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Financial Services Law Insights and Observations

FinCEN penalizes first bitcoin “mixer” $60 million for violating BSA

Federal Issues FinCEN Enforcement Anti-Money Laundering Virtual Currency Bank Secrecy Act

Federal Issues

On October 19, the Financial Crimes Enforcement Network (FinCEN) announced a civil money penalty against an individual exchanger who founded and operated two convertible virtual currency (CVC) platforms known as “mixers” or “tumblers” for allegedly violating the Bank Secrecy Act’s (BSA) registration, program, and reporting requirements. According to FinCEN, the exchanger, among other things, (i) accepted and transmitted CVC through a variety of means, which “contain[ed] the proceeds of various acts of cybercrime”; (ii) conducted over 1,225,000 transactions for customers; and (iii) “is associated with virtual currency wallet addresses that have sent or received over $311 million.” FinCEN also contends that the exchanger advertised his services to customers on the dark web and circumvented BSA’s requirements by disregarding his obligations and operating the platforms as unregistered money service businesses (MSB).

Under FinCEN’s 2013 guidance and 2019 clarification, exchangers and administrators of CVC are money transmitters and therefore subject to BSA regulations, with mixers and tumblers subject to the same rules. (Previously covered by InfoBytes here and here.) According to FinCEN, the exchanger’s activities qualified him as a virtual currency exchanger, MSB, and a financial institution under the BSA. As such, the exchanger was required to register as an MSB with FinCEN, establish and implement an effective written anti-money laundering program, detect and file suspicious activity reports, and report currency transactions, which he failed to do. The order requires the exchanger to pay a $60 million civil money penalty.

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