DOJ Charges Operators of Unregistered Bitcoin Exchange with Failure to File …

Why it matters

The AML compliance community is still wrestling to understand the full implications of an indictment filed against two men who allegedly operated a Bitcoin exchange that had not been registered as a money services business with the Financial Crimes Enforcement Network. The charge of operating an unregistered MSB itself was almost mundane for an industry under heavy law enforcement scrutiny. Instead, the questions surround the charge that the individuals failed to file Suspicious Activity Reports (SARs) on activity involving customers who needed Bitcoin to pay Ransomware to prevent encryption of their computer data by hackers. The indictment also alleges that the two defendants had undue influence on a federally insured credit union that handled the exchange’s banking operations for a period of time, including the decision to provide a banking relationship to a payment processor for the Bitcoin exchange, and that they tried to “trick” major financial institutions about the nature of their business.

Detailed discussion

According to the recently unsealed criminal complaint filed in New York federal court, Anthony R. Murgio and Yuri Lebedev operated, a Bitcoin exchange that charged consumers a fee to exchange Bitcoins for cash. The indictment charged the two with operating an “unlicensed” money services business and failing to file any suspicious activity reports on Bitcoin exchange transactions involving victims of Ransomware. Allegedly, the defendants knowingly exchanged at least $1.8 million Bitcoins for cash for customers that they knew were engaged in criminal activity as well as individuals who claimed they were “Ransomware” attack victims needing Bitcoins to “pay off” cybercriminals to regain access to their computer system.

The two defendants (as well as various co-conspirators) allegedly tried to evade detection and “trick” major financial institutions with a business operated by setting up a fake front company (the “Collectibles Club”) and website.

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