Two BitMEX executives plead guilty to violating Bank Secrecy Act

On February 24, 2022, the founders of Bitcoin Mercantile Exchange (“BitMEX”) pleaded guilty to violating the Bank Secrecy Act.  The two men, Arthur Hayes and Benjamin Delo, were indicted on September 21, 2020 in the US District Court for the Southern District of New York.

The indictment charged Hayes and Delo, along with Samuel Reed and Gregory Dwyer, of willfully failing to establish, implement, and maintain an adequate anti-money laundering program at BitMEX, which they co-founded in 2014 as an online trading platform for futures contracts and derivative products tied to the value of cryptocurrencies.  The indictment alleges that BitMEX, while registered in the Seychelles, nevertheless actively solicits and serves customers in the United States, and is, by virtue of its activities, a futures commission merchant within the meaning of the Commodity Exchange Act; as such, BitMEX is required to register with the US Commodity and Futures Trading Commission, and to comply with the Bank Secrecy Act.  The Bank Secrecy Act requires futures commission merchants, among others, to establish anti-money laundering programs that include “policies, procedures and internal controls reasonably designed to prevent the financial institution from being used for money laundering…”  The Act requires that suspicious activity reports be filed for certain transactions; it also requires covered financial institutions to implement Know Your Customer programs that include risk-based procedures for verifying the identity of their customers.  The indictment alleges that Hayes, Delo, Reed and Dwyer, as owners and executives of BitMEX, deliberately failed to implement BSA-compliant programs, and registered the company in the Seychelles in order to evade BSA requirements while conducting BitMEX operations, during a portion of the relevant period, from an office in New York.  The indictment alleges that these failures caused BitMEX to be used as a money laundering platform.

Of the four individual defendants, only Hayes and Delo have pleaded guilty.  They are scheduled to be sentenced in May and June 2022, respectively.  Reed moved to dismiss the indictment on the grounds that he lacked fair notice that the charged conduct was unlawful, asserting that he did not know that BitMEX could be considered a futures commission merchant under the Commodity Exchange Act, and did not know that in consequence, BitMEX was required to register with the CFTC and comply with the Bank Secrecy Act.  Reed’s motion was denied on February 28, 2022.

Separately, in August 2021 the five companies that operated BitMEX agreed to the entry of an order permanently enjoining them from future violations, and requiring the payment of a $100 million civil monetary penalty for failing to register as a swap execution facility, designated contract market or futures commission merchant, and for failure to comply with the Bank Secrecy Act.  The consent order resolved charges brought by the Commodity Futures Trading Commission, and applied to the five entities operating BitMEX, not the indicted individuals.

DOJ press release | Indictment

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