Crypto Money Laundering Is Under Attack


All eyes may have been on Ukraine this week, but in the world’s major economies, the use of cryptocurrencies as a tool for money laundering came under renewed attack this week as prosecutors and politicians stepped up the use of criminal charges to combat the flow of dirty information. money through blockchains, as well as any unregulated and unidentified use of cryptocurrencies.

Starting in the West, the US Department of Justice announced two guilty pleas in its groundbreaking prosecution of the leaders of cryptocurrency derivatives exchange BitMEX for ignoring anti-money laundering (AML) regulations. Meanwhile, the European Union is reportedly planning to give its new bloc-wide AML agency oversight of cryptocurrencies, and Canadian authorities have forwarded a complaint about the CEOs of two major exchanges tweeting about the donations being seized. in crypto from Freedom Convoy protesters to law enforcement.

Meanwhile, Chinese authorities have added jail sentences to penalties for illegally raising funds by selling crypto to the public, Russia reportedly plans to criminalize peer-to-peer trading, and a key Brazilian Senate committee has passed legislation including a new AML supervision and criminal sanctions for virtual asset violations.

Add in India’s recent determination to ban the use of crypto for payments and you have the world’s largest and richest countries setting their teeth on crypto oversight.

Read more: RBI supports a complete ban on cryptocurrencies in India

BitMEX CEO pleads guilty

Issuing arrest warrants for the four top executives of BitMex, the Seychelles-based crypto derivatives exchange, the Department of Justice (DOJ) announced the first major AML prosecution of a mainstream cryptocurrency business in late 2020.

On Thursday, Damian Williams, the United States Attorney for the Southern District of New York, announced that BitMEX CEO Arthur Hayes and Chief Operating Officer Ben Delo pleaded guilty to one count of violation of the Act. Bank Secrecy. Both agreed to a fine of 10 million dollars, the Justice Department said in a throw. The charges carry a maximum sentence of up to five years in prison. And while the final determination of the sentence belongs to the judge, the couple is likely to avoid jail time.

In October, the Justice Department charged Hayes and Delo, along with BitMEX co-founder Samuel Reed and director of business development Gregory Dwyer, with “knowingly failing to establish, implement and maintain an anti-money laundering program in BitMEX”.

As Hayes was by far the biggest name in crypto and the face of BitMEX, and Delo quickly turned himself in while the others negotiated with authorities, the DOJ’s past tactics suggest they may face lighter penalties.

Following the charges, all four executives resigned and BitMEX brought in new leadership that installed robust AML procedures and in August 2021 made peace with the authorities through a $100 million fine.

Calling cryptocurrency companies “critical gatekeepers in efforts to ensure that American markets are fair, efficient, and secure,” Williams said that Hayes and Delo built a company “designed to make a mockery” of their obligation to “help eliminate crime.” and corruption.”

The Federal Prosecutor added: “They deliberately failed to implement or maintain even basic anti-money laundering policies. They allowed BitMEX to operate as a platform in the shadow of the financial markets. Today’s guilty pleas reflect this Office’s continued commitment to investigating and prosecuting money laundering in the cryptocurrency sector.”

Also read: Crypto Exchange BitMEX to Buy 268-Year-Old German Bank to Offer ‘Banking 2.0’

EU supervision

Half a dozen EU governments have proposed giving the bloc’s new AML watchdog agency oversight of cryptocurrency exchanges and other virtual asset service providers, or VASPs, Bloomberg reported on February 22.

Concerned about the use of cryptocurrencies to hide illicit funds, the German-led group wants to ensure that the agency, which will be operational in 2024 and fully operational by 2026, monitors crypto companies as well as banks and other financial institutions. . Virtual assets are only “obliquely” mentioned in the proposal to create the agency, he noted.

“It is key that the scope of the new EU authority explicitly includes crypto assets, given that this is one of the fields most prone to money laundering activities,” said Luis Garicano, member of the Spanish European Parliament, leader of the group. who proposes the change. .

The new body is being created in the wake of a series of money laundering scandals with the help of the “patchwork of regulations” of EU members, the article says.

emergency orders

Meanwhile, north of the border, the Ontario Securities Commission “shared” tweets from Coinbase CEO Brian Armstrong and Kraken CEO Jesse Powell with the Royal Canadian Mounted Police, or RCMP, as well as the “relevant federal authorities”, Canadian media. reported. The CEOs of the two major US exchanges, which have long histories of cooperation with regulators, have advised crypto investors to hold their assets in private wallets rather than exchanges that may be forced to freeze accounts. after Canada’s first invocation of its Emergency Act to cut off funds for Freedom Convoy protesters on February 14.

Watch: PYMNTS Crypto Basics Series: What is a crypto wallet and how can you avoid losing a quarter of a billion dollars?

“Disturbing to see things like this happening in any country, especially in an economically free place like Canada,” Armstrong said. said, with a link to a news report on the government’s action. “Self-custody wallets are important!”

Noting that “crowdfunding platforms are now regulated by the Canadian Terrorist Financing Act,” Powell tweeted, “You see where this is going? Please do not fund causes directly from custodial portfolios. Freezing orders are sure to come. Withdraw to non-custody before shipping.”

Those comments were in response to Canadian orders which required financial institutions, including cryptocurrency exchanges, to actively monitor and report any transactions involving “designated persons” named in the Emergency Law order.

Russian surveillance

The Russian government’s upcoming legislation on regulating cryptocurrencies includes a provision that “in effect makes peer-to-peer transactions illegal,” said a lawyer who has seen the as-yet-unpublished proposal. saying CoinDesk on February 24.

That legislation comes despite objections from the Bank of Russia. The central bank wants an outright ban on cryptocurrency trading and ownership.

The bill would require all cryptocurrency transactions to take place through authorized exchanges or other carriers. Those exchanges, payment processors, and other businesses that act as on-ramps and off-ramps for crypto transaction licenses, follow AML reporting requirements, including customer identification, and only allow the purchase of digital assets using account funds. Russian banks. Russian crypto miners would be subject to similar reporting requirements.

Additionally, all privately owned cryptocurrency wallets would have to be certified, identifying their owners. Effectively, it means that all cryptographic transactions must include the identification of the participants or be illegal.

Chinese crypto fundraising ban

Meanwhile, China’s highest court Announced a February 23 ruling that would effectively add criminal penalties for initial coin offerings, or ICOs, and any other use of virtual assets to raise money from the public. While such fundraising has been banned for five years, lower courts can now jail violators for up to 10 years under the new ruling. All crypto transactions were banned in September.

Read more: China declares all cryptocurrencies and related transactions illegal

New Brazilian Crypto Regulator

Brazil’s Senate economic affairs committee has passed legislation that would see the government create a cryptocurrency regulator that oversees all transactions except initial coin offerings, which remain under the control of its Securities and Exchange Commission, and that license cryptocurrency companies, CoinDesk. reported on February 22. It will also mandate AML reporting and establish criminal penalties of up to eight years in prison for financial crimes committed with digital assets.

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