Crypto and AML Compliance
FinCEN Penalizes Peer-to-Peer Virtual Currency Exchanger for Violations of Anti-Money Laundering Laws
WASHINGTON—The Financial Crimes Enforcement Network (FinCEN) has assessed a civil money penalty against Eric Powers for willfully violating the Bank Secrecy Act’s (BSA) registration, program, and reporting requirements. Mr. Powers failed to register as a money services business (MSB), had no written policies or procedures for ensuring compliance with the BSA, and failed to report suspicious transactions and currency transactions.
Mr. Powers operated as a peer-to-peer exchanger of convertible virtual currency. As “money transmitters,” peer-to-peer exchangers are required to comply with the BSA obligations that apply to MSBs, including registering with FinCEN; developing, implementing, and maintaining an effective AML program; filing Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs); and maintaining certain records.
“Obligations under the BSA apply to money transmitters regardless of their size,” said FinCEN Director Kenneth A. Blanco. “It should not come as a surprise that we will take enforcement action based on what we have publicly stated since our March 2013 Guidance—that exchangers of convertible virtual currency, such as Mr. Powers, are money transmitters and must register as MSBs. In fact, there were indications that Mr. Powers specifically was aware of these obligations, but willfully failed to honor them. Such failures put our financial system and national security at risk and jeopardize the safety and well-being of our people, as well as undercut responsible innovation in the financial services space.”
Mr. Powers advertised his intent to purchase and sell bitcoin on the internet. He completed transactions by either physically delivering or receiving currency in person, sending or receiving currency through the mail, or coordinating transactions by wire through a depository institution. Mr. Powers processed numerous suspicious transactions without ever filing a SAR, including doing business related to the illicit darknet marketplace “Silk Road,” as well as servicing customers through The Onion Router (TOR) without taking steps to determine customer identity and whether funds were derived from illegal activity.
Mr. Powers conducted over 200 transactions involving the physical transfer of more than $10,000 in currency, yet failed to file a single CTR. For instance, Mr. Powers conducted approximately 160 purchases of bitcoin for approximately $5 million through in-person cash transactions, conducted in public places such as coffee shops, with an individual identified through a bitcoin forum. Of these cash transactions, 150 were in-person and were conducted in separate instances for over $10,000 during a single business day. Each of these 150 transactions necessitated the filing of a CTR.
FinCEN notes that this is its first enforcement action against a peer-to-peer virtual currency exchanger and the first instance in which it has penalized an exchanger of virtual currency for failure to file CTRs. FinCEN also notes that since his infractions, Mr. Powers has cooperated with FinCEN efforts. In addition to paying a $35,000 fine, Mr. Powers has agreed to an industry bar that would prohibit him from providing money transmission services or engaging in any other activity that would make him a “money services business” for purposes of FinCEN regulations.