As the cryptocurrency exchange's previous methods of combating money laundering were lax, the US Treasury imposed a fine of US $29.3 million on Bittrex, while the coin center lobby group opposed the war of the Treasury on the coin mixer service.

Earlier this week, the Office of Foreign Assets Control (OFAC) of the Ministry of Finance announced that it had reached a settlement of US $24.3 million with Bittrex, a joint-stock company headquartered in Bellevue, Washington, on "defects related to Bittrex's sanctions compliance procedures"

The relevant sanctions are applicable to the Crimea region of Cuba, Iran, Sudan, Syria and Ukraine. From March 2014 to December 2017, Bittrex allowed 1730 accounts in these jurisdictions to conduct 116421 digital asset transactions worth more than $263 million, including 22 transactions, each involving tokens worth more than $1 million.

OFAC said that Bittrex "has reason to know" that its users trade from the restricted area according to the IP address information and the physical address provided by the customer during the employment process. However, although Bittrex started operation in March 2014, it did not have any sanctions compliance plan until December 2015.

In February 2016, Bittrex hired a third-party supplier to screen for sanctions violations, but the screening was found to be "incomplete". It is reported that Bitteres did not realize this vulnerability until October 2017, when OFAC issued a subpoena.

Although Bittrex failed to voluntarily disclose its violations, OFAC finally concluded that the exchange's mistakes were "not serious", and pointed out that Bittrex was a relatively new company when violations occurred. OFAC also praised Bittrex for cooperating with the investigation, limiting illegal accounts, hiring/training more compliance personnel, and strengthening other compliance measures.

FinCen

At the same time, the Financial Crime Enforcement Network (FinCEN) of the Ministry of Finance fined Bittrex US $29.3 million because the exchange "deliberately violated" the anti money laundering (AML) and suspicious activity reporting (SAR) requirements of the Bank Secrecy Act (BSA) of the United States.

FinCEN said that during the period from February 2014 to December 2018, Bittrex facilitated nearly 546 million transactions on its platform, while its escrow wallet sometimes made more than 20000 deposits or withdrawals on average every day.

As a recognized money service company (MSB), Bittrex realizes that its BSA has the obligation to develop, implement and maintain an effective anti money laundering (AML) plan. However, Bittrex did not deploy "widely available transaction monitoring software tools", but only relied on two "minimally trained" employees to manually monitor transactions. By 2017, on average, 23800 transactions were monitored every day.

Bittrex also neglected to develop a plan to meet its SAR requirements, and failed to submit a SAR from 2014 to May 2017. Even after the delay in hiring more staff to monitor suspicious activities, Bittrex submitted only one SAR from May 2017 to November 2017.

FinCEN indicated that Bittrex failed to detect or report direct transactions from the darknet market including AlphaBay, Agora and Silk Road 2. The exchange also failed to regulate transactions related to blackmail software attacks on American individuals and enterprises.

In November 2017, one month after the IRS informed Bittrex that its BSA compliance was being reviewed, the Exchange submitted 119 SARs to FinCEN, suspended the opening of new accounts, and improved the "Know Your Customer" (KYC) procedure. However, until December 2018, the Exchange still relied heavily on manual review of transactions.

FinCEN also raised an objection to Bittrex's handling of the so-called anonymous enhanced cryptocurrency (AEC), that is, Monero, Zcash, PIVX, Dash and other private coins. Bittrex will eventually delist these coins in 2021, following the practice of other exchanges the previous year.

FinCEN said that Bittrex's violations were "serious and exposed the public to a significant risk of possible harm". FinCEN also objected to the fact that Bittrex appointed its CEO as AML compliance officer, because a full-time compliance director was appointed under more appropriate circumstances. Even if Bittrex did start to submit SARs, FinCEN said that these SARs were "submitted long after the transaction date". Compared with competitors who are more in line with BSA, Bittrex saves compliance resources and gives it an "unfair competitive advantage".

FinCEN really praised Bittrex for cooperating with its investigation and "actively cooperating" with US government agencies to improve the anti money laundering compliance of the exchange. For these reasons, and because of the overlap of the two Ministry of Finance investigations, FinCEN said that it would credit the US $24.3 million owed by Bittrex to OFAC, which means that the exchange only needs to pay FinCEN US $5 million.

Coin Center v. Ministry of Finance, second round

Although Bittrex may have learned to cooperate with the Federal Bureau of Investigation (feds), the Coin Center of the Research and Advocacy Center in Washington, D.C. continues to take the approach of "this aggression will not last" on the issue of "encryption". On Wednesday, the Coin Center announced a new lawsuit against OFAC, requiring it to impose sanctions on Tornado Cash coin hybrid service in August.

OFAC took Tornado Cash as the target after it was determined that Tornado Cash was being used by crypto criminals, including the notorious state funded hackers in North Korea, to clean stolen tokens. However, OFAC also blacklisted the Ethereum address that interacted with Tornado Cash, which triggered the angry voice of crypto brothers (including those who still believe in the myth of "decentralization").

Coin Center said that its new lawsuit aims to "keep privacy normal, remove Tornado Cash's privacy tool from sanctions, and prohibit the Ministry of Finance from enforcing ordinary Americans who exercise their self-evident basic right to privacy."

The lawsuit raised four claims. First, the use of Tornado Cash does not require users to rely on any third party or conduct transactions with sanctioned individuals. Coin Center believes that Tornado cash users are not subject to U.S. sanctions against transactions with foreigners or most foreign entities or the property of that person or entity.

The second is that Tornado Cash service is beyond the authority of the Ministry of Finance and can only impose sanctions on transactions with individuals, entities or properties. Third, the Treasury's actions are "arbitrary and capricious", because it does not take into account the incidental consequences of its actions on Americans who use tornado cash.

Finally, the Coin Center said that the Ministry of Finance has placed American transactions, including donations to political causes and advocacy groups, under public supervision, thus violating the rights of Americans. The Coin Center claimed that the action of the Treasury Department "cooled the activities of American associations".

The lawsuit was filed in Pensacola District Court, North Florida, USA. The plaintiff joined the Coin Center with Patrick O'Sullivan (software developer), David Hoffman (co owner of Bankless podcast) and 688 Support Brigade (pro Ukrainian military aid organization) as anonymous operators.

Coinbase (NASDAQ stock code: COIN) Exchange is funding a separate tornado cash lawsuit against the Ministry of Finance. The lawsuit is filed by six individuals, some of whom are employees of Coinbase. Coinbase has become increasingly bold in challenging the authority of the US federal government, portraying itself as a defender of privacy and an advocate of innovation. Hey, if North Korea uses a blender to clean stolen tokens to make nuclear missiles, then come on, a bad apple, right?

Earlier this summer, Coin Center filed a separate lawsuit against the Ministry of Finance and the IRS, challenging the digital asset tax reporting requirements in the Infrastructure and Investment and Employment Act 2021.