Weekly Focus:

  • BitMEX CEO to Surrender on AML Charges
  • Twitter Scammer Agrees to Three Years’ Jail Time
  • Irish Central Bank Expanding AML Enforcement to Cryptocurrency Companies
  • European Regulators Warn Investors of “High Risk,” Non-Regulated Crypto Assets
  • UK Watchdog ASA Banned Advertisement for Cryptocurrency Company
  • Visa to Allow Merchants to Accept Bitcoin as Payment

US Regulatory Developments

BitMEX CEO to Surrender on AML Charges

BitMEX’s founder and former CEO, Arthur Hayes, reached an agreement with U.S. officials to surrender to federal charges. On October 1, 2020, the U.S. Attorney’s Office for the Southern District of New York announced the indictment of Mr. Hayes and others on federal charges for violating the Bank Secrecy Act, 21 U.S.C. §§ 5318 and 5322 and 31 C.F.R. §§ 1026.210 and 1026.220. Specifically, the charges brought were for, among other things, failing to implement an anti-money laundering program, including appropriate policies, procedures, and internal controls, and failing to file suspicious activity reports. Separately, the Commodity Futures Trading Commission (CFTC) brought a civil enforcement action against Mr. Hayes related to the operation of an unregistered trading platform and the failure to implement required anti-money laundering procedures. Company owners, Benjamin Delo and Samuel Reed, along with the head of business development, Gregory Dwyer, were also named in the indictment, and both of the company owners were also charged by the CFTC.

Under the terms of the agreement, and subject to the Court’s approval of the proposed bail conditions, Mr. Hayes will surrender to FBI agents in Hawaii on April 6, 2021. Mr. Hayes will be processed in Hawaii and, following processing and a brief quarantine period, will be released on a $10 million personal recognizance bond, secured by $1 million in cash and co-signed by his mother. Per the terms of his release, Mr. Hayes will return back to his residence in Singapore, traveling to New York as needed for court appearances and meetings with counsel. Hayes will retain his passport for travel between Singapore and New York, waive extradition, agree not to possess any firearms, and report any contact with law enforcement within 24 hours.

The charges can be found here. The proposal for surrender can be found here.

The CFTC’s allegations can be found here.

Twitter Scammer Agrees to Three Years’ Jail Time

Graham Ivan Clark pleaded guilty to charges and received a three-year prison sentence. Mr. Clark hacked several Twitter accounts to solicit Bitcoin donations. He was only 17 when he carried out the scam and was tried as a minor. However, the 10-year mandatory minimum that applies to adults will be imposed on Mr. Clark if he violates his probation following release.

Mr. Clark’s scam involved taking control of several high-profile Twitter accounts, including those of President Joe Biden, former President Barack Obama, Elon Musk, Bill Gates, Apple, Uber and other companies. Mr. Clark was able to gain access to these accounts through a Twitter employee. After Mr. Clark gained control of the accounts, he posted requests for Bitcoin donations that accompanied a promise to send back double the amount to any user. Mr. Clark was able to gain roughly $117,000 through the scam.

A Tampa Bay Times report on the plea can be found here.

International Regulatory Developments

Irish Central Bank Expanding AML Enforcement to Cryptocurrency Companies

The Central Bank of Ireland is expanding its anti-money laundering regime enforcement to cryptocurrency companies. The move is intended to bring Ireland into compliance with the 5th Anti-Money Laundering Directive, promulgated by the European Union in 2018. Ireland was previously fined €2 million for a failure to enforce the current European Union AML/CTF rules.

As part of these new efforts, the Central Bank is requiring virtual asset service providers (VASPs) to complete due diligence “Know Your Customer” procedures on all customers and determine the origin and destination of each customer’s assets. The Central Bank will also be requiring VASPs to register with the Central Bank. The Central Bank will begin enforcing these requirements starting in April.

An Independent.ie report on this update can be found here.

European Regulators Warn Investors of “High Risk,” Non-Regulated Crypto Assets

The European Securities and Markets Authority (ESMA) released its first “Trends, Risks and Vulnerabilities Report of 2021.” Included within the report is a reference to the risks “linked with investments in non-regulated crypto-assets.” Specifically, the ESMA noted that cryptocurrencies come in many different forms, the majority of which are not regulated in the European Union. Because of this, “consumers buying and/or holding these instruments do not benefit from the guarantees and safeguards associated with regulated financial services.” Although there are proposals to regulate cryptocurrency markets, such as efforts taken by the European Union in the September 2020 proposal, ESMA noted that these proposals and regulations are not in effect and consumers “do not currently benefit from any of the safeguards foreseen in that proposal because it is not yet EU law.”

The warning can be found here, and a copy of the related “Trends, Risks and Vulnerabilities (TRV) Report of 2021” can be found here.

UK Watchdog ASA Banned Advertisement for Cryptocurrency Company

The U.K. Advertising Standards Authority (ASA) investigated an advertisement for Coinfloor Ltd, a cryptocurrency exchange, pursuant to rules promulgated by the Committees of Advertising Practice (CAP). The ASA received a complaint that the advertisement was both misleading because it failed to disclose the risks associated with Bitcoin and socially irresponsible because it suggested that Bitcoin was a secure investment. The complaint further noted that the advertisement was specifically targeted towards retirees.

After reviewing the advertisement, the ASA prohibited Coinfloor from allowing the advertisement to appear again in its current form. The ASA further required that Coinfloor’s future marketing communications properly disclose the risks related to Bitcoin and that investments in Bitcoin are largely unregulated.

A copy of the assessment and action can be found here.

Industry Developments

Visa to Allow Merchants to Accept Bitcoin as Payment

Alfred Kelly, the CEO of Visa, announced on Fortune’s Leadership Next podcast, that the company is planning on (1) enabling the purchase of Bitcoin with Visa credentials and (2) facilitating the quick conversion of Bitcoin into fiat currency, allowing Bitcoin to be immediately used at any of the 70 million merchants where Visa is accepted. Kelly went on to note that Visa is working to maintain its intermediary function once the cryptocurrency goes mainstream for payments, and the company intends to use stablecoins in a similar fashion.

A BTC Times report on this development can be found here.