BitMEX gets $100M CMP for BSA violations
FinCEN has issued a consent Order for Assessment of Civil Money Penalty in the amount of $100 million dollars to HDR Global Trading Limited, 100x Holdings Limited, ABS Global Trading Limited, Shine Effort Inc. Limited, and HDR Global Services (Bermuda) Limited, which operate as an integrated, common enterprise doing business as BitMEX, under the Bank Secrecy Act (BSA) and implementing regulations.
FinCEN determined that neginning on or about November 1, 2014, through on or about December 12, 2020 (the Relevant Time Period), BitMEX operated as an unregistered futures commission merchant and provided money transmission services, willfully violated certain of its obligations under the BSA and its implementing regulations. Specifically, as described below, BitMEX willfully (a) failed to implement and maintain a compliant AML program; (b) failed to implement and maintain a compliant customer identification program (CIP); and (c) failed to report certain suspicious activity.
According to the FinCEN order, BitMEX, throughout its operations, failed to (1) establish and implement policies, procedures, and internal controls reasonably designed to prevent the financial institution from being used for money laundering or the financing of terrorism; (2) conduct independent testing for compliance; (3) designate an individual responsible for implementing and monitoring operations and internal controls of an AML program; (4) conduct ongoing training for appropriate persons; and (5) establish appropriate risk-based procedures for conducting ongoing customer due diligence.
FinCEN also determined that BitMEX willfully failed to file suspicious activity reports. FinCEN states, in its order, that at least $209 million worth of transactions were conducted by, at, or through BitMEX with known darknet markets or unregistered MSBs providing mixing services, as well as transactions involving high-risk jurisdictions and alleged fraud schemes. Of these transactions, BitMEX failed to file a SAR on at least $15 million through at least 588 specific transactions that exceeded the minimum threshold and were either suspicious at the time of the transaction, or became suspicious when additional information about the suspicious nature of the transactions became available to BitMEX. BitMEX-hosted CVC wallet addresses transacted over 2,371 times with 17 darknet markets from May 2015 to November 2020, sending 79.52 BTC and receiving 33.44 BTC during this timeframe. These transactions included marketplaces that were shut down and seized by law enforcement, such as AlphaBay and Wall Street Marketplace. At least 26 of these direct transactions were for an amount over the $5,000 reporting threshold. BitMEX failed to file a SAR on all 26 of these transactions.
BitMEX conducted transactions with CVC exchanges operating in jurisdictions with AML/CFT deficiencies, including jurisdictions such as Iran, that have restrictions placed on them by the U.S. and have been the subjects of advisories issued by FinCEN and the Financial Action Task Force (FATF). BitMEX failed to file a SAR on at least 16 transactions, valued at $138,189 in total, that were conducted with Iranian CVC exchanges.
BitMEX addresses transacted at least 2,036 times with 11 unregistered MSBs that provide so-called “mixing” services. Darknet marketplaces actively promote mixers as the primary method for obfuscating bitcoin transactions. BitMEX received over $2 million U.S. dollars’ worth of bitcoin from unregistered CVC mixers and sent over $6 million U.S. dollars’ worth of bitcoin to unregistered CVC mixers. This included at least 32 transfers of over $5,000 with Helix Mixer, the subject of a publicly-available FinCEN Assessment of Civil Money Penalty imposing a $60 million civil money penalty in October 2020. BitMEX failed to file a SAR on at least 223 transactions with unregistered CVC mixers, with no evidence of a reasonable explanation for the transactions.
BTC-e was an unregistered CVC exchange before a coordinated U.S. government action in July 2017 shut it down for alleged money laundering and operating as an unlicensed money transmitter. FinCEN assessed a $110 million civil money penalty against BTC-e and a $12 million civil money penalty against one of its operators, Alexander Vinnik, for violations of the BSA and its implementing regulations.
From November 2014 through November 2020, BitMEX sent and received over $3 million worth of bitcoin from BTC-e in 133 covered transactions. BitMEX failed to file SARs on all 133 transactions.
BitMEX was involved in transactions with high-risk counterparties engaged in activity publicly identified as alleged fraud. BitMEX accepted and transmitted CVC for wallets containing the proceeds of potentially suspicious activity, including large-scale pyramid schemes and elder financial exploitation publicly identified as suspicious. More than 4,000 bitcoin transactions worth over $5 million were conducted with at least 23 potentially suspicious counterparties involved in alleged fraud. At least 190 of these direct transactions were for an amount over the $5,000 threshold, and BitMEX failed to file a SAR on any of these transactions.
The Commodities Future Trading Corporation (CFTC) and BitMEX have separately agreed to a Consent Order requiring the payment of a $100 million civil money penalty with additional equitable relief. FinCEN and the CFTC have agreed to each accept a $50 million credit for payment of the penalty to the other agency, and FinCEN has agreed to suspend $10 million of its CMP pending BitMEX's compliance with a SAR lookback undertaking and to suspend $10 million of the CMP pending BitMAX's compliance with the US. Controls Undertaking specified in section VI-B of the FinCEN order.