FinCEN Takes First Enforcement Action Against P2P Cryptocurrency Exchanger

FinCEN has assessed a civil money penalty for a California resident accused of violating money transmission laws.

The United States Financial Crimes Enforcement Network (FinCEN) has assessed a civil money penalty for a California resident accused of wilfully violating money transmission laws in his work as a peer-to-peer exchanger of virtual currencies. The news was announced in an official FinCEN news release on April 18.

FinCEN — the U.S. Treasury Department’s financial crimes unit — says the move represents its first enforcement action against a peer-to-peer cryptocurrency exchanger.

Eric Powers of Kern County, Calififornia, has been served a $35,000 fine and debarred from any future activities that would qualify his work as a money services business, the agency states.

This was determined on the basis that Powers violated his statutory reporting and registration obligations under the U.S. Bank Secrecy Act, as the news release outlines:

“As ‘money transmitters,’ peer-to-peer exchangers are required to comply with the BSA [Bank Secrecy Act] obligations that apply to MSBs [Money Services Businesses], including registering with FinCEN […] maintaining an effective AML [anti-money-laundering] program; filing Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs).”

According to FinCEN’s assessment filing, Powers conducted over 1,700 transactions as a money transmitter between December 2012 and September 2014, buying and selling bitcoins (BTC) on behalf of customers.

He is reported to have publicized his services on peer-to-peer sites such as bitcointalk.org, and to have coordinated crypto transactions for users of the now-defunct bitcoin exchange Mt. Gox.

The news release states that Powers also processed numerous suspicious transactions — over 100 related to the illicit marketplace Silk Road — without filing an SAR. He is also reported to have conducted business via the dark web client TOR without verifying clients’ identities or the source of their funds.

Over 200 of Powers’ transactions reportedly involved the physical exchange of currency worth $10,000, without filing a CTR. A further 160 BTC purchases — worth approximately $5 million — were reportedly conducted via in-person cash transactions with individuals identified through an online bitcoin forum. The vast majority of these (150) involved the transfer of over $10,000 within a business day — often in coffee shops or other public places.

“We will take enforcement action based on what we have publicly stated since our March 2013 Guidance—that exchangers of convertible virtual currency […] are money transmitters and must register as MSBs,” FinCEN director Kenneth A. Blanco states.

As previously reported, FinCEN’s director revealed in late summer 2018 that the number of crypto-related SARs filed with the agency had surged, coming to exceed 1,500 per month.