For the first time ever, the US Financial Crimes Enforcement Network (“FINCEN“), has asserted jurisdiction over a foreign digital currency exchange, BTC-E, for the purposes of fines, and assessed civil penalties for anti-money laundering law failures under the Bank Secrecy Act in the amount of $110,003,314.
In July of this year, BTC-E and its founder, Alexander Vinnik, were indicted in California for money laundering, conspiracy to commit money laundering, engaging in illegal financial transactions and for operating an unlicensed MSB. Neither Vinnik nor BTC-E were based in the US or operated in the US.
However, BTC-E conducted digital currency transactions with some persons located in the United States and moreover it used US computer servers, which according to FINCEN, was sufficient to establish jurisdiction in law for US anti-mony laundering legislation. It is unknown how many accounts BTC-E had opened in the US, if any, but its US based customers transacted in connection with over 21,000 Bitcoin and moved digital currencies within the US, and across state lines, triggering the Wire Act.
By virtue of the fact that FINCEN took the position that it had jurisdiction under US law over BTC-E, it fined BTC-E for violating the MSB registration requirements and the requirements to implement a competent anti-money laundering compliance program and to obtain and retain certain required records. The Bank Secrecy Act requires that a MSB register in the US within 180 days of beginning operations, and a foreign MSB accepting US transactions, must appoint an agent pursuant to corporate law to accept service.
One of the issues with respect to BTC-E was that it provided services to Coin.MX which was implicated in processing Bitcoin ransomware transactions for extortion payments, whose CEO was charged in the US. BTC-E was also alleged to have provided services to other cybercriminals and to have stored and laundered the funds of extortionists connected to ransomware and to have assisted Liberty Reserve. The CEO of BTC-E, Alexander Vinnik, was personally fined $12,000,000 by FINCEN.
Mr. Vinnik was arrested in Greece and is being extradited to the US in connection with the criminal charges against him for operating BTC-E. If convicted, he is facing over 50 years in jail for running a digital currency exchange incompetently and without anti-money laundering policies in place tailored to the uniqueness of digital currencies. He had a bunch of lawyers retained for BTC-E but not one that had a clue about or understood, the complexities of financial crime law.