4 Cryptocurrency Money-Laundering Cases

Written by Ricky Nave in Crypto,Crypto Law & Regulation

1. Larry Harmon of Helix and Coin Ninja

Larry Dean Harmon operated Helix, a cryptocurrency “tumbler” service, and Coin Ninja LLC, a crypto media site and crypto exchanger company during periods from 2014 to 2019. His services integrated with various illegal dark-web marketplaces, and correspondence between Harmon and various other parties demonstrates that he was aware his services were not just being used for privacy but also for conducting illegal activity.

FinCEN deemed both Helix and Coin Ninja to be money transmitters and financial institutions and charged Mr. Harmon with willfully violating the BSA’s registration, AML program, and reporting requirements by (a) failing to register Helix or Coin Ninja as money services businesses, (b) failing to implement and maintain an effective anti-money laundering (AML) program for Helix, and (c) failing to report certain suspicious activity for Helix.

FinCEN assessed a $60 million civil penalty on Harmon as a result of these violations. FinCEN’s full report is available here (dated October 19, 2020).

In parallel with FinCEN’s civil action, the DOJ has pursued a criminal case against Harmon in the D.C. jurisdiction. Charges include violating statutes 18 U.S.C. § 1956 (money laundering) and 18 U.S.C. § 1960 (owning or operating an unlicensed money transmitting business). You can find additional information about the criminal case against Harmon here.

2. Eric Powers

Eric Powers operated as an exchanger of virtual currency from at least December 6, 2012 to September 24, 2014 by acting in a peer-to-peer fashion buying and selling bitcoin from and to others. Mr. Powers advertised his intent to buy and sell bitcoin for others on website fora such as bitcointalk.org and bitcoin-otc.com.

Mr. Powers participated in online discussions pertaining to AML compliance, including specific conversations about registering as an MSB, which FinCEN has claimed as proof that Mr. Powers was aware of relevant BSA requirements. Nevertheless, Mr. Powers failed to register as a money transmitter, even after FinCEN issued guidance in March 2013 stating that exchangers of virtual currency are money transmitters and must register as MSBs.

FinCEN has charged Mr. Powers with willfully violating the BSA’s registration, AML program, and reporting requirements by (a) failing to register as an MSB with FinCEN, (b) failing to establish and implement an effective written anti-money laundering (AML) program, (c) failing to detect and adequately report suspicious transactions, and (d) failing to report currency transactions.

FinCEN assessed a civil monetary penalty of $35,350 on Powers as a result of these violations. FinCEN’s full report, dated April 18, 2019, can be read here. Other government agencies or departments assessed additional penalties totaling $100,000 and over 237 bitcoin.

3. BTC-e and Alexander Vinnik

Canton Business Corporation (BTC-e) operated as an exchanger of convertible virtual currencies, offering the purchase and sale of U.S. dollars, Russian Rubles, Euros, Bitcoin, Litecoin, Namecoin, Novacoin, Peercoin, Ethereum, and Dash. BTC-e also offered “BTC-e code”, which enabled users to send and receive fiat currencies with other BTC-e users. Since 2011, BTC-e has served approximately 700,000 customers worldwide and processed over 9 million bitcoin. Alexander Vinnik participated in the direction and supervision of BTC-e’s operations and finances and controlled multiple BTC-e administrative accounts used in processing transactions.

BTC-e attempted to conceal the fact that it provided services to customers located within the United States, going so far as to instruct its U.S. customers to make use of correspondent accounts held by foreign financial institutions or services provided by affiliates of BTC-e located abroad.

BTC-e lacked even basic controls to prevent the use of its services for illicit purposes. BTC-e processed transactions involving over 300,000 bitcoin stolen from Mt. Gox between 2011 and 2014, which were sent and held at three separate but linked BTC-e accounts. BTC-e failed to conduct any due diligence on the transactions or on the accounts in which the stolen bitcoin were held. Moreover, BTC-e failed to file any SARs on these transactions even after the thefts were publicly reported in the media.

Through their operation of BTC-e, Alexander Vinnik and other senior leaders within the virtual currency exchange attracted and maintained a customer base that consisted largely of criminals who desired to conceal proceeds from crimes such as ransomware, fraud, identity theft, tax refund fraud schemes, public corruption, and drug trafficking.

FinCEN has determined that, from November 5, 2011 through July 27, 2017, (a) BTC-e and Alexander Vinnik willfully violated the MSB registration requirements, (b) BTC-e willfully violated the requirement to implement an effective anti-money laundering (AML) program, the requirement to detect suspicious transactions and file suspicious activity reports (SARs), and the requirement to obtain and retain records relating to transmittals of funds in amounts of $3,000 or more, and (c) Alexander Vinnik willfully participated in violations of AML program and SAR requirements. In addition, BTC-e never appointed an agent for service of process.

BTC-e and Alexander Vinnik were indicted in the Northern District of California under 18 U.S.C. §§ 1956, 1957, and 1960 for money laundering, conspiracy to commit money laundering, engaging in unlawful monetary transactions, and the operation of an unlicensed money transmitting business.

FinCEN assessed a civil monetary penalty on BTC-e of just over $110 million and on Alexander Vinnik of $12 million. The full FinCEN report is available here. As of 2021, Alexander Vinnik is serving a prison sentence in France for money laundering.

4. Ripple Labs (2015)

Ripple Labs Inc. and its wholly-owned subsidiary XRP II, LLC (formerly known as XRP Fund II, LLC) sold their virtual currency XRP and provided users with wallets to send and receive XRP.

FinCEN deemed this to make Ripple Labs and XRP II money services businesses, yet neither registered as MSBs nor took any of the necessary steps to establish or maintain BSA compliance.

On May 5, 2015, FinCEN assessed a $700,000 civil monetary penalty against Ripple Labs and XRP II for violating several requirements of the BSA, including not setting up an AML program, and for not registering with FinCEN as an MSB.

The U.S. Attorney’s Office for the Northern District of California (USAO-NDCA) acted in coordination with FinCEN in this matter. The USAO-NDCA settled with Ripple Labs and XRP II in a manner that resolved possible criminal charges and included forfeiture of $450,000. This $450,000 was counted towards FinCEN’s $700,000 penalty.

FinCEN’s report on the case is available here, and the remedial framework imposed on Ripple Labs and XRP II to establish and maintain future compliance is available here.

Ricky Nave

In college, Ricky studied physics & math, won a prestigious research competition hosted by Oak Ridge National Laboratory, started several small businesses including an energy chewing gum business and a computer repair business, and graduated with a thesis in algebraic topology. After graduating, Ricky attended grad school at Duke University in the mathematics PhD program where he worked on quantum algorithms & non-Euclidean geometry models for flexible proteins. He also worked in cybersecurity at Los Alamos during this time before eventually dropping out of grad school to join a startup working on formal semantic modeling for legal documents. Finally, he left that startup to start his own in the finance & crypto space. Now, he helps entrepreneurs pay less capital gains tax.

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