A woman in California, who admitted operating an unlicensed in-person digital currency exchange where she traded cash for Bitcoin, was sentenced today to 12 months in federal prison, three years of supervised release, and a fine of US$20,000.
Theresa Tetley pled guilty to conducting an illegal business and engaging in unlawful monetary transactions involving Bitcoin, and laundering the proceeds of crime. She was part of Localbitcoins.com and exchanged up to US$10 million for customers across the US. Her exchange was not registered with FinCEN and she had no anti money-laundering system in place, such as customer due diligence and transactional reporting of required financial transactions.
During one translation with an undercover DEA agent, she agreed to exchange the proceeds from illegal drug trafficking on the darknet. She had been de-risked by one bank and used her sister to conduct financial transactions for her.
She was arrested when she attempted to buy Bitcoin with US$300,000 cash that she had in two grocery bags.
Tetley was ordered to forfeit 40 Bitcoin, US$292,264.00 in cash and several gold bars.
Under US law, a money transmitting business must register with the federal government as a money services business, specifically, with FinCEN, which is part of the US Department of Treasury.
Registration as a money services business (“MSB”) triggers obligations for that financial institution. For example, under the Bank Secrecy Act, an MSB is required, among other things, to:
- Develop, implement, and maintain an effective written anti-money laundering program that is reasonably designed to prevent the MSB from being used to facilitate money laundering and terrorist financing;
- Report transactions that the MSB knows, suspects, or has reason to suspect are suspicious, including funds derived from illegal activity or involve the use of the MSB to facilitate criminal activity, if the transactions are conducted or attempted by, at, or through the MSB, and the transactions involve or aggregate to at least US$2,000 in funds or other assets; and
- File a report of each deposit, withdrawal, exchange of currency or other payment or transfer, by, through, or to such MSB which involves a transaction in currency of more than US$10,000.
In practice, the obligations require an MSB to verify customer identity, conduct due diligence on its customers, file reports with the federal government, and create and maintain records pursuant to the Bank Secrecy Act.
In the US, digital currency exchanges that exchange Bitcoin for cash in person either comply with the law, and register with FinCEN (like traditional banks), or choose not to register with the federal government, or are perhaps unknowledgeable in respect of the law, as is the case with smaller companies in the new Bitcoin space.