Last week, the Financial Crimes Enforcement Network (FinCEN) announced its first-ever civil penalty against a cryptocurrency exchanger for willful violations of the Bank Secrecy Act (BSA). According to the FinCEN Assessment of Civil Money Penalty (Assessment), California-based Eric Powers failed to register with FinCEN as a money services business (MSB); develop, implement, and maintain an effective written AML program; report suspicious transactions conducted by, at, or through Mr. Powers; and file currency transaction reports – all requirements of the BSA and implementing regulations.
Mr. Powers operated as a peer-to-peer exchanger of the convertible virtual currency bitcoin, meaning he purchased and sold bitcoin to and from other people. Mr. Powers conducted over 1700 such transactions between December 6, 2012 and September 24, 2014, and completed these transactions by sending or receiving physical currency in person, by mail, or via wire transfer.
FinCEN shed any doubt about the application of the BSA to virtual currency in March 2013, and made clear that those like Mr. Powers who are engaged as a business in the exchange of virtual currency (exchangers) as well as those issuing and redeeming virtual currency (administrators) are generally considered MSBs within the meaning of the BSA. See FIN-2013-G001, “Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies,” March 18, 2013, available here. Administrators or exchangers who “accept and transmit a convertible virtual currency” or “buy[ ] or sell[ ] convertible virtual currency” are money transmitters under the regulations implementing the BSA. See id.
In pertinent part, the BSA requires MSBs to:
- Register with FinCEN;
- Establish and implement a written Anti-Money Laundering (AML) program;
- Report transactions that the MSB “knows, suspects, or has reason to suspect” are suspicious; and
- File currency transaction reports (CTRs) for transactions that involve the physical transfer of $10,000 or more in currency.
Mr. Powers failed to follow these requirements. First, Mr. Powers did not register with FinCEN as an MSB, despite his “awareness of BSA requirements” as evidenced by his participation in “online discussions pertaining to AML compliance, including specific conversations about registering as an MSB.” See Assessment at 3.
Second, Mr. Powers failed to implement an AML program. Mr. Powers did not produce any AML policies, procedures, and internal controls documents to FinCEN and had no written policies or procedures for filing any BSA reports. Mr. Powers also openly stated that he would assist customers in circumventing AML laws. See Assessment at 4.
Third, Mr. Powers did not report any suspicious transactions, despite the fact that he “processed transactions that bore strong indicia of illicit activity.” See Assessment at 5. For example, his bitcoin wallet was associated with hundreds of transactions for customers doing business on a darknet site shut down by federal law enforcement authorities in 2013. He also conducted transactions with numerous customers who used torrent services to anonymize their location and identity, which the Assessment describes as a “strong indicator of potential illicit activity when no additional due diligence is conducted.” However, no suspicious activity reports were ever filed. See Assessment at 5-6.
Finally, Mr. Powers conducted numerous transactions which required CTRs, but failed to file any CTRs with FinCEN. The Assessment estimates that Mr. Powers should have filed 243 CTRs. See Assessment at 7.
Mr. Powers has agreed to pay a $35,350 fine and to cease providing “money transmission services” within the meaning of the BSA. The Assessment notes that in reaching the fine, it took into consideration “the extensive cooperation provided by Mr. Powers” in FinCEN’s investigation. See Assessment at 8.