FinCEN

Crypto-related enforcement actions by US states rose sharply in 2022: Report

There were almost twice as many state actions as federal in 2022, although both the feds and the states broke previous record by significant margins.

The number of crypto-related enforcement actions in the United States grew notably in 2022, according to a survey released by blockchain risk monitoring firm Solidus Labs. Both federal and state regulators broke records for enforcement actions.

There were 58 actions carried out by the four main U.S. federal agencies engaged in crypto enforcement in 2022. That number surpassed the previous high of 40 recorded in 2020 and rose 65% over the 38 actions seen in 2021.

The agencies – the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC) – all broke their previous records, with the exception of FinCEN, which had one action in 2022 compared to four in other years since 2013.

The SEC led the regulators in 2022 with 30 actions, nine of which were civil suits filed after arrests were made, some of which are ongoing. They netted $242 million in penalties. The report noted:

“The SEC announced 30 crypto-related enforcement actions in 2022, more than any other regulator we identified worldwide.”

The CFTC carried out 19 actions, up 73% from 11 in 2021. Those cases represented 21.95% of the agency’s activity, which was also a record and compares to 4.76% of crypto’s share in SEC cases.

OFAC’s eight cases is up from its previous record of five, with its sanctioning of Tornado Cash being its biggest case. The report noted that activity on Tornado Cash has fallen precipitously since OFAC’s action, in spite of industry pushback.

Related: 350 new ‘scam tokens’ were created every day this year: Solidus Labs

The report also noted that FinCEN activity is likely to pick up this year after the tightening of sanctions on Russia and strengthening of the Treasury Department’s whistleblower program. So far, all crypto-related FinCEN actions have been for violations of the Bank Secrecy Act.

“States have been off to the races,” the report said. States had a combined total of 112 actions in 2022, up from 89 in 2021 and 52 in 2020. Sixteen states made their first-ever action and eight broke their records. An additional 11 states tied their previous enforcement records and in 15 states the record was “not broken.” The report did not say explicitly whether all 50 states took action.

Texas and Alabama regulators were the most active, with six cases each. The Texas State Securities Board, which produced the first-ever crypto-related state enforcement order in 2017, is the all-time state leader with 59 actions, “quadruple that of the next-most active state regulators, the Colorado Division of Securities and Washington State Department of Financial Institutions.”

FinCEN lists Binance among the top Bitcoin counterparties of Bitzlato

FinCEN placed Binance next to the darknet market Hydra as a major counterparty receiving Bitcoin from Bitzlato.

The United States Financial Crimes Enforcement Network (FinCEN) — a bureau of the Treasury Department — has argued that Binance is linked to the illegal cryptocurrency platform Bitzlato.

In an order published on Jan. 18, FinCEN stated that the Binance cryptocurrency exchange was among the “top three receiving counterparties” of Bitzlato in terms of Bitcoin (BTC) transactions.

According to the authority, Binance was among the biggest counterparties that received Bitcoin from Bitzlato between May 2018 and September 2022. Other counterparties included Russia-connected darknet market Hydra and the alleged Russia-based Ponzi scheme known as “Finiko,” FinCEN noted.

On the other hand, FinCEN did not mention Binance as the top three sending counterparties in the order. According to the document, the biggest Bitcoin senders to Bitzlato between May 2018 and September 2022 were Hydra, Finland-based exchange LocalBitcoins and Finiko.

“Approximately two-thirds of Bitzlato’s top receiving and sending counterparties are associated with darknet markets or scams,” FinCEN wrote in the order. The agency noted that between 2019 and 2021, Bitzlato received crypto worth $206 million from darknet markets, $224 million from scams, and $9 million from ransomware attackers.

The news comes amid multiple U.S. authorities initiating major enforcement action against Bitzlato, accusing the firm of money laundering and allegedly facilitating circumvention of sanctions against Russia. As part of the case against Bitzlato, the Federal Bureau of Investigation arrested Bitzlato founder Anatoly Legkodymov on Jan. 17 in Miami.

Unlike major crypto exchanges like Binance or Coinbase, Bitzlato was a little-known cryptocurrency service. Founded in 2016, the platform reportedly has an office in the Federation Tower skyscraper in Moscow, where it accepted transactions of $100,000 or more.

The alleged involvement of Binance in Bitzlato’s case raises some concerns about the exchange’s operations and potential ties with Russia. As previously reported, Binance was among exchanges that opted to continue to serve non-sanctioned Russians after the European Union adopted the eighth sanctions package against the country.

