On April 18, 2019, the Financial Crimes Enforcement Network (“FinCEN”) issued a press release announcing a civil money penalty for violations of the Bank Secrecy Act’s (“BSA”) anti-money laundering (“AML”) compliance program requirements against Eric Powers, an individual who acted as a peer-to-peer virtual currency exchanger. The enforcement action is the first-ever penalty assessed by FinCEN against a peer-to-peer virtual currency exchanger.
FinCEN regulations implementing the BSA impose a number of compliance obligations on money services businesses (“MSBs”). Among other obligations, MSBs are required to register with FinCEN, maintain AML compliance programs, file suspicious activity reports and currency transaction reports, and comply with certain record keeping requirements. MSBs include, among other categories of businesses, money transmitters. In March 2013, FinCEN issued guidance clarifying that an “exchanger” of virtual currency is considered a money transmitter (and thus an MSB) under FinCEN regulations. Specifically, the guidance defined an “exchanger” as “a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency,” and FinCEN stated its belief that an exchanger that (1) accepts and transmits a convertible virtual currency or (2) buys or sells convertible currency for any reason is a money transmitter under FinCEN regulations.
According to FinCEN, from December 6, 2012, through September 24, 2014, Powers willfully violated the BSA’s MSB registration, AML compliance program, and reporting requirements. Powers conducted over 1,700 transactions as a money transmitter, purchasing and selling virtual currency “by either physical delivering or receiving currency in person, sending or receiving currency through the mail, or coordinating transactions by wire through a depository institution.” Powers also directed transactions at other virtual currency exchangers on behalf of his customers. Powers’ customers included parties doing business on the website Silk Road, a virtual location often associated with illegal activities.
FinCEN alleged that Powers conducted these activities without an adequate AML compliance program, including policies, procedures, and internal controls. He failed to file any suspicious activity reports or currency transaction reports.
Demonstrating his awareness of the law, Powers allegedly “participated in online discussions pertaining to AML compliance, including specific conversations about registering as an MSB.” He also apparently stated on the internet that he would aid customers that wanted to circumvent anti-money laundering obligations. On one occasion, Powers allegedly offered to exchange convertible virtual currency for fiat currency, despite knowing that the fiat currency constituted the proceeds of illegal activity.
FinCEN assessed a $35,350 penalty against Powers. As part of the settlement with FinCEN, Powers agreed to permanently cease providing money transmission services and to not engage in any activity that would make him an MSB under the BSA or its implementing regulations.
This action by FinCEN is an important reminder to market participants that (1) exchangers of convertible virtual currency, regardless of their size, must comply with the BSA, including with respect to the MSB registration requirement and the establishment of an AML compliance program, including necessary policies and procedures; and (2) there may be more aggressive enforcement actions by FinCEN against exchangers, specifically those that may facilitate transactions supporting illicit activity.