Treasury Doubles Enforcement Efforts Against Non-Compliant Crypto Platforms | Venable LLP
The US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC) announced yesterday that they had reached settlements of over $24 million and $29 million, respectively, with Bittrex, Inc., a US-based cryptocurrency exchange, for Bank Secrecy Act violations ( BSA) and sanctions violations.
FinCEN and OFAC have both targeted cryptocurrency platforms in the past, but this action marks the first time the two agencies have worked together to conduct parallel enforcement actions related to cryptocurrency activity. FinCEN and OFAC have distinct but conceptually overlapping missions: FinCEN is the primary regulator of money transmitters at the federal level, while OFAC administers and enforces US economic and trade sanctions.
According to FinCEN’s order against Bittrex, the agency found that the cryptocurrency exchange willfully violated the BSA and FinCEN’s implementing regulations. In particular, from February 2014 to December 2018, Bittrex failed to maintain an effective anti-money laundering (AML) program, including with respect to anonymity-enhanced cryptocurrencies (AEC).
The agency noted that although the exchange platform averaged over 11,000 transactions per day in 2016 (with a daily value of approximately $1.54 million), the company did not use widely available software tools for transaction monitoring, instead relying on as few as two employees with minimally. AML training and experience to assess the transactions for suspicious activity. In 2017, the exchange averaged 23,800 transactions per day (with a daily value of approximately $97.9 million), but the company continued to rely on the same two employees to manually review all transactions. FinCEN’s investigation also found that Bittrex failed to file a single Suspicious Activity Report (SAR), as required under the BSA, from 2014 through May 2017. These and other AML program deficiencies, including the failure to detect thousands of transactions prohibited by OFAC and failure to fully address the risks associated with AECs for which it was impossible to disable privacy-enhancing features led FinCEN to conclude that the violations were willful and subject to civil monetary penalties.
Similarly, OFAC determined that Bittrex had not prevented individuals located in sanctioned jurisdictions (including Iran, Sudan, Syria, Cuba, and the Crimea region of Ukraine) from using the platform. According to OFAC’s order, persons located in sanctioned jurisdictions engaged in over 116,000 transactions valued at more than $263 million in virtual currency-related transactions between March 2014 and December 2017.
Bittrex has agreed to transfer approximately $24 million to OFAC to settle its potential civil liability for violations of the sanctions programs. Bittrex has also agreed to pay $29 million for its willful violations of the BSA’s AML program and SAR requirements. However, FinCEN will credit Bittrex’s $24 million payment to OFAC against the settlement liability.
This action represents the largest penalty imposed by OFAC in this area and signals a more aggressive push by federal agencies to ensure that cryptocurrency platforms comply with their AML and sanctions obligations. Cryptocurrency exchanges like Bittrex, and other money transmitters in the crypto industry, should view Bittrex as a cautionary tale and take immediate stock of its AML program to avoid a similar fate.
