On August 10, 2021, BitMEX, a cryptocurrency exchange platform, agreed to pay $100 million for not abiding by U.S. laws while permitting U.S. residents to use the platform and not implementing an anti-money laundering program.
Last year, the Commodity Futures Trading Commission (CFTC) sued BitMEX and named the three founders as defendants in the case. The three founders, Arthur Hayes, Benjamin Delo, and Samuel Reed, were separately charged for a count of conspiracy and for a violation of the Banking Secrecy Act. The settlement on Tuesday pertained to only the case against BitMEX and not the separate charges against the three founders.
From approximately November 2014 through October 1, 2020, BitMEX, at the time, operated as a joint enterprise and made available cryptocurrency on its platform that was accessible to consumers in the U.S. and globally, and the founders were aware of this fact. The CFTC press statement stated that “customers in the U.S. placed orders directly through BitMEX’s user interfaces, and that BitMEX acted as counterparty to certain transactions. Thus, the order finds that BitMEX violated the CEA by operating a facility to trade or process swaps without being approved as a Designated Contract Market (DCM) or a Swap Execution Facility (SEF).”
BitMEX also violated the Commodity Exchange Act (CEA) as they were technically considered as Futures Commission Merchant but did not hold a CFTC registration and additional violation includes “accepting bitcoin to margin digital asset derivative transactions and acting as counterparty to leveraged retail commodity transactions,” the CFTC press statement stated. BitMEX also violated CFTC regulations as they did not establish a Customer Information Program or CIP, Know-Your-Customer (KYC), and an effective anti-money laundering program. And between 2014 and 2020, BitMEX only asked users for emails and no other means of identification.
A FinCEN press release stated that BitMEX’s illegal actions placed financial institutions in vulnerable positions that expose them to money launderers, terrorist financiers, ransomware attacks, and potentially the threats of the darknet marketplace. The FinCEN press release also stated that BitMEX engaged in darknet markets or risky money service organizations worth more than $200 million. “BitMEX also conducted transactions involving high-risk jurisdictions and alleged fraud schemes. BitMEX failed to file a Suspicious Activity Report (SAR) on at least 588 specific suspicious transactions,” the press release continued.
“This case reinforces the expectation that the digital assets industry, as it continues to touch a broader pool of market participants, takes seriously its responsibilities in the regulated financial industry and its duties to develop and adhere to a culture of compliance,” said Acting Chairman Rostin Behnam in the CFTC press statement.
BitMEX remained neutral on the allegations and said that it would not allow U.S. residents to use or access the trading platform, according to the CFTC press statement.
Per the consent order requirements, BitMEX has established an anti-money laundering program and implemented a system to verify its users.
A BitMEX representative remains optimistic, and as an organization, they hope to stay committed to being a regulated exchange and are “looking to set the benchmarks in this new era for crypto,” according to the Wall Street Journal reporting.
The current issue of the IELR will have a more comprehensive article on this case.