The United States Attorney's Office recently reported one guilty plea and another indictment involving cryptocurrency-related fraud. Last week, Jared Rice Sr., the founder of cryptocurrency bank AriseBank, pleaded guilty in a Texas district court to securities fraud, and admitted to defrauding investors out of $4.2 million by selling AriseCoin tokens and falsely promising customers they would receive Visa credit cards and FDIC accounts – neither of which ever existed. Under the plea agreement (which still needs approval by the presiding judge), Rice would serve five years in prison. This follows a prior settlement with the SEC in which he paid nearly $3 million. Earlier this week in New York, Patrick McDonnell, aka "Jason Flack," was indicted for defrauding investors who paid his company, CabbageTech, for cryptocurrency advice and strategies that they never received. Instead, McDonnell allegedly sent them false balance statements and stole their money for his personal use. He faces a maximum sentence of 20 years' imprisonment.
The Financial Action Task Force (FATF), a global organization created to prevent international money laundering, proposed a new Interpretive Note that would require cryptocurrency exchanges and other virtual asset service providers (VASPs) not only to conduct more rigorous know-your-customer diligence (KYC) on their immediate customers, but also to conduct KYC on the subsequent transferee of a customer's funds (i.e., the customer's beneficiary). The proposed Interpretive Note also would require VASPs to make their KYC information available to relevant authorities. A recent study conducted by Coinfirm lends support to the need for this type of regulation. The study concludes that 69 percent of the 216 cryptocurrency exchanges it reviewed lacked "complete and transparent" KYC procedures. The study singled out Binance as having a "high" regulatory risk based on exposure to anonymous activity. Binance has purportedly since taken steps to strengthen its compliance program ‒ earlier this week, it announced a partnership with IdentityMind, an analytics firm, to improve existing data protection and KYC measures.
Other stringent regulations were recently proposed abroad. Earlier this month, the Mexican central bank proposed regulations that critics assert will effectively ban cryptocurrency exchanges in Mexico. Among other rules, the regulations would deny cryptocurrency exchanges access to the local banking system and reduce transmission and custody capabilities. In Finland, parliament voted for an amendment to the Act on Detecting and Preventing Money Laundering and Terrorist Financing, which will bring all cryptocurrency-related services, such as wallet providers and exchanges, under anti-money laundering laws. And the Swiss Financial Market Supervisory Authority (FINMA) wound up enforcement proceedings against Envion AG, a cryptocurrency mining firm, and concluded that the firm, now in liquidation, unlawfully accepted funds during an ICO conducted without a proper license. FINMA said it will continue to take action against ICO business models that violate or circumvent supervisory law, including businesses that provide unclear provisions about their services or make "overly optimistic promises" related to their ICOs.
For more information, please check out the following links:
- AriseBank CEO Pleads Guilty to $4.2 Million Securities Fraud Involving ICO
- Staten Island Man Indicted for Defrauding Investors Trading in Virtual Currency
- Crypto Is About To Look More Like Your Bank
- FATF Public Statement – Mitigating Risks from Virtual Assets
- Most Crypto Exchanges Still Don't Have Clear KYC Policies: Report
- New regulation would effectively ban crypto exchanges in Mexico
- LocalBitcoins Announces Supervision by Financial Supervisory Authority of Finland
- FINMA ascertains illegal activity by Envion AG
- Swiss Regulator FINMA Concludes That Mining Firm Envion's ICO Was Unlawful
- Swiss financial watchdog finds $90 million initial coin offering illegal
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