A Belarusian and Cypriot national have been accused of operating an unlicensed cryptocurrency exchange, BTC-e, and engaging in a money laundering conspiracy within the United States, as per the Department of Justice (DOJ).
Aliaksandr Klimenka and Alexander Vinnik were purportedly in control of the digital currency exchange BTC-e, along with others, from 2011 to July 2017. While BTC-e primarily targeted the Russian market, it had servers located in the US. The report alleges that the exchange enabled transactions for cybercriminals worldwide, facilitating a wide range of crimes, including computer hacking, fraud, identity theft, tax refund fraud schemes, public corruption, and drug trafficking.
As of now, Klimenka is in custody, having been arrested in Latvia in December 2023, and he made an appearance in San Francisco recently. If found guilty, Klimenka could potentially face a maximum prison sentence of 25 years.
The Justice Department’s Office of International Affairs revealed that it collaborated closely with the Latvian government to secure Klimenka’s arrest. Allegedly, Klimenka also had control over the technology firm Soft-FX and the financial firm FX Open.
In May 2023, CNN reported that lawyers representing Alexander Vinnik, the Russian money launderer, were actively advocating for his inclusion in a potential prisoner exchange between the US and Russia. This exchange would involve detained Wall Street Journal reporter Evan Gershkovich. Vinnik had previously been extradited from France to California in 2022.
No KYC Verification in Place
The Department of Justice (DOJ) stated, “Despite conducting significant business in the United States, BTC-e purportedly operated without registering as a money services business with the U.S. Department of the Treasury. It lacked essential components, including an anti-money laundering framework, a system for proper ‘know your customer’ or ‘KYC’ verification, and an anti-money laundering program, all of which are mandated by federal law.”
In the U.S. cryptocurrency industry, KYC checks involve the process of confirming a customer’s identity to ensure compliance with regulatory requirements. Typically, this entails providing personal information such as name, address, and identification documents like a driver’s license or passport when creating an account on a cryptocurrency exchange or platform. KYC serves as a critical safeguard against money laundering, fraud, and other illicit activities within the cryptocurrency space.
US Cracking Down on Crypto Exchanges
Recently, U.S. authorities have intensified their efforts to combat illicit activities within cryptocurrency markets, particularly focusing on exchanges operating in North America that do not adhere to legal requirements.
Notably, the U.S. Securities and Exchange Commission (SEC) has accused cryptocurrency exchanges such as Binance and Coinbase of various violations, including offering unregistered securities to their customers. Coinbase’s Chief Legal Officer, Paul Grewal, has openly criticized the U.S. Government Accountability Office (GAO) following its recent report, which described cryptocurrencies as a means for foreign entities to evade sanctions. Legal disputes between both exchanges and the SEC are currently ongoing.
There is growing concern that the strong push by U.S. lawmakers for stringent cryptocurrency regulations may lead businesses in the industry to move their operations overseas. This concern is highlighted in a 2024 market outlook report from ETP provider 21Shares, as reported by Julia Smith from Cryptonews.