DOJ targets crypto exchange BTC-e and Alexander Vinnik in $100m complaint

Maria Nikolova

The complaint seeks to enforce monetary penalties FinCEN assessed against BTC-e and Vinnik back in July 2017.

The United States Department of Justice (DOJ) has filed a civil complaint in federal court against digital currency exchange BTC-e, also known as Canton Business Corporation, and one of its chief owners and operators Alexander Vinnik. The complaint aims to enforce monetary penalties the Financial Crimes Enforcement Network (FinCEN) assessed against BTC-e and Vinnik for alleged violations of the Bank Secrecy Act (BSA), 31 U.S.C. §§ 5311-14 and 5316-32.

BTC-e, a cryptocurrency exchange organized as a corporation under the laws of Cyprus and/or the Seychelles Islands, operated in Bulgaria, the Seychelles Islands, and other jurisdictions, including the Northern District of California, and allowed its users to buy and sell bitcoin and other digital currencies anonymously through its web domain, Vinnik, a Russian national, occupied a senior leadership position within BTC-e, controlled multiple BTC-e administrative accounts used to process BTC-e’s transactions, and participated in the direction and supervision of BTC-e’s operations and finances.

According to the civil complaint, Vinnik operated several BTC-e accounts, including some tied to thefts from other virtual currency exchanges such as Mt. Gox. Vinnik is currently incarcerated in Greece and is the subject of an extradition request to the Northern District of California in connection with criminal charges filed in this district.

On July 26, 2017, FinCEN assessed monetary penalties against BTC-e and Vinnik for violations of the BSA. FinCEN assessed $12 million in penalties against Vinnick and over $88.5 million in penalties against BTC-e for BTC-e’s alleged willful violations of the BSA.

FinCEN assessed penalties based, inter alia, on the following conduct:

  • Failure to Register as an MSB: BTC-e did not register with FinCEN as a Money Services Business (MSB). The BSA defines an MSB and requires, among other things, MSBs to register with FinCEN within 180 days of beginning operations. In this case, FinCen assessed penalties, in part, because the agency concluded BTC-e was an MSB and failed to register with the agency.
  • Failure to Establish Anti-Money Laundering Programs and Procedures: Under the BSA, an MSB must develop, implement, and maintain an effective anti-money laundering (AML) program that is reasonably designed to prevent the MSB from being used to facilitate money laundering and the financing of terrorist activities. FinCEN’s fines were based, in part, on BTC-e’s failure to have reasonable AML policies or procedures in place to prevent criminal activity on the digital currency exchange.
  • Failure to File Suspicious Activity Reports: Under the BSA, an MSB must file a suspicious activity report (SAR) if it becomes aware of transactions that the MSB “knows, suspects, or has reason to suspect” are suspicious where those transactions involve the MSB and aggregate to at least $2,000 in value. FinCEN’s penalties were assessed, in part, because BTC-e did not file SARs and instead received proceeds from ransomware schemes, transferred funds to and from known dark net marketplaces, and deposited funds stolen from other digital currency exchanges into BTC-e accounts that Vinnik controlled.

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