Offshore Cryptocurrency Derivatives Exchange BitMEX Charged With AML and BSA Violations | Practical Law

Offshore Cryptocurrency Derivatives Exchange BitMEX Charged With AML and BSA Violations | Practical Law

The CFTC announced the filing of a civil enforcement action in the US District Court for the Southern District of New York (SDNY), and the Acting United States Attorney for the SDNY and the US Federal Bureau of Investigation announced a related criminal action, charging owners and operators of offshore cryptocurrency derivatives trading platform Bitcoin Mercantile Exchange (BitMEX) with operating an unregistered trading platform and violating multiple CFTC regulations, including failing to implement required anti-money laundering (AML) procedures.

Offshore Cryptocurrency Derivatives Exchange BitMEX Charged With AML and BSA Violations

by Practical Law Finance
Published on 07 Oct 2020 • USA (National/Federal)
The CFTC announced the filing of a civil enforcement action in the US District Court for the Southern District of New York (SDNY), and the Acting United States Attorney for the SDNY and the US Federal Bureau of Investigation announced a related criminal action, charging owners and operators of offshore cryptocurrency derivatives trading platform Bitcoin Mercantile Exchange (BitMEX) with operating an unregistered trading platform and violating multiple CFTC regulations, including failing to implement required anti-money laundering (AML) procedures.
On October 2, 2020, the CFTC announced the filing of a civil enforcement action in the US District Court for the Southern District of New York (SDNY) charging five entities and three individuals that own and operate offshore cryptocurrency derivatives trading platform Bitcoin Mercantile Exchange (BitMEX), composed of five entities based in the Seychelles, Bermuda, and Hong Kong, with operating an unregistered trading platform and violating multiple CFTC regulations, including failing to implement required anti-money laundering (AML) procedures.
According to the CFTC, the BitMEX platform received more than $11 billion in bitcoin deposits and made more than $1 billion in fees, while conducting significant aspects of its business from the US and accepting orders and funds from US customers. Yet, the complaint alleges, BitMEX has failed to implement the most basic compliance procedures required of financial institutions that impact US markets.
In its continuing litigation against the defendants, the CFTC seeks disgorgement of ill-gotten gains, civil monetary penalties, restitution for the benefit of customers, permanent registration and trading bans, and a permanent injunction from future violations of the Commodity Exchange Act (CEA).
In a related criminal action, also on October 1, 2020, the Acting United States Attorney for the SDNY and the US Federal Bureau of Investigation announced the indictment of the same three individuals that are the subject of the CFTC action, plus another, on federal charges of violating the Bank Secrecy Act (BSA) and conspiracy to violate the BSA by willfully failing to establish, implement, and maintain an adequate AML program at BitMEX. See United States v. Arthur Hayes, Benjamin Delo, Samuel Reed, and Gregory Dwyer, Case No. 20-CR-500 (SDNY).
The complaint alleges that from at least November 2014 through the present, and at the direction of three individuals charged, BitMEX illegally offered leveraged retail commodity transactions, futures, options, and swaps on cryptocurrencies including bitcoin, ether, and litecoin, allowing traders to use leverage of up to 100 to 1 when entering into transactions on its platform.
The complaint charges BitMEX with operating a facility for the trading or processing of swaps without having CFTC approval as a designated contract market (DCM) or swap execution facility (SEF), and operating as a futures commission merchant (FCM) by soliciting orders for and accepting bitcoin to margin digital asset derivatives transactions, and by acting as a counterparty to leveraged retail commodity transactions. The complaint further charges BitMEX with violating CFTC rules by failing to implement know-your-customer (KYC) procedures, a customer information program, and AML procedures.
The CFTC strongly urges the public to verify a company’s registration with the CFTC before committing funds. If unregistered, a customer should be wary of providing funds to that company. A company’s registration status can be found using NFA BASIC.