On February 24, 2022, two of three founders of an off-shore cryptocurrency derivatives exchange, the Bitcoin Mercantile Exchange or “BitMEX,” pled guilty to violating the Bank Secrecy Act (BSA) by failing to maintain an anti-money laundering program. Pursuant to their respective plea agreements, defendants Arthur Hayes and Benjamin Delo each agreed to pay a $10 million criminal fine and face up to five years in prison. The defendants’ guilty pleas were entered approximately one month before they were scheduled to stand trial in the United States District Court for the Southern District of New York.
Hayes and Delo – along with two other BitMEX executives – were indicted in October 2020 for evading U.S. anti-money laundering rules. A Department of Justice (DOJ) press release announcing the charges detailed that BitMEX was required to register with the Commodity Futures Trading Commission (CFTC) and to establish an adequate anti-money laundering program because it solicited and serviced U.S. traders. Despite these obligations, BitMEX had only nominal programs in place to combat money laundering which, according to DOJ, were “toothless or easily overridden to serve BitMEX’s bottom line goal of obtaining revenue through the U.S. market without regard to U.S. regulation.”
A DOJ press release announcing the defendants’ guilty pleas stated that BitMEX “was in effect a money-laundering platform.” DOJ stated that Hayes was made aware of allegations in 2018 that BitMEX was being used to launder the proceeds of a cryptocurrency hack, yet the company failed to file a suspicious activity report (SAR) and never instituted anti-money laundering or customer identification verification programs.
In addition to the individual defendants pleading guilty to criminal charges, BitMEX previously entered into a $100 million settlement with the CFTC and the Financial Crimes Enforcement Network (FinCEN) to resolve claims that it operated illegally in the United States and evaded anti-money laundering rules.
The charges and guilty pleas by the BitMEX founders are notable because criminal prosecutions of BSA violations remain relatively rare. As such, the criminal case signals a potential heightened interest in the use of the BSA in criminal matters and, in particular, in cases involving cryptocurrencies. Additionally, these prosecutions demonstrate the federal government’s increased efforts to police and regulate potential criminal activity related to cryptocurrencies and related exchanges. Notably, the DOJ created the National Cryptocurrency Enforcement Team (NCET) in October 2021 and recently announced the appointment of its first Director, Eun Young Choi. Given this very public focus on cryptocurrency by DOJ, it seems likely that we will see more criminal investigations and prosecutions in this area in the future.