash

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