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February 27, 2020

  • OCC issues first-ever crypto-related enforcement action against a US bank
  • Financial Action Task Force (FATF) invites CipherTrace CEO to present update on Travel Rule compliance solution
  • U.S. Treasury Secretary warns of “significant” regulation coming for cryptocurrencies
  • BlockTV interviews CipherTrace CEO on $4.5 billion of crypto crime, rising VA risks for banks, and other findings in recent Crypto AML Report
  • Coronavirus pushes China to burn or quarantine fiat currency from high-risk areas
  • New report details how cryptocurrency is being used by organized cybercriminals in Latin America
  • DOJ charges Ohio man in $300 million crypto-laundering scheme

OCC Hits New York Based Bank with First-Ever Enforcement Action for Lack of Crypto AML Compliance

A recent cease and desist order issued by the Office of the Comptroller of the Currency (OCC) constitutes the first-ever enforcement action against a U.S.-based bank. The OCC alleged that for more than two years M.Y. Safra Bank (MYSB), which is headquartered in New York City, failed to fully vet its cryptocurrency customers and transactions in high-risk jurisdictions.

The order was wholly focused on deficient anti-money laundering (AML) practices for compliance and monitoring of the bank’s Digital Asset Customers (DACs). The lack of AML controls cited include opening accounts for Digital Asset Customers without sufficient customer due diligence (CDD) and a lack of adequate monitoring and investigating of suspicious transactions linked to these customers. The entities included cryptocurrency exchanges, bitcoin ATM operators, ICOs, incubators, and virtual OTCs as well as other crypto-related businesses.

According to the order, these deficient policies and procedures prevented MYSB from effectively identifying and investigating suspicious activity linked to crypto-related accounts. This lack of visibility into risky transactions also meant the bank could not send suspicious activity reports (SARs) to the Financial Crimes Enforcement Network (FinCEN).

Under the enforcement action, MYSB must now implement a number of measures to update its AML and Bank Secrecy Act (BSA) compliance programs. While no monetary penalties were assessed in this first-ever crypto-related enforcement action against a bank, it sends a strong message to the financial service industry. MYSB will face increased business costs and other burdens related to ensuring their compliance programs adequately address all corrective actions mandated by the enforcement action.

Why it Matters: If the action taken against MYSB is any indication, bank regulators such as the OCC, Federal Reserve Bank, and the FDIC have already begun to scrutinize banks’ cryptocurrency exposure during examinations. It also demonstrates that these regulators expect banks to be able to identify and properly risk-rate consumer and commercial customers who buy, sell, exchange or administer cryptocurrency.

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FATF Invites CipherTrace CEO to Present Progress on Travel Rule Solution

CipherTrace CEO Dave Jevans was invited by the Financial Action Task Force (FATF) to give a presentation in Paris on TRISA—the open source Travel Rule compliance solution being broadly adopted by the industry. As the global money laundering and terrorism financing watchdog, the FATF sets guidelines for its members, which includes the G20 and other countries. Last June, it issued updated guidance to include a funds Travel Rule and gave the G20 nations one year to codify the guidance. Basically, the new guidance obliges VASPs such as cryptocurrency exchanges do two things: 1) to transmit sender and receiver information for every virtual asset transaction over a given threshold, and 2) to know the VASP on the other end of a transaction. However, doing those two things is easier put into law than done.

CipherTrace founded the Travel Rule Information Sharing Architecture (TRISA) movement and helped to develop the underlying open source and distributed technology. As the representative of one of the only private companies invited to a February 21 meeting in Paris, Mr. Jevans updated FATF representatives on the initiative’s progress. He explained that not only does TRISA offer the most viable solution to Travel Rule compliance challenges, but it also interoperates with related messaging and authentication standards. The initiative already has a number of key industry players onboard; it has a mature organization with a board and a steering committee; and it is progressing on a timeline designed to meet the FATF’s June 16, 2020 deadline.

To learn more about TRISA, or to join the initiative, visit

Treasury Secretary’s Senate Testimony Includes Ominous Warning of Significant New Rules for Crypto Assets

In recent testimony on Capitol Hill, U.S. Treasury Secretary Steven Mnuchin warned that the Treasury’s Financial Crimes Enforcement Network (FinCEN) is preparing to unveil significant new rules governing cryptocurrencies. “We want to make sure that technology moves forward but, on the other hand, we want to make sure that cryptocurrencies aren’t used for the equivalent of old Swiss secret number bank accounts,” Mnuchin said.

“We will be rolling out new regulations to be very clear on greater transparency so that law enforcement can see where the money is going and that this isn’t used for money laundering,” he added.

Senator Maggie Hassan (D-N.H.) asked Mnuchin for details on the Treasury’s proposed budget increase for monitoring suspicious cryptocurrency transactions and prosecuting terrorists and other criminal organizations financing illicit activities with cryptocurrency. He responded that his department is spending substantial time on the issue of cryptocurrencies and digital payment systems, and “you’ll be seeing a lot of work coming out very quickly.”

