Co-founder and former CEO of BitMEX, Arthur Hayes, has been sentenced to house arrest for six months along with a two year probation period for breaching United States anti-money-laundering law under the Bank Secrecy Act.
The US Federal Court found that while operating BitMEX, a cryptocurrency exchange and derivative trading platform, Hayes and other founders failed to establish a compliant anti-money-laundering program.
The prosecution argued Hayes willfully ignored US anti-money-laundering rules when operating BitMEX offshore, while the defense claimed he had little guidance from regulators as to the application of US law on offshore cryptocurrency exchanges.
The court found that BitMEX carried out a minimum of USD$209 million in transactions with known darknet markets, or unregistered money services businesses. Before US District Judge John Koeltl delivered the sentence, US Attorney Samuel Raymond told him:
There were real consequences. When individuals like Mr. Hayes operate platforms without anti-money-laundering programs or know-your-customer programs, they become a magnet for people to launder money.
Although BitMEX did eventually engage lawyers and attempt to comply with regulation, breaches of the Bank Secrecy Act had already occurred. Along with the six-month house arrest, Hayes paid a USD$10 million penalty in connection with a settlement with the US Commodity Futures Trading Commission.
Samuel Raymond also warned that allowing Hayes to avoid prison:
would send a message to him that the cost of doing business is merely a fine, and he could continue to violate the law for huge amounts and pay any fine
The case highlights the importance of anti-money-laundering (and counter-terrorism-financing) obligations for cryptocurrency exchanges and serves as a warning for other exchanges which may not be adequately compliant. In Australia, those offering digital currency conversion services under the Anti-Money Laundering and Counter-Terrorism Financing Act must be registered and enrolled with AUSTRAC.