DOJ latest agency to charge crypto platform BitMEX for BSA/AML failures

HDR Global Trading, incorporated on the island of Seychelles, pled guilty to one count of violating the BSA, the Department of Justice (DOJ) announced in press release Wednesday.

The details: From 2015-20, BitMEX operated a cryptocurrency trading platform “without any meaningful [AML] program,” as required by the BSA, the DOJ said.

“[HDR’s] guilty plea indicates again the need for cryptocurrency companies to comply with U.S. law if they take advantage of the U.S. market,” said Damien Williams, U.S. Attorney for the Southern District of New York, in the release.

The charge carries a penalty of up to five years in prison, although the final sentence will be determined by the judge overseeing the case, the DOJ said.

According to the DOJ’s complaint, filed in U.S. District Court for the Southern District of New York, BitMEX violated the BSA from 2015-20 because it “did not adopt or implement formal policies, procedures, and internal controls for AML; independent compliance testing for AML; and training for appropriate personnel in AML.” The company also allegedly failed to file any suspicious activity reports on suspected illegal activity on its platform with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

For example, in 2018, BitMEX was notified that its platform was being used to launder the proceeds of a cryptocurrency hack, the DOJ said. The company was also aware that the platform served customers in Iran, which is a jurisdiction that falls under U.S. sanctions. BitMEX did not implement an AML program in response to these and other illegal activities found to be occurring on its platform, the DOJ said.

BitMEX also opened a bank account with the Hong Kong branch of an international bank under false pretenses, then used the account to convert more than $100 million in cryptocurrency into U.S. dollars and other fiat currencies, the DOJ said.

In August 2021, BitMEX agreed to pay a $100 million fine to settle charges related to violations of the BSA levied by the Commodity Futures Trading Commission and FinCEN.

Three co-founders of BitMEX have pled guilty to violating the BSA with each agreeing to pay $10 million fines.

Company response: In a blog post issued Wednesday, BitMEX called the DOJ’s action “old news,” saying it was related to the company’s operations before September 2020, and that “this charge has no impact on our business operations.”

“In 2020, we implemented a best-in-class user verification program that has been verified twice by an independent auditor in respect of ensuring U.S. persons cannot trade on BitMEX,” the blog post said. “The development of this user verification program was built on top of existing KYC systems and controls that had been progressively implemented since the launch of the platform in 2014. Our KYC and AML programmes have also been independently audited against the AML regimes of other major financial centers and sophisticated jurisdictions across the world.”