FinCEN Prohibits Use of Virtual Currency Exchange; DOJ Charges Founder for Unlicensed Operation

FinCEN prohibited the transmission of funds by any covered financial institution via Bitzlato, a virtual currency exchange that FinCEN identified as being of a "primary money laundering concern" in connection with Russian illicit finance.

In a Notice of its Order, FinCEN said that Bitzlato facilitated illicit transactions on behalf of multiple bad actors, including those with connections to the Russian government and Russia-connected darknet markets involved in ransomware. FinCEN identified the darknet market Hydra, which was sanctioned by OFAC in April 2022. FinCEN said that the exchange did not take steps to prevent illicit use of its services, nor did it implement effective AML policies or procedures.

In a related criminal Complaint, filed in the Eastern District of New York, the DOJ charged the exchange's founder with conducting an unlicensed money transmitting business. The DOJ said that the exchange required little or no identification from its users, and the company repeatedly allowed customers to use falsified information to verify accounts.

Deputy Secretary of the Treasury Wally Adeyemo said that the action "sends a clear message that [Treasury is] prepared to take action against any financial institution - including virtual asset service providers - with lax controls against money laundering, terrorist financing, or other illicit finance." He estimated that approximately two-thirds of the exchange's top counterparties were associated with darknet markets or scams, and nearly half of the transactions on the exchange involved Russian illicit finance or otherwise risky sources.