US$60 million penalty
On October 19, 2020, the Financial Crimes Enforcement Network (“FinCEN“) assessed a US$60 million penalty (here) against Larry Dean Harmon, the owner of two Bitcoin mixing and anonymizing services called Helix and Coin Ninja LLC. FinCEN found that the two entities were operating as unregistered money services businesses (“MSB“) which exchanged currencies, including Bitcoin, conducted financial transactions and provided services to mix, tumble and anonymize financial transactions.
Anonymous payments for narco traffickers
For a three year period from 2014 to 2017, through Helix, Harmon’s entities pulled in over US$311 million and conducted at least 356,000 Bitcoin transactions. In total, Harmon oversaw over 1.2 million financial transactions without complying with the Bank Secrecy Act financial crime obligations as an MSB. FinCEN found that Helix processed US$121,511,877 darknet Bitcoin transactions. FinCEN’s investigation into the activities of Helix revealed that it processed payments for narco traffickers, fraudsters, those engaged in counterfeiting and other criminals.
Indictment against Harmon
Earlier in the year, an indictment against Harmon was unsealed in respect of his Bitcoin mixing services and in connection with a darknet search engine called Grams, that was part of Helix, that allegedly worked with the now-defunct illegal Canadian darknet site, AlphaBay, to launder money. The indictment alleges that Harmon operated a money laundering service and promoted and obfuscated the proceeds of crime derived from drug trafficking and other darknet illegal activities.
The Grams darknet site provided an index that allowed bad actors to sell stolen ID products, weapons and narcotics.
FinCEN found that Harmon’s entities provided services to just about all of the darknet vendor sites including Silk Road 2, Oasis Market, Russian Anonymous Marketplace, Middle Earth Marketplace, Hydra Market, Hansa Market, DutchDrugz Market, Dream Market, Black Bank Market, Agora Market, Valhalla Market and Wall Street Market and to darknet vendors that sold child pornography and child exploitation material using Bitcoin. It also did business with BTC-e, also shut down by law enforcement (although one of its co-founders resurfaced as part of PRIZM coin which surprisingly, one can buy in Canada at a registered MSB (here)).
Bitcoin tumbling and mixing services make tracing the flow of funds next to impossible and deprive people of the ability to take any action against parties that use those services when they have been defrauded, or suffer other legal losses.
With respect to Canada’s AlphaBay, it was shut down by US law enforcement (here). AlphaBay operated the world’s largest darknet illegal site accessible on TOR that resulted in the death of several teenagers from fentanyl overdoses. Its Canadian owner, Alexandre Cazes, was arrested by US law enforcement and committed suicide in custody before being extradited.
Stated belief that illegal drugs are victimless; a legal right
In an interview on this website, a person identified as the founder of Grams and Helix, described Helix as the definitive Bitcoin cleaner and represented to the public that for a 3% fee, he will “clean your Bitcoin” and made this statement: “victimless crimes, such as using drugs, is everyone’s right and is the purpose of the darknet” and that he “likes being on the frontier of the Internet’s dark side.”
The super narcotics kingpin and major money launderer, Ross Ulbricht, made similar comments about access to illegal drugs being a legal right. He was sentenced to two life terms of imprisonment plus forty years with no possibility of parole, a sentence that was intended to send a message to others (presumably those providing similar darknet services) so that they “understand without equivocation” that if they break the law like Ulbricht, “there will be very, very severe consequences.” (see Q&A on Ulbricht’s trial here).
In terms of threat actors in the Bitcoin mixing and tumbling space, the marketplace is beginning to see some actors who ran Bitcoin mixing and tumbling services reinvent themselves as ostensible legitimate operations under new brands with attempts to align with international law enforcement agencies and financial crime standard-setting bodies.