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A Fresh Take

Insights on M&A, litigation, and corporate governance in the US.

| 2 minutes read

AML Update: Recent Enforcement Actions Demonstrate Continued Focus on Crypto

Three recent enforcement actions brought by the Securities Exchange Commission (SEC), the Financial Crimes Enforcement Network (FinCEN), and the Commodities Futures Trading Commission (CFTC) show that cryptocurrency continues to be an important focus of the government’s anti-money laundering (AML) efforts.  In bringing these actions, these agencies have taken a clear stand that convertible virtual currencies (CVCs), such as Bitcoin, fall within the jurisdiction of existing laws, including the Bank Secrecy Act (BSA) and securities laws.  This shows that regulators are taking steps to exert their authority over CVCs and crypto exchanges, which SEC Chair Gary Gensler recently described as the “Wild West.”

On August 9, 2021, the SEC settled with Poloniex, LLC, a crypto trading platform, for operating an unregistered securities exchange.  The SEC found that Poloniex operated a digital asset trading platform that met the definition of an exchange under Section 3(a)(1) of the Exchange Act and Rule 3b-16 but failed to register as a national securities exchange in violation of Section 5 of the Exchange Act.  Poloniex agreed to pay disgorgement, interest, and a civil money penalty over $10 million, and to cease and desist from future violations of Section 5.  This enforcement action is yet another example of US authorities asserting that cryptocurrency falls within its jurisdiction—this time, against crypto exchanges.

The Poloniex settlement was shortly followed by an enforcement action against another CVC derivatives exchange by FinCEN and the CFTC.  On August 10, 2021, FinCEN and the CFTC resolved their first enforcement action against a crypto exchange and a futures commission merchant (FCM), BitMEX, for violations of the BSA.  BitMEX agreed to pay $100 million in civil money penalties.  FinCEN and the CFTC alleged that BitMEX met the definition of financial institution because it operated as an FCM and money transmitter; failed to establish controls to detect and prevent suspicious transactions (including in high risk jurisdictions and darknet markets); conduct customer due diligence; and to file Suspicious Activity Reports.  Like the Poloniex settlement, the BitMEX settlement affirms that FinCEN and the CFTC see crypto exchanges as well within the jurisdiction of existing laws (the BSA).

These actions come shortly after SEC Chair Gensler’s remarks to the Aspen Security Forum on August 3, 2021.  In widely noted comments, Gensler remarked that when CVC is used as a medium of exchange, “it’s often to skirt our laws with respect to anti-money laundering, sanctions, and tax collection.”  Previously, Mr. Gensler expressed concern that no crypto exchange has registered with the SEC, which has “led to substantially less investor protection” and “to correspondingly greater opportunities for fraud and manipulation.”  He expressed an interest in working with fellow regulators and Congress to “fill in the gaps of investor protection in these crypto markets.”

These developments suggest that government agencies have their eye on the CVC marketplace and are taking steps, through enforcement action and otherwise, to impose greater regulation on this space.


finance, litigation, financial institutions, capital markets and securities, investigations