OFAC and FinCEN Settle Charges Against Virtual Currency Exchange Bittrex, Inc. | Practical Law

OFAC and FinCEN Settle Charges Against Virtual Currency Exchange Bittrex, Inc. | Practical Law

The US Department of the Treasury's Office of Foreign Assets Control (OFAC) and Financial Crimes Enforcement Network (FinCEN) settled charges against virtual currency exchange Bittrex, Inc. for violations of the Bank Secrecy Act (BSA) and its implementing regulations.

OFAC and FinCEN Settle Charges Against Virtual Currency Exchange Bittrex, Inc.

Practical Law Legal Update w-037-2454 (Approx. 5 pages)

OFAC and FinCEN Settle Charges Against Virtual Currency Exchange Bittrex, Inc.

by Practical Law Finance
Published on 12 Oct 2022USA (National/Federal)
The US Department of the Treasury's Office of Foreign Assets Control (OFAC) and Financial Crimes Enforcement Network (FinCEN) settled charges against virtual currency exchange Bittrex, Inc. for violations of the Bank Secrecy Act (BSA) and its implementing regulations.
On October 11, 2022, the US Department of the Treasury's Office of Foreign Assets Control (OFAC) and Financial Crimes Enforcement Network (FinCEN) issued a consent order settling charges against Washington-state-based virtual currency (VC) exchange Bittrex, Inc., a money services business (MSB) registered with FinCEN, for violations of the Bank Secrecy Act (BSA) and its implementing regulations. OFAC and FinCEN's investigations into Bittrex found 116,421 apparent violations of multiple sanctions programs and willful violations of the BSA's anti-money laundering (AML) and suspicious activity report (SAR) reporting requirements. This was the first joint action by FinCEN and OFAC in the crypto space.
The BSA and its implementing regulations require MSBs like Bittrex to develop, implement, and maintain an effective AML program that is reasonably designed to prevent it from being used to facilitate money laundering and the financing of terrorist activities (See Practice Note, Bank Secrecy Act: Compliance Issues). This includes a prohibition on transactions with customers located in certain jurisdictions, including the Crimea region of Ukraine, Cuba, Iran, Sudan, and Syria. According to the consent order, Bittrex:
  • Failed to develop, implement, and maintain an effective AML program, specifically internal controls reasonably designed to assure compliance with the BSA's SAR requirements.
  • Failed to fully address the risks in practice or in its written AML program for certain anonymity-enhanced cryptocurrencies, such as monero, zcash, pivx, and dash.
  • Failed to implement procedures to make appropriate and timely determinations regarding the suspicious nature of transactions and file SARs when appropriate, including for transactions involving sanctioned jurisdictions.
Bittrex had reason to know that some of its customers were in jurisdictions subject to sanctions based on the internet protocol (IP) and physical address information collected from each customer when onboarding with Bittrex. Because of deficiencies related to its sanctions compliance procedures, Bittrex failed to prevent persons apparently located in these sanctioned jurisdictions from using its platform to engage in more than $263 million of VC-related transactions between March 2014 and December 2017.
At the time of the transactions at issue, Bittrex was not screening customer IP and physical address information for terms associated with sanctioned jurisdictions. Bittrex began offering VC services in March 2014 but did not implement a sanctions compliance program until December 2015, at which time Bittrex began verifying customer identity. Additionally, Bittrex had no internal controls in place to screen customers or transactions for a nexus to sanctioned jurisdictions until October 2017. Prior to October 2017, Bittrex screened transactions only for hits against OFAC's List of Specially Designated Nationals and Blocked Persons (SDN List) and other lists but did not scrutinize customers or transactions for a nexus to sanctioned jurisdictions.
Upon receiving a subpoena from OFAC in October 2017 to investigate potential sanctions violations, Bittrex realized that it was not scrutinizing whether customers were in a sanctioned jurisdiction and began restricting accounts and screening IP and other addresses associated with sanctioned locations. Bittrex then implemented remedial measures that curtailed the number of apparent BSA violations, including:
  • Implementing new sanctions screening and blockchain tracing software.
  • Conducting additional sanctions compliance training.
  • Hiring additional compliance staff.
The order notes the following factors FinCEN considered in evaluating Bittrex's violations:
  • Nature and seriousness of the violations, including the extent of possible harm to the public and systemic nature of the violations.
  • Pervasiveness of wrongdoing within the financial institution.
  • History of similar violations or misconduct in general.
  • Financial gain or other benefit resulting from the violations.
  • Presence or absence of prompt, effective action to terminate the violations upon discovery, including self-initiated remedial measures.
  • Timely and voluntary disclosure of the violations to FinCEN.
  • Quality and extent of cooperation with FinCEN and other relevant agencies.
  • Whether another agency took enforcement action for related activity.
The settlement amount reflects OFAC's determination that Bittrex's apparent violations were not voluntarily self-disclosed but were not egregious. The order requires Bittrex to pay $29,280,829.20 as a civil money penalty for its violations, and Bittrex agrees to pay OFAC $24,280,829.20 to resolve its investigation. FinCEN will credit the $24,280,829.20 that Bittrex has agreed to pay for its OFAC violations, and Bittrex must pay the $5,000,000 balance to Treasury.