Recently, the Financial Crimes Enforcement Network (FinCEN) imposed a civil fine of up to $ 60 million on the operator of two cryptocurrency mixers Helix and CoinNinja, for violating the Bank Secrecy Act (BSA). This action marks FinCEN’s first attempt to use these mixers to aid money laundering and demonstrates FinCEN’s continued commitment to regulating crypto transfer entities like money service businesses. “MSBs”), according to BSA.
FinCEN imposes the first of the kind, the civil penalty against Cryptocurrency Money Service business
Larry Dean Harmon is a black web vendor who runs a search engine, Grams. In 2014, Harmon expanded its business into crypto. He founded a cryptocurrency exchange company, Helix, and linked Helix and Grams.
After three years of running Helix, Harmon has formed an additional cryptocurrency service, CoinNinja. Unlike Helix, CoinNinja is easily accessible by regular retail customers and clearly operates as a money services business. CoinNinja’s website advertises a Bitcoin mix service and offers a Dropbit service that allows customers to transmit and accept Bitcoin through social media and text messaging services. Harmon also advertises CoinNinja as a tool to bypass Know-Your-Customer processes.
FinCEN’s investigation resulted in three definitive results. First, FinCEN found that Harmon deliberately violated BSA’s MSB registration requirements. Harmon has been running the Helix and Helix light for more than three years and has never registered an organization with FinCEN. Likewise, Harmon has never signed up for CoinNinja or its affiliated service, DropBit, as an MSB.
Second, FinCEN found that Harmon did not implement an effective anti-money laundering (AML) program. BSA’s regulations require all MSBs to develop and implement a written, effective AML compliance program to minimize the risks posed by the MSB’s operations.
Harmon has never developed policies, procedures, or internal controls or appointed a chief compliance officer to Helix or CoinNinja. Helix cannot maintain files about its customers, does not provide AML training to employees, and does not conduct independent testing.
In fact, FinCEN defines the following:
“Harmon failed to file mandatory Suspicious Activity Reports (SARs) on highly questionable transactions processed by Helix, Helix Light, and CoinNinja. FinCEN identified nearly 2,500 transactions where Harmon should have filed a SAR and failed to do so. Many of these transactions involved illicit markets on the dark web where individuals bought and sold illicit services using Bitcoin. Harmon also failed to file SARs on transactions between Helix and convertible virtual currency mixing services, impeding effective transaction tracing. ”
For these violations, FinCEN calculated the potential maximum penalty to be more than $ 209 million. BSA allows FinCEN to a fine up to $ 100,000 for each willful BSA violation. BSA also allows fines of up to $ 5,000 for failure to register as an MSB. Under the Federal Civil Penal Inflation Adjustment Act of 1990, FinCEN could modify these penalties by applying a penalty panel.
Inflation-adjusted penalties in effect at the time of Harmon’s misconduct allow FinCEN to fine Harmon up to $ 57,317 for each willful breach of BSA AML requirements, including non-adoption by Harmon a full AML compliance program. For willful failure to file a SAR, the penalty regulator allows FinCEN to penalize Harmon for a larger transaction amount (up to $ 229,269) or $ 57,317.
Applying these factors, FinCEN introduced a final fine of $ 60 million. FinCEN recognizes that Harmon’s behavior is serious and serious, especially when Helix and CoinNinja operate in a high-risk industry.
FinCEN also found that Harmon and his organizations openly ignored existing regulatory requirements and facilitated money laundering, impeding law enforcement efforts. FinCEN criticized Helix’s failure to invest any resources in compliance and stressed that their failure to submit SARs had denied potentially critical information to the BSA database for at least three years.
FinCEN notes that instead of adopting BSA-compliant policies, Helix has instead established policies and procedures that allow darknet markets customers to launder bitcoin.
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