Cryptocurrency exchange BitMEX has pleaded guilty to a US criminal charge of violating the Bank Secrecy Act (BSA), according to an announcement from the US Department of Justice (DOJ).
According to newly published court documents, the Seychelles-based crypto exchange willfully failed to set up an adequate know-your-customer (KYC) and anti-money-laundering (AML) program at the exchange between September 2015 and September 2020. The BSA requires financial institutions to take steps to detect and prevent money laundering, but prosecutors said BitMEX flaunted those rules while knowingly doing business with US-based customers.
The crypto exchange entered its plea in federal court in Manhattan to a single count of violating the BSA.
BitMEX’s founders, Arthur Hayes and Benjamin Delo, took to social media to say this was not new news and fines had already been paid in 2022.
The company’s three founders said as much because BitMEX had entered into settlements with US regulators several years ago for related conduct over the same time period. The company agreed to pay $100m in 2021, and the founders themselves pleaded guilty to similar charges in 2022 with the Commodity Futures Trading Commission (CFTC), paying a $10m fine each.
BitMEX followed up by stating that its KYC and AML programs have been independently audited. “Needless to say, this charge has no impact on our business operations,” it concluded.
Lax BSA/AML standards
Founded in 2014, BitMEX purported to withdraw from conducting business in the US in 2015, but it put in place considerably insufficient mechanisms to keep US residents from accessing it while executives touted the exchange at conferences stateside, according to prosecutors. At times, prospective customers were only asked for an email address to confirm their identity, the DOJ said.
“Congress must act quickly in order for regulators, like the CFTC, to provide basic customer protections that are core to US financial markets.”
Rostin Behnam, CFTC Commissioner, speaking about regulating cryptocurrencies
Until September 2020, BitMEX allowed customers to register and trade cryptocurrency basically anonymously, without providing any identifying information or documentation, and advertised itself as a place where retail customers could trade without real-name verification, the DOJ alleged. Because of the lax AML/KYC standards, prosecutors say, BitMEX became a destination for money laundering and sanctions violations.
A BitMEX founder also acquired a Hong Kong-based business the exchange used as a pass through for US-dollar transactions, lying about its true purpose to an unnamed Hong Kong-based bank, and the misconduct continued until 2020, according to prosecutors. BitMEX also pleaded guilty to this charge – lying to a foreign bank – as part of its violation of the BSA in this latest action.
“As BitMEX’s founders and long-time employees admitted in federal court in 2022, the company, one of the leading cryptocurrency derivatives platforms in the world from 2015 to 2020, operated in the United States without any meaningful anti-money-laundering program, as required by federal law,” said US Attorney Damian Williams in a DOJ press release. “As a result, BitMEX opened itself up as a vehicle for large-scale money laundering and sanctions evasion schemes, posing a serious threat to the integrity of the financial system.
Behnam says this stuff needs a regulator
Addressing the idea of overseeing cryptocurrency in a more focused manner – rather than through enforcement actions and court adjudications – a couple of interesting and related developments arose this week.
Senate Agriculture Committee Chairwoman Debbie Stabenow (D-MI) proposed her legislative proposal for overseeing the crypto markets heads to her fellow panel members. And Commodity Futures Trading Commission Chair Rostin Behnam issued his emphatic testimony that Congress needs to do something about definitively regulating digital assets.
In his testimony before the same agriculture-focused committee in the Senate, CFTC Commissioner Rostin Behnam said Congress has been failing to produce a regulatory answer to crypto, and it’s hurting investors and leaving the US at a competitive disadvantage.
He said that what “concerned me the most” about watching the growth of digital assets has been Congress’s lack of action. “I believe the single most important thing I have done, and continue to do, is advocate to this body to fill the regulatory gap,” Behnam told the senators. “Congress must act quickly in order for regulators, like the CFTC, to provide basic customer protections that are core to US financial markets.”
The senators on this committee, which oversees the work of the CFTC, have been working for some time on their own crypto legislation that would focus on granting authorities to the regulator to police the spot trading in digital commodities. This would include bitcoin and Ethereum’s ether, which (combined) represent the majority of crypto-trading activity.