On Monday, October 19, the Financial Crimes Enforcement Network (FinCEN) announced a $60 million civil money penalty against Larry Dean Harmon, the founder, administrator and primary operator of unlicensed convertible virtual currency “mixers” for alleged violations of the Bank Secrecy Act (BSA) and its implementing regulations. Mr. Harmon allegedly operated and administered two separate convertible currencies from 2014 to 2020 without completing required registration with FinCEN.
FinCEN issued guidance in 2013 clarifying that an administrator or exchanger is a money services business (MSB) under FinCEN’s regulations, unless a specific exception applies. The 2013 FinCEN guidance specifically addresses convertible virtual currencies and provides that “[a]ccepting and transmitting anything of value that substitutes for currency makes a person a money transmitter under the regulations implementing the BSA.” MSBs have the obligation to develop, implement and maintain robust anti-money laundering (AML) compliance programs and must meet all of FinCEN’s corresponding reporting and recordkeeping requirements.
Doing business as Helix and Coin Ninja, FinCen alleges Mr. Harmon operated as an exchanger and an administrator of the convertible virtual currencies by accepting and transmitting bitcoin through a variety of means. FinCEN specifically described Helix and Coin Ninja as “mixers” (or “tumblers”), which are cryptocurrency services that mix different streams of potentially identifiable cryptocurrency and “mix” the currencies so as to enhance the anonymity of the virtual currency transactions, thus making the transactions harder to trace.
FinCEN’s investigation focused on Mr. Harmon’s willful violation of the BSA registration, program, and reporting requirements by failing to register as an MSB, failing to implement and maintain an effective AML program, and failing to report suspicious activities. As outlined in the assessment, “FinCEN may impose a civil money penalty of $57,317 for each willful violation of AML program requirements… [and the] BSA states that a ‘separate violation’ of the requirement to establish and implement an effective AML program occurs ‘for each day the violation continues.’” The civil money penalty specifically found that Helix did not expend any resources on compliance with the BSA and its implementing regulations in addition to the violations being of a “serious and egregious nature.” Mr. Harmon separately faces federal criminal charges of conspiracy to launder monetary instruments and the operation of an unlicensed money transmitting business.
Convertible virtual currency operators and administrators have an obligation to collect sufficient information to comply with the BSA and its implementing regulations. FinCEN determined that Mr. Harmon “actively deleted even the minimal customer information he did collect.” FinCEN coordinated with the U.S. Department of Justice, the U.S. Attorney’s Office, the FBI, and the IRS Criminal Investigation division in its investigation that revealed Mr. Harmon allegedly engaged in transactions with narcotics traffickers, counterfeiters and fraudsters, as well as other criminals.
While the charges indicate that Mr. Harmon’s alleged activities appear to rise to the level of criminal conduct, FinCEN’s announcement is a reminder that legitimate convertible virtual currency operators, as well as financial institutions engaged in convertible virtual currency activities, must establish robust AML programs and continue to meet all reporting and recordkeeping requirements.