Founder and CEO of Offshore Cryptocurrency Derivatives Platform Sentenced for Violating Bank Secrecy Law | USAO-SDNY

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Damian Williams, United States Attorney for the Southern District of New York, announced that Arthur Hayes was sentenced today to six months house arrest in connection with his violation of the Bank Secrecy Act (the “BSA “), by his willful failure to establish, implement and maintain an anti-money laundering (“AML”) program in the cryptocurrency company he co-founded and owned, Bitcoin Mercantile Exchange or ” BitMEX”. U.S. District Judge John G. Koeltl imposed today’s sentence.

US attorney Damian Williams said: “While building a cryptocurrency platform that has earned him millions of dollars, Arthur Hayes deliberately defied US law that requires companies to do their part to help prevent crime and corruption. He intentionally failed to implement and maintain basic anti-money laundering policies, which allowed BitMEX to operate as a platform in the shadows of the financial markets. This office will continue to vigorously enforce US law aimed at preventing money laundering through financial institutions, including cryptocurrency platforms.

According to the indictment, public documents filed in court and statements made in court:

ARTHUR HAYES, along with BENJAMIN DELO and SAM REED, who also pleaded guilty and are expected to be sentenced in the near future, was one of three co-founders and the CEO of BitMEX.

BitMEX is an online cryptocurrency derivatives exchange that during the relevant period had US-based operations and served thousands of US customers, despite false claims to the contrary by the company, including HAYES. Since at least September 2015, and at least until the date of the indictment in September 2020, HAYES willfully prevented BitMEX from establishing and maintaining an AML program, including an identity verification program customers of BitMEX (or a “know your customer” or “KYC” program). Due to its deliberate failure to implement the AML and KYC programs, BitMEX was in effect a money laundering platform. For example, in May 2018, HAYES became aware of allegations that BitMEX was being used to launder the proceeds of a cryptocurrency hack.Neither HAYES nor the company subsequently filed a suspicious activity report, nor did implement an AML or KYC program in response.

HAYES did not institute AML or KYC programs at BitMEX despite closely following US regulatory developments which made clear their legal obligation to do so if BitMEX operated in the US, which it did. Although he repeatedly stated that BitMEX did not serve US customers, including members of the press and others outside of BitMEX, HAYES knew that the alleged withdrawal of BitMEX from the US market around September 2015 was a sham, and that “controls” BitMEX put in place to prevent US trading were an ineffective facade that did not, in fact, prevent users from accessing or trading on BitMEX from the United States.

HAYES has made substantial profits from BitMEX, thanks to US-based trading, and has aggressively advertised the company’s lack of AML or KYC program. At various times, the BitMEX website stated that “no real name or other advanced verification is required on BitMEX”. Until at least August 2017, the platform’s registration page explicitly stated that first and last name were “not required” to register.

Due to the lack of KYC, the full extent of criminal behavior on BitMEX may never be known. The company, still owned by HAYES and his co-defendants, agreed to a settlement with the Treasury Department in which the company neither admitted nor denied that it had made more than $200 million in suspicious transactions and that the company had not filed suspicious activity reports on nearly 600 specific suspicious transactions.

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HAYES, 36, of Miami, Florida, was sentenced to six months house arrest and two years probation. Hayes also agreed to pay a $10 million fine representing his monetary gain from the violation.

Mr. Williams praised the outstanding investigative work of the Federal Bureau of Investigation’s Money Laundering Investigation Squad in New York and thanked the lawyers and investigators of the Commodity Futures Trading Commission whose expertise and due diligence were essential to the development of this business.

Prosecutions are handled by the Bureau’s Money Laundering and Transnational Criminal Enterprises Unit. Assistant US Attorneys Jessica Greenwood, Samuel Raymond and Thane Rehn are in charge of the prosecution.

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