Digital assets are potentially within the sphere of a number of federal law enforcement agencies. Those include the SEC, CFTC, DOJ, FinCEN and others. Stated differently, using bitcoin or another digital currency does not authorize ignoring federal regulators: If there is a security the SEC becomes involved; a commodity, such as a coin, the CFTC; fraud, the DOJ; and of course if there is money, FinCEN. Consider, for example, the case of a digital currency exchange born overseas and operated by a foreign national. The firm had no interaction with any of the alphabet soup of federal agencies that might have an interest. There-in was the problem however – acting as a money changer turns the firm into a financial institution requiring registration with FinCEN. U.S. v. BT-e, Civil Action No. 4:19-cv-04281 (N.D. Cal. Filed July 25, 2019).
Alexander Vinnik, and BT-e, the firm were he worked as an executive, were named as defendants in the forfeiture action. BT-e is a digital currency exchange organized as a corporation under the laws of Cyprus and the Seychelles Islands. The firm operates in Bulgaria, the Seychells and other jurisdictions that include the Northern District of California. Mr. Vinnick, a Russian national, had several accounts at the firm. Some were tied to thefts from other virtual currency exchanges such as Mt. Gox. He is currently being held in a Greek prison.
DOJ brought criminal charges against the firm and its executive. In May 2016 a two-count indictment charging BTC-e and Mr. Vinnik with operating an unlicensed Money Services Business. A superseding 21 count indictment centered on the same charges was returned early the next year. An extradition request for Mr. Vinnik has been initiated.
FinCEN assessed monetary penalties against BTC-e and its executive for violations of the Bank Secrecy Act or BSA. Those include $12 million in penalties against Mr. Vannick and $88,586,314 against BTC-e for violations of the BSA. The penalties are predicated on the following:
Registration violations: The exchange, considered a financial institution under the BSA, did not register with FinCEN as a Money Services Business or MSB within 180 days of starting operations;
AML violations: The Bank Secrecy Act and the Money Services Business requirements require that the firm develop and implement an effective AML program; and
File SARs: Under the BSA an MSB the exchange must file a SAR if it becomes aware of or suspects a suspicious transaction or transactions that aggregate to at least $2,000 in value.
The civil forfeiture suit has been brought to collect the penalties imposed by FinCEN. That action is pending. The 21 count superseding indictment is pending.