Why It Matters: Many in the cryptocurrency community were surprised by the revelation that the U.S. Treasury has “significant” new rules for crypto in the works.

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BlockTV Sits Down with CipherTrace CEO Dave Jevans to Discuss All Things Crypto

Last week, BlockTV interviewed CipherTrace CEO Dave Jevans regarding research findings in the recently released CipherTrace Q4 2019 Cryptocurrency Anti-Money Laundering report. Mr. Jevans explained that while $4.5 billion in total crypto asset thefts may have been an eye-popping number, the industry actually seems to be getting safer. Most of the thefts came from insiders at exchanges making off with assets or elaborate Ponzi schemes where CEOs have, in some cases, disappeared or mysteriously died. This suggests that exchanges are getting better at things like managing operational security cold storage—unlike in 2018 where we saw some massive exchange hacks.

Jevans also touched on risks such as SIM-Swapping and how cryptocurrency users can protect themselves from such crimes. He was also asked about liability risks financial institutions face in light of CipherTrace research that revealed the typical U.S. bank processes $2 billion in cryptocurrency transactions annually. He suggested banks are “going to get a lot more liable shortly” because regulations are coming into place that will require them to understand how much crypto they are processing. They will have to watch their wire transfer, ACH, and credit card network transactions, and understand if there are cryptocurrencies attached to them and if the entity involved is legitimate or in the right region. For example, a bank doesn’t want to be involved with transactions to and from entities in sanctioned countries. When asked about the perception that banks don’t want to have cryptocurrency companies as customers, he responded that it’s actually the opposite case, with some banking as many as a thousand crypto companies. It’s very lucrative and there are many great crypto companies out there, and “the big banks want a piece of that action.”

Jevans also gave a broad-ranging overview of the current regulatory environment and its impact on the crypto economy. He said it’s generally positive but regulators need to be educated. For example, cryptocurrency has legitimate and innovative uses such as efficiently moving money around the world, and any criminal use is dwarfed by these uses. He also discussed observations from his recent Paris meetings with the FATF and his sense that regulators don’t want to stop cryptocurrencies.

Watch the full interview here:

Fiat Fear: China Burns or Disinfects and Quarantines Paper Money to Prevent Spread of Covid-19

Medical scientists have found the novel coronavirus that has wreaked havoc in China can live up to nine days on surfaces. That is a long window for infection compared to an approximately 48-hour maximum for common flu viruses. So as China widens its measures to contain the spread of the disease, the Guangzhou branch of China’s central bank has begun destroying or disinfecting banknotes with ultraviolet light and high temperatures, and then quarantining the cash for 14 days.

Why It Matters: Could a prolonged Covid-19 pandemic push virtual currencies to the forefront as an alternative to fiat banknotes in China and elsewhere? With pioneering efforts by companies such as Alibaba and Tencent, China is already at the forefront of mobile and digital payments.

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Latin American Organized Crime Gangs Go Big on Cybercrime

A new research report by IntSights reveals cyber-criminals in Central and South America are targeting banks, hospitality services and retail businesses to steal their credentials and financial assets. “The Dark Side of Latin America (LATAM)” explores the unique threat landscape in the region, which is defined by geopolitical dynamics, government corruption, organized crime, and persistent attacks on industries such as retail and financial services.

IntSights collaborated with CipherTrace to address emerging threats and region-specific cybersecurity concerns, uncover the ties between local poverty and increases in cybercrime, reveal the most popular forums and markets LATAM threat actors work in, and expose how cryptocurrency is used by organized crime groups and hackers alike.

Download the full report here:

“Helix” Tumbler Bust Reveals $300 Million Bitcoin Laundering Scheme Linked to Notorious Dark Market

In one of the most significant takedowns of a cryptocurrency-anonymizing service, Federal law enforcement authorities arrested Larry Dean Harmon of Akron, Ohio, for money laundering. Harmon’s Helix “tumbling” operation moved approximately $300 million in bitcoin. The Department of Justice alleged that Helix had partnered with now-defunct underground marketplace AlphaBay, which was known for drug dealing and other illegal activities until it was shut down in 2017 by law enforcement.

According to the indictment, Helix made it possible for customers to send bitcoin in a manner that was designed to conceal the transaction and the owner of the bitcoin. Think of a Tumbler or “mixer” as being analogous to blender into which you put various types of fruit to make a smoothie. Once the blades spin it is virtually impossible to distinguish the banana from the strawberry. Likewise, once the anonymizing service mixes clean crypto with cryptocurrency that was stolen or used for criminal activities such as selling drugs, it becomes very difficult to trace the bad funds back to the source. “The brazenness with which Helix operated should be the most appalling aspect of this operation to everyday citizens,” said Don Fort, chief of the IRS Criminal Investigation division. “There are bad actors and then there are criminals who facilitate hundreds of other crimes. The sole purpose of Harmon’s operation was to conceal criminal transactions from law enforcement on the Darknet, and because of our growing expertise in this area, he could not make good on that promise.”

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