BTC-e, Money Laundering and Rising Enforcement pressure on digital currency exchanges

A Russian national and key figure behind the BTC-e crypto-currency exchange was arrested in Greece after US federal prosecutors unsealed an indictment covering multiple regulatory and money laundering offences that allegedly allowed the exchange to launder billions of dollars in crypto-currency over 6 years.

The unsealed (but redacted) indictment is available here:

Vinnik Superseding Indictment Redacted 0 by CoinDesk on Scribd

Here are some important points that I’ve extracted for anyone running an a digital currency exchange:-

  1. ensure all customers provide enough information to satisfy customer due diligence rules under money laundering laws in the jurisdiction in which you operate
  2. don’t ‘waive’ the rules for some customers or allow the opening of accounts without this requisite info.
  3. don’t be afraid to fire customers who make unusually large, complex or otherwise suspiciously structured transactions and cannot explain clearly the reasons behind them or the source of the funds.
  4. regulators quickly become suspicious if you use multiple shell companies and complicated wire routing for the transfer of funds to and from your exchange. It’s even worse if those companies are registered on small Indian Ocean islands (you know who you are, Mauritius and Seychelles).
  5. the stuff that’s said on exchange forums can and will be used against you in a court of law: so if people are planning or discussing crimes on your forum- moderate it appropriately or shut it down!