Money Services Business

On July 26, FinCEN, in coordination with the U.S. Attorney’s Office for the Northern District of California (“NDCA USAO”), assessed a $110,003,314 civil money penalty against BTC-e a/k/a Canton Business Corporation (“BTC-e”) for willfully violating the Bank Secrecy Act (“BSA”), and a $12 million penalty against Alexander Vinnik, a Russian national who is one of the alleged operators of BTC-e, for his role in the violations.  FinCEN’s press release indicates that this is the first enforcement action it has taken against a foreign-located money services business (“MSB”) doing business in the United States.  As we previously have blogged, FinCEN released interpretive guidance in March 2013 stating that an administrator or exchanger of virtual currency is an MSB under the BSA unless a limitation or exemption applies.

In a parallel criminal investigation, Vinnik was arrested and detained in Greece and charged in a 21-count superseding indictment brought by the NDCA USAO and DOJ’s Computer Crime and Intellectual Property Section. The superseding indictment alleges that Vinnik and BTC-e operated an unlicensed MSB doing business in the U.S., in violation of 18 U.S.C. § 1960, and committed money laundering, in violation of 18 U.S.C. §§ 1956 and 1957, by facilitating virtual currency transactions involving various crimes, including computer hacking, identity theft, tax refund fraud schemes, public corruption, and drug trafficking. The superseding indictment also provides some clues to the fate of the collapsed virtual currency exchange Mt. Gox, once reportedly the largest such exchange in the world. Continue Reading FinCEN Takes First Action Against Foreign-Located MSB—“The Virtual Currency Exchange of Choice for Criminals”—For Willfully Violating U.S. AML Laws

On Monday, the state of Florida moved a step closer towards amending its money laundering statute to include the nefarious use of bitcoin and other virtual currencies. The bill, H.B. 1379, has sailed through a committee vote and will now be presented to the floor. If the bill passes, it will serve, in pertinent part, to define bitcoin and “virtual currency” (“VC”) as “monetary instruments” within the meaning of the state’s money laundering statute; in the same vein, bitcoin will be defined as a “medium of exchange in electronic or digital format that is not a coin or currency of the United States or any other country.” Continue Reading Florida Lawmakers Seek to Bring Virtual Currency into the Fold

It is a potential crime to conduct a business that exchanges virtual currency and fail to register with the Financial Crimes Enforcement Network (“FinCEN“), even if the State in which one operates does not impose a similar licensing requirement. A federal district court in Louisiana has reaffirmed this principle in United States v. Lord, in which the defendants unsuccessfully sought to withdraw their pleas of guilty to offenses based on a failure to register with FinCEN.

Law and Justice

The defendants are father and son. According to the court opinion, in 2013, they began to operate a bitcoin business through a website called localbitcoins.com, which advertised the services of other bitcoin exchangers. The defendants’ clients provided cash, credit card payments and wire transfers to the defendants to purchase bitcoins from a third-party online bitcoin broker on their client’s behalf, in exchange for commissions charged by the defendants. In the Spring of 2014, the third-party bitcoin broker warned the defendants that they were required to register with FinCEN because they were acting as virtual currency exchangers. Although the defendants allegedly misrepresented to the third-party online broker that they already had registered with FinCEN, the defendants did not actually register until November 2014. By that time, however, they already had exchanged more than $2.5 million worth of virtual currency. This registration delay was the basis of the charges relating to the defendants’ virtual currency business. Continue Reading Failure to Register with FINCEN Sustains Guilty Pleas by Virtual Currency Exchangers

The Joint Committee of the European Supervisory Authorities (ESA) issued on February 10, 2017 draft rules regarding certain anti-money laundering (AML) and counter-terrorism steps for Member States of the European Union (EU). The draft rules seek to provide a consistent framework for payment service providers or electronic money issuers which provide cross-border services within the EU, and which execute transactions exceeding three million Euros annually, to appoint and define the responsibilities of a Central Contract Point, or CCP.

Close up of magnifying glass on the flags of the worldA CCP, required to be appointed by some but not all EU Member States, serves as a point of contact between a Member State’s competent authorities and the firm. The basic responsibilities of a CCP include ensuring a firm’s compliance with the host Member State’s AML and counter-terrorism financing requirements, and facilitating the firm’s supervision by the host Member State’s competent authorities, such as by providing documents and information upon request.  According to the ESA Joint Committee, the draft rules “set out the criteria Member States will consider when deciding whether foreign payment service providers and electronic money issuers should appoint a CCP, and list the functions this CCP should perform. The aim is to support the development of a CCP regime that is clear, proportionate and risk-based, and effectively supports the fight against money laundering and terrorist financing.”

These rules should help mitigate AML and terrorist financing risks by addressing the regulatory arbitrage opportunities that allow certain payments industry companies operating in the EU to avoid AML and counter-terrorism program requirements and supervision.

The ESA, which is comprised of the European Banking Authority, the European Securities and Markets Authority, and the European Insurance and Occupational Pensions Authority, is seeking comments on the proposed rules through May 5, 2017.