FinCEN Fines Virtual Currency Exchange for AML Violations

In the U.S. Department of the Treasury's first action against a foreign-located money services business, the Financial Crimes Enforcement Network ("FinCEN") fined BTC-e, a foreign-based digital currency exchange, for violations of anti-money laundering ("AML") regulations. In addition, the Department of Justice unsealed a criminal money laundering indictment against the company and its president, who was arrested yesterday in Greece.

According to the indictment, FinCEN alleged that BTC-e, its president, Alexander Vinnik, and others developed a customer base for BTC-e that relied heavily on criminals and was operated to facilitate transactions for cybercriminals. The indictment also alleged that BTC-e, which did substantial business in the United States, was used to facilitate crimes ranging from computer hacking to drug trafficking. The investigation also revealed that BTC-e received more than $4 billion worth of bitcoin over the course of its operation.

Similarly, FinCEN alleged in its civil penalty assessment that BTC-e and its president allowed customers to use the exchange to "conceal proceeds from crimes such as ransomware, fraud, identity theft, tax refund fraud schemes, public corruption, and drug trafficking." According to FinCEN, BTC-e failed to conduct any due diligence on criminal transactions despite receiving customer inquiries on how to "process and access" ill-gotten goods. FinCEN determined that BTC-e failed to (i) register as a money services business, (ii) develop or implement an effective AML program, including policies and procedures that effectively establish internal controls to assure compliance, (iii) file suspicious activity reports for any suspicious transactions despite clear indications of criminal activity, and (iv) follow recordkeeping and filing requirements. FinCEN filed a civil penalty assessment against Mr. Vinnik for $12 million and against BTC-e for over $110 million.