DOJ Files $100 Million Civil Complaint Against BTC-e
In addition to the criminal charges for money laundering, unlawful monetary transactions, and conspiracy, the founder of the BTC-e bitcoin exchange now faces a $100 million civil complaint for monetary penalties owed as alleged violations of the Bank Secrecy Act. The complaint alleges that Alexander Vinnik, one of the exchange’s CEOs, willingly failed to follow AML procedures and failed to report suspicious activity, among other violations.
U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) Director Kenneth A. Blanco announced the Department of Justice’s civil complaint against BTC-e and Vinnik. FinCEN alleges that the Bank Secrecy Act (BSA) violations warranted a penalty of $12 million against Vinnick and $88,596,314 against BTC-e.
According to the complaint, FinCEN assessed penalties based, in part, on the following conduct:
• Failure to Register as an MSB: BTC-e did not register with FinCEN as a Money Services Business (MSB). The BSA defines an MSB and requires, among other things, MSBs to register with FinCEN within 180 days of beginning operations. In this case, FinCen assessed penalties, in part, because the agency concluded BTC-e was an MSB and failed to register with the agency.
• Failure to Establish Anti-Money Laundering Programs and Procedures: Under the BSA, an MSB must develop, implement, and maintain an effective anti-money laundering (AML) program that is reasonably designed to prevent the MSB from being used to facilitate money laundering and the financing of terrorist activities. FinCEN’s fines were based, in part, on BTC-e’s failure to have reasonable AML policies or procedures in place to prevent criminal activity on the digital currency exchange.
• Failure to File Suspicious Activity Reports: Under the BSA, an MSB must file a suspicious activity report (SAR) if it becomes aware of transactions that the MSB “knows, suspects, or has reason to suspect” are suspicious where those transactions involve the MSB and aggregate to at least $2,000 in value. FinCEN’s penalties were assessed, in part, because BTC-e did not file SARs and instead received proceeds from ransomware schemes, transferred funds to and from known dark net marketplaces, and deposited funds stolen from other digital currency exchanges into BTC-e accounts that Vinnik controlled.
The Criminal Complaint
BTC-e accounts received criminal proceeds directly from various cybercrimes, including numerous hacking incidents, ransomware payments, identity theft schemes, embezzlement by corrupt public officials, and narcotics distribution. A significant portion of BTC-e’s business was derived from suspected criminal activity.
Messages on BTC-e’s own forum openly and explicitly reflected some of the criminal activity in which the users on the platform were engaged and how they used BTC-e to launder funds. BTC-e users established accounts under monikers suggestive of criminality, including user names such as “ISIS,” “CocaineCowboys,” “blackhathackers,” “dzkillerhacker,” and “hacker4hire.” Despite these suspicious usernames, BTC-e did nothing to identify these customers or to investigate whether these or any of its other customers were using its services to conduct, conceal, or facilitate illegal activity.
BTC-e’s structure allowed criminals to conduct financial transactions with high levels of anonymity and thereby avoid apprehension by law enforcement or seizure of funds. This aspect of BTC-e contributed to its customers’ willingness to accept BTC-e’s unfavorable exchange rates compared to other legitimate digital currency exchangers that registered with FinCEN and that had appropriate and effective anti-money laundering and “Know-Your-Customer” policies in place.
Customers located within the United States used BTC-e to conduct at least 21,000 bitcoin transactions worth over $296,000,000 and tens of thousands of transactions in other convertible virtual currencies.
BTC-e made no effort to register with FinCEN, maintain any elements of an AML program, or report suspicious activity.
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