The US Attorney for the Northern District of California, on behalf of the US Treasury, has filed a civil complaint against the Bitcoin exchange known as BTC-e and one of its alleged owners / officers, Alexander Vinnik, to enforce over $100 million in monetary penalties for a series of anti-money laundering law violations.
BTC-e was incorporated in Cyprus and/or the Seychelles and operated in several countries offering Bitcoin exchange services, including to US residents online. Vinnik is currently incarcerated in Greece, fighting extradition. Both defendants were indicted in January 2017 in the US in connection with AML violations.
In early 2017, FinCEN determined that BTC-e was a MSB because it provided money transmission services in the US though its exchange. It sought no AML-related information from those completing financial transactions at any time. It processed transactions in the US of over $296,000,000.
As an MSB, it was required, inter alia, to register with FinCEN, to register in the state in which it provided services, to have an AML program in place, to train its employees, to have a designated AML officer, to file SARs and to create and maintain records related to financial transactions. FinCEN assessed monetary penalties against both defendants in 2017 and this litigation seeks to enforce those penalties.
According to the complaint, Bitcoin buyers, sellers or traders sent funds to front companies of BTC-e and such funds were converted to digital currencies. The exchange was not allegedly, a normal exchange because a “significant portion of BTC-e’s business was derived from suspected criminal activity.”
With respect to Vinnik, the complaint alleges that he had control over some of the exchange’s wallets used to process transactions (the trust account wallets). Vinnik allegedly sent emails confirming that he owned BTC-e. On behalf of the Bitcoin exchange, Vinnik is alleged to have had control over trust account wallets that took in funds stolen from Mt. Gox and to have transferred the cash-out funds to the exchange’s bank accounts and then to bank accounts associated with him.
The importance of this allegation is that Vinnik had visibility over digital currencies moving into the exchange (by virtue of control over the pooled trust account wallets) and out of the exchange as they hit the financial system (by virtue of control over the bank accounts of the Bitcoin exchange).
For a unique view, you can read how Vinnik’s wife believes that the US wants him extradited for his alleged Bitcoin intellect. She also reasons that if he can be prosecuted over BTC-e, so too can manufacturers of frying pans because in Russia she says, women hit their husbands with frying pans. Vinnik believes he is being sought by the US because he believes he is a singular threat to US banks.
The press release from the DoJ is here.