DOJ Charges Crypto “Mixer” Again Under BSA & District of Columbia Money Issuer Act – Government, Public Sector

In related case, Federal Court finds Bitcoin to Bitcoin “rocker” may represent “money transmission”

On April 27, IRS CI and FBI special agents stopped Roman Sterlingov, dual Russian and Swedish citizen, for his alleged role as founder and operator of Bitcoin Fog, a cryptocurrency “tumbler” or “mixer” aimed at concealing the source of funds. the criminal complaint and accompanying Statement of Facts, filed in the District of Columbia, alleges that in 10 years Bitcoin Fog has moved more than 1.2 million bitcoins, valued (at the time of transactions) at around $ 335 million. According to the government press release, “[t]Most of this cryptocurrency came from darknet markets and was linked to illegal narcotics, computer fraud and abuse, and identity theft. “

Sterlingov is said to have founded the site while promoting it under the pseudonym Akemashite Omedetou, a Japanese expression which means “Happy New Year”. In a post on an online Bitcoin forum, Omedetou announced that Bitcoin Fog “[mixes] your bitcoins in our own pool with other users ”and“ may eliminate any chance of finding your payments and make it impossible to prove a connection between a deposit and a withdrawal in our service ”.

Ironically, Sterlingov was identified by investigators using the same type of tracing Bitcoin Fog was supposed to prevent. The Statement of Facts details how Sterlingov allegedly paid for Bitcoin Fog’s domain using a now defunct digital currency; it then shows a series of transactions recorded in the blockchain that identifies the purchase of this currency by Sterlingov with bitcoin. Based on the tracing of these financial transactions, investigators were able to identify Sterlingov’s home address and phone number, as well as a Google Account that hosts a document that describes how to hide Bitcoin payments – this document closely mirrors the methods Sterlingov allegedly used to buy Bitcoin Fog. field.

In addition to its thanks to various national law enforcement agencies, the government’s press release underlines the international character of the investigation while also thanking Europol and the Swedish and Romanian law enforcement agencies. The criminal complaint against Sterlingov is therefore another example of IRC-CI pursuing its concurrent goals of combating crypto-related crime and working with foreign law enforcement to do so.

These include the second case brought by the Department of Justice, Computer Crime and Intellectual Property Section of the Criminal Division, involving virtual currency mixing operations. In United States v. Harmon, a case also continued in the District of Columbia, the defendant was also indicted for his alleged role in the exploitation of Helix, a bitcoin mixer that sent more than $ 300 million in bitcoin to designated recipients.

Harmon and Sterlingov were charged, among other offenses, with (i) violating 18 USC § 1960 (b) (1) (A), for operating a money transfer business without an appropriate money transmission license in the District of Columbia, (ii) 18 USC § 1960 (b) (1) (B) for failing to comply with the Bank Secrecy Act (“BSA”) money transfer business registration requirements, and (iii) engage, without a license, in the business of transmitting money in violation of the District of Columbia Money Transmitters Act (“MTA”).

Harmon I

Recent decisions in the Harmon The case regarding the applicability of these laws to crypto-mixing operations greatly strengthens the government’s thesis against Sterlingov. Last year, Harmon decided to dismiss the indictment against him, claiming that bitcoin was not “money” under the MTA and that Helix was not a “money business” either. money transmission ”under the BSA. After examining, among other things, “how bitcoin is used as a ‘medium of exchange, method of payment and store of value’, the court ruled that the statutory term ‘money’ includes bitcoin, and more specifically, that the MTA covers bitcoin-based money issuing companies such as Helix. As to Harman’s challenge to the applicability of 18 USC § 1960 (b) (1) (B), Harman argued that this offense required the transmission of funds from one person or place to another. or location, and that the indictment does not allege that Helix did anything other than return bitcoins to the user from whom they were originally sent. The court disagrees. According to the court, Helix’s business was receiving bitcoins to send to another location or person in order to hide the original source of those funds – under relevant authorities, this qualified as money transmission.

Harmon II

More recently, Harmon once again asked to dismiss the charges against him for BSA and MTA violation, arguing that these statutes are void for imprecision as applied to Helix’s business operations. According to Harmon, he was not told that neither the BSA nor the MTA was applicable to a bitcoin-to-bitcoin transaction that did not involve any fiat currency. Harmon argued that due to the “alleged” regulatory overlap and confusion between the Commodity Futures Trading Commission, the Internal Revenue Service, the Securities and Exchange Commission and other government entities on how to classify and to regulate “ bitcoin tumblers ”, [the] Bitcoin’s fall regulation is seen as a money-passing business[es] could not have been sufficiently clear between 2014 and 2017. “”

Here, too, the court disagreed. Notably, in dismissing Harmon’s challenge to the BSA, the court referred to the 2013 FinCEN guidelines which were “broad enough to cover bitcoin drop operations like Helix.” More specifically, the court cited at END-2013-G001 (March 18, 2013), who refused to distinguish between virtual currency and fiat currency, and considered the transfer of any valuables that substitute for currency as a “transmission” under the BSA. The court also observed that this directive expressly states that “a person is an exchanger and an issuer of funds if they accept … decentralized convertible virtual currency from one person and pass it on to another person.”[.]”

Overall, the lawsuits against Harmon and Sterlingov make it clear that the government will seek to hold crypto-to-crypto services accountable under traditional money transmission laws, including BSA and MTA. With regard to the lawsuits against Sterlingov in particular, the case shows yet another example of how cryptocurrency, once widely regarded as a powerful instrument for anonymous and untraceable transactions, has often turned out to be the whole opposite.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought on your particular situation.


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About Ethel Nester

Ethel Nester

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