Related: Binance registers as virtual asset service provider in Poland

Addressing Cointelegraph’s request for comment regarding FinCEN’s reference to Binance in Bitzlato’s case, a spokesperson for Binance said that the firm has been collaborating with regulators, stating:

“Binance is pleased to have provided substantial assistance to international law enforcement partners in support of this investigation. This exemplifies Binance’s commitment to working collaboratively with law enforcement partners worldwide.“

FinCEN did not immediately respond to Cointelegraph’s request for comment.

‘Twitter will do lots of dumb things’ in the coming months: Elon Musk

Twitter’s new owner says they’ll be throwing a heap of new ideas at the platform over the coming months.

Twitter’s new owner Elon Musk has asked his followers to prepare for “lots of dumb things in [the] coming months” on his newly acquired social media platform.

The Tesla CEO, now sole director of Twitter, has already made a swathe of changes to the platform since taking over the company on Oct. 27 and has now pledged to continue the work over the coming months, stating:

“Please note that Twitter will do lots of dumb things in coming months. We will keep what works & change what doesn’t,” he wrote in a Twitter post on Nov. 9.

Since taking over Twitter, Musk has already implemented several changes to the platform, including an $8 monthly subscription model launched on Nov. 9 that allows users to gain a blue verified checkmark, which grants them higher priority in tweets and replies than unverified users and features fewer ads.

Other changes to the platform include handing out permanent suspensions for handles that engage in impersonation without specifying “parody,” temporary loss of verified checkmark when a name change occurs, and its community-based misinformation project being rebranded from Birdwatch to Community Notes, while some users have reported a new shopping tab on the platform. 

In a Twitter Spaces Q&A session held on Nov. 9, Musk was asked what he thought about Twitter ads, to which Musk replied that, “We are terrible at relevance,” before adding:

“One of the ways we’re going to address that is by integrating ads into recommended tweets”

Musk also suggested in a Nov. 9 tweet that the “official” label would be killed after the launch of Twitter blue, before a Twitter employee clarified that the official label would only be given to government and commercial entities at this stage, adding in a later tweet:

“There are no sacred cows in product at Twitter anymore. Elon is willing to try lots of things — many will fail, some will succeed. The goal is to find the right mix of successful changes to ensure the long-term health and growth of the business.”

Musk has also proposed changes such as adding long text to tweets, improving the search function, the formation of a Content Moderation Council, bringing back short-form videos like Vines, adding paid direct messages allowing users to send private messages to high-profile users and ultimately hoping to transform the app into an “everything app.”

Related: Here’s why Binance’s CZ invested in Twitter following Elon Musk acquisition

It is also understood that the company has filed registration paperwork with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), which would allow it to process payments.

Musk outlined in the Twitter Spaces Q&A a vision of Twitter allowing users’ bank accounts to be connected to their profile before looking into facilitating other types of transfers and incorporating debit cards.

Upon finalizing the acquisition deal of Twitter, Musk has also made other changes to the company including the firing of upper management, booting out the board of directors, taking the company private and reportedly laying off as much as 50% of the company’s workforce.

Bitcoiner sentenced to federal prison warns users involved in OTC trading

“I’m just a regular Bitcoiner caught in the crosshairs,” claimed Mark Alexander Hopkins, also known as Rizzn, prior to serving his prison sentence.

Mark Alexander Hopkins, also known by the moniker Doctor Bitcoin or their handle Rizzn, has claimed that “transacting Bitcoin p2p is a federal crime” after announcing the sentence in their case to social media followers.

In a Sunday Twitter thread, Hopkins said that they were facing between 6-15 months at a federal correctional institution in Texas following a guilty plea for allegedly operating a crypto business without the necessary licensing. According to Rizzn, the United States Financial Crimes Enforcement Network, or FinCEN, used a 2019 interpretation of a law — 18 U.S.C. 1960 — originally enacted in 1992 to charge them with illegally operating a “money transmitting business.”

“This means that any time anyone with a crypto trades p2p (i.e., not with an exchange), they’re legally liable under this statute as it’s currently interpreted,” said Rizzn. “In practice, this is a catch-all law. I was originally suspected of being a kingpin in this particular scam, and when it was clear I was not, they were able to easily build a case that I had not registered federally before selling my bitcoins.”

