As the world of crypto has grown and matured it has caught the attention of and is gradually coming under the control of government regulators. One of the concerns about cryptocurrencies is that they operate outside of traditional financial circles and can be used to facilitate money laundering, terrorism, and tax evasion. In this regard a record fine has just been imposed on the Bittrex crypto exchange of $24 million by the US Treasury Department. These folks let customers from Sudan, Syria, Cuba, Iran, and Russian-controlled Crimea to trade on their exchange.
Crypto and National Security Concerns
The US government via the Treasury Department concerns itself with illicit actions by anyone across the globe. Specifically, they pay close attention to transactions involving countries whose policies and actions are commonly at odds with US national interests. The New York Times reports on how Bittrex received the largest fine ever for allowing illegal crypto trading. US sanctions prohibit US based exchanges from dealing with customers in Crimea, Syria, Sudan, Iran, or Cuba. It is the responsibility of the exchange to keep track of such matters. By not doing so the exchange subjected itself to a fine of $24 million and another fine of $5 million related to not following anti-money laundering rules.
How Bittrex Got in Trouble with the Department of the Treasury
In order to comply with Treasury Department rules a crypto exchange needs to know where their customers are operating out of which can be a problem if people use virtual private networks and other means to disguise their true locations. Thus, crypto exchanges need a sufficient number of employees with sufficient training to do this job. An issue with Bittrex was that they only had two such employees doing the job from 2014 to 2017 when they allowed customers from sanctioned countries to carry out as many as 116,421 transactions worth as much as $263 million. Unlike with Tornado Cash which willfully aided bad actors in the crypto realm, Bittrex got in trouble because they neglected to provide sufficient training for an insufficient number of employees dedicated to the task of knowing who and where their customers were.
Do US Rules for Crypto Exchanges Affect Your Crypto Trading or Assets?
Unless you are directly invested in a crypto exchange a fine such as levied on Bittrex should not affect your trading or assets. There could be, however, one problem and that is the exchange dips into your assets to pay its fines or in some way uses your assets in illegal activities. On a broader scale there is the risk of a total shutdown of crypto assets in the US as suggested by some in the White House as we noted in our article about the Biden warning to Bitcoin. This is not likely to happen but crypto investors and traders should be aware of substantially more regulation of these arenas and dispel themselves of the notion that crypto will go up forever contrary to what the HODL strategy preaches. It would appear that many in the HODL realm are currently either bailing out or actively engaged in wash trading in attempts to drive the market up.
Crypto Exchanges Subject to US Sanction Rules – SlideShare Version