The Financial Crimes Enforcement Network (FinCEN) has levied a civil money penalty against Eric Powers, a Money Exchanger, for significant breaches of the Bank Secrecy Act (BSA). This action underscores FinCEN’s commitment to enforcing BSA regulations within the burgeoning sector of virtual currency exchange, ensuring that all money exchangers, regardless of size, operate within legal frameworks designed to protect the financial system.
Powers, operating as a peer-to-peer exchanger of convertible virtual currency, failed to register as a money services business (MSB), a mandatory requirement for money exchangers under BSA. Furthermore, he neglected to establish an Anti-Money Laundering (AML) program, a cornerstone of BSA compliance, and failed to report suspicious transactions and large currency transactions, critical reporting obligations for money exchangers.
FinCEN Director Kenneth A. Blanco emphasized the importance of BSA compliance for all money transmitters, stating, “Obligations under the BSA apply to money transmitters regardless of their size.” He further noted, “It should not come as a surprise that we will take enforcement action…exchangers of convertible virtual currency, such as Mr. Powers, are money transmitters and must register as MSBs.” This strong stance from FinCEN makes it clear that operating as an unregistered money exchanger carries substantial risks and consequences.
Powers’ activities involved advertising bitcoin purchasing and selling online. His money exchanger operations included in-person cash transactions, mail currency transfers, and wire transfers via depository institutions. Disturbingly, Powers processed numerous transactions linked to the illicit darknet marketplace “Silk Road” and serviced clients through The Onion Router (TOR) without conducting necessary due diligence to verify customer identities or the legitimacy of funds. These failures to implement basic AML procedures are significant violations for any money exchanger.
A particularly egregious aspect of Powers’ non-compliance as a money exchanger was his failure to file Currency Transaction Reports (CTRs). He conducted over 200 transactions involving physical currency transfers exceeding $10,000, yet filed no CTRs. Notably, approximately 160 bitcoin purchases, totaling around $5 million, were executed via in-person cash transactions in public places, often exceeding $10,000 per instance within a single business day. These large cash transactions, typical in some money exchanger operations, unequivocally necessitate CTR filings under BSA regulations.
This case marks FinCEN’s first enforcement action against a peer-to-peer virtual currency exchanger and the first penalty for a virtual currency exchanger’s failure to file CTRs. Despite the severity of the violations, FinCEN acknowledged Powers’ cooperation post-infraction. In addition to a $35,000 fine, Powers agreed to an industry bar, prohibiting him from money transmission services or operating as a money services business.
This enforcement action serves as a stark reminder to all money exchangers, especially those in the virtual currency space, about the critical importance of BSA compliance. Registration, AML program implementation, and diligent reporting are not optional; they are legal mandates designed to safeguard the financial system from illicit activities. For individuals and businesses operating as money exchangers, understanding and adhering to these regulations is paramount to avoid severe penalties and maintain the integrity of the financial ecosystem.
FinCEN’s mission is to protect the financial system from illicit use, combat money laundering, and bolster national security through strategic financial authority application and financial intelligence utilization. This case against Powers, the money exchanger, exemplifies this mission in action within the evolving landscape of virtual currencies.