The Bitcoiner, who said they joined the space in 2011, claimed that they were “one of hundreds of thousands of OTC traders” in 2019 amid a bad actor involved in an illegal lottery scheme using the trading group to launder funds with Bitcoin (BTC) purchases. Rizzn claimed to facilitate fiat-to-crypto exchanges on behalf of the party — who they hinted did not know was being investigated for a crime — resulted in being targeted by U.S. authorities:

“I cooperated fully with the 15 armed FBI agents who raided my home in Oct of 2019. I wasn’t able to find a crypto-fluent attorney after I was raided in 2020 […] I was told that if I plead to the 18 USC 1960 charge, any actions against my family would be dropped.”

According to Rizzn, they were “fully registered as a Bitcoin seller with FinCEN” but the Justice Department still targeted them based on their involvement in the illicit transactions. Acting U.S. Attorney Prerak Shah said at the time that Hopkins “ignored federal law and allowed fraudsters to use Bitcoin to operate under the radar of law enforcement” and did not take steps to verify the source of the funds involved in the transactions — between $550,000 and $1.5 million at the time. Rizzn has disputed many of the Justice Department’s claims, saying that they performed the proper Know Your Customer and Anti-Money Laundering practices.

“Here’s the thing that makes this important to pay attention to and resolve: I’m a nobody,” said Rizzn:

“I’m not Ross. I wasn’t on the dark web. I’m not Edward. I didn’t work for the NSA. I’m not Julian. I didn’t break national secrets. I’m just a regular Bitcoiner caught in the crosshairs.”

Prior to entering prison, the Bitcoiner called for regulatory clarity between the state and federal levels in the U.S., seemingly in an effort to ensure other crypto users do not face the same enforcement action.

“In much the same way that the feds and states differ on cannabis usage, the Feds and the states are at odds about p2p crypto usage,” said Rizzn. “Delaware, Texas and Wyoming are actively promoting p2p crypto usage in such a way that they’re manufacturing hundreds of thousands of felons (like me!) every day. There needs to be a) clarity on how to be as compliant as possible and b) ideally a rollback of the overreaching guidance in the first place.”

Related: Central Bank of Russia tightens P2P transactions monitoring, including those in crypto

FinCEN leveled similar charges against a California resident in April 2019, alleging they wilfully violated money transmission laws while working as a P2P exchanger of crypto and fiat. However, the accused in that case faced only a $35,000 fine and was barred from similar financial activities — not prison time.

US expansion for Huobi a step closer after it secures a FinCEN license

It says users in the United States can expect digital asset services to come in the future.

A subsidiary of the Huobi cryptocurrency exchange called HBIT Inc has received its Money Services Business (MSB) license from the United States Financial Crimes Enforcement Network (FinCEN).

The Seychelles based Huobi said on Tuesday that the license creates a foundation for it to carry out crypto-related business in the U.S. in the future, as part of its strategic goals of “globalization and compliance.” The exchange is a major player, with more than $1 billion in volume in the past 24 hours, according to CoinGecko.

Before the great crypto crackdown by Chinese authorities, most Huobi users came from China, but according to the latest figures from Statista, most users in February 2022 originated from Russia and Ukraine.

The MSB license allows Huobi’s subsidiary to transmit money and operate as a fiat currency exchange, a required step by U.S. regulators to ensure FinCEN can monitor financial crimes such as money laundering.

However, it does not allow it to provide crypto-exchange services — which would require a money transmitter license. It says in the future, it expects to provide U.S. users with a compliant digital asset service.

Huobi said its subsidiaries in Hong Kong have also received asset management and securities advising licenses from the country’s Securities and Futures Commission.

The subsidiaries are also in the process of applying for a license to provide automated trading services and securities trading to become a fully compliant crypto-exchange in Hong Kong.

Huobi has been on a streak of licensing wins.

On June 21, the exchange won licenses in New Zealand and the United Arab Emirates. The latter was an Innovation License which, while not a trading license, allows it to access the local tech industry and get special tax treatment.

At the time, Huobi Group chief financial officer Lily Zhang told Cointelegraph it plans to receive its license to offer its full suite of crypto exchange services under Dubai’s Virtual Assets Regulatory Authority (VARA).

It hasn’t been all good news though, with the exchange’s Thai license revoked on June 16 after it reportedly failed to comply with local regulations. There are also rumors of significant staff layoffs and that its founder might be looking to exit the business.

Hong Kong-based crypto reporter Colin Wu reported on June 28 that Huboi intended to lay off up to 30% of its staff, with a later update on Saturday reporting rumors that Huboi founder Li Lin is looking to sell his 50% stake.

Related: How crypto is attracting some institutional investors — Huobi Global sales head

The exchange reportedly lost around 30% of its revenue due to losing its Chinese based users due to the country’s restrictions on crypto trading.

To date, Huobi has not publicly responded to the speculation.