Two recent guilty pleas involving a cryptocurrency exchange serve as a reminder to all money services businesses (“MSBs”)—including those ostensibly located outside the United States but that conduct business there—of the importance of implementing anti-money laundering (“AML”) programs and registering as MSBs with the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”). Last week, two founders and executives of BitMEX—a virtual currency derivatives exchange whose parent company was registered in the Seychelles but operated globally, including in the United States—pled guilty to criminal Bank Secrecy Act (“BSA”) violations stemming from the company’s willful failure to establish, implement, and maintain an AML program.[1]
The BitMEX enforcement action also highlights sanctions non-compliance risks. Without a Know Your Customer (“KYC”) program, BitMEX carried out transactions for customers based in Iran, a jurisdiction comprehensively sanctioned by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”). As OFAC has made clear, sanctions compliance obligations remain the same regardless of whether transactions are denominated in virtual currency or fiat. A focus on sanctions compliance may become even more critical for cryptocurrency companies in the wake of the new far-reaching Russia-related sanctions imposed by the United States, the EU, and the UK, among other governments, in response to…