Crypto Exchange BitMEX Pleads Guilty to Bank Secrecy Act Violation

Highlights:

• BitMEX admits guilt in breaching the Bank Secrecy Act.
• Despite claiming to leave the US market, the exchange actively solicited American traders.
• In 2022, three BitMEX co-founders pleaded guilty to violating AML laws under the BSA.

Crypto exchange and derivative trading platform BitMEX has pleaded guilty to violating the Bank Secrecy Act (BSA), according to a Wednesday announcement from the US Department of Justice (DOJ). Attorney Damian Williams from the Southern District of New York said BitMEX willfully failed to establish, implement, and maintain an adequate anti-money laundering (AML) program from 2015 to 2020. Williams argued that this failure permitted the exchange to operate as a gateway for illicit activities.

The U.S. Attorney for the Southern District of New York announced that cryptocurrency exchange BitMEX pled guilty to violating the Bank Secrecy Act. BitMEX pled guilty to one count "of violating the Bank Secrecy Act, which carries a maximum sentence of five years in prison and a…

— Wu Blockchain (@WuBlockchain) July 11, 2024

BitMEX Violations and Legal Issues

According to the charges, BitMEX, founded in 2014 and incorporated in the Republic of Seychelles as HDR Global Trading Limited, “long serviced and solicited business from U.S. traders and also operated through U.S. offices.” The violation persisted until at least September 2020, despite the company’s claim to have left the US market in September 2015 to evade compliance with US laws.

Furthermore, the complaint stated that founders Arthur Hayes, Samuel Reed, and Benjamin Delo knew that BitMEX’s measures to block such access were ineffective or bypassed to increase revenue from the US market, ignoring criminal laws.

Moreover, BitMEX only required an email address from its users, circumventing essential Know Your Customer (KYC) standards. Because of its operations in the United States, the exchange was required to register with the Commodity Futures Trading Commission (CFTC) and maintain an AML program.

Williams stated:

“BitMEX opened itself up as a vehicle for large-scale money laundering and sanctions evasion schemes, posing a serious threat to the integrity of the financial system. Today’s guilty plea indicates again the need for cryptocurrency companies to comply with US law if they take advantage of the US market.”

The exchange pled guilty to one count “of violating the Bank Secrecy Act.” Therefore, responsible parties at the exchange could be sentenced to up to five years in prison, along with other penalties. BitMEX has not yet received a sentence, and the case is under the jurisdiction of US District Judge John G. Koeltl in the Southern District of NY.

‘Toothless’ AML Measures at BitMEX

The US Attorney’s Office criticized BitMEX’s AML policies as “toothless or easily overridden.” According to the case details, the exchange exited the US market in September 2015 and implemented an IP address check to detect and block US customers. However, it conducted IP checks only once per customer, allowing users who subsequently used a non-US IP address to continue accessing the platform.

BitMEX also allowed access through Tor and did not take measures to block VPNs. Until late 2018, US IP addresses were not subject to internal terms of service that typically restricted access for users from other countries. Furthermore, the company and its executives marketed actively to attract US customers, appearing at conferences and on television.

BitMEX Co-Founders Previously Pleaded Guilty, Received Probation and Fines

Several people involved in the case pleaded guilty to breaking anti-money laundering laws under the Bank Secrecy Act (BSA) and received sentences. BitMEX co-founder Hayes pleaded guilty in February 2022 and was sentenced to six months of home detention and two years of probation. Co-founder Delo pleaded guilty in the same month and received a 30-month probation sentence. 

Benjamin Delo, a co-founder of cryptocurrency derivatives exchange BitMEX, was sentenced to 30 months probation for violating U.S. anti-money-laundering law https://t.co/h1xqud2OBx

— The Wall Street Journal (@WSJ) June 16, 2022

Reed also pleaded guilty in March 2022 and got 18 months of probation. Early BitMEX employee Gregory Dwyer pleaded guilty in August 2022 and received one year of probation. Hayes, Delo, and Reed each agreed to pay a $10 million fine as part of their plea deals. Dwyer agreed to a $150,000 fine.

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