The Department of Justice was looking into whether the now-bankrupt FTX cryptocurrency exchange had knowingly sold cryptocurrencies to Americans despite claiming it did not.
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Federal prosecutors in New York were already investigating FTX before the once-No. 2 crypto exchange blew up — but not for allegedly misappropriating customers' funds to bail out its owner's collapsing cryptocurrency trading business.
Damian Williams, the U.S. Attorney for the Southern District of New York — which covers Wall Street — was looking into whether FTX had violated the Bank Secrecy Act, Bloomberg reported.
The report, citing anonymous sources, said Williams' office was looking into whether FTX and its U.S. sister firm FTX US had violated the anti-money-laundering (AML) provisions of the Act which, among other things, requires financial institutions to perform Know Your Customer checks in order to prevent money laundering and the financing of terrorism.
More specifically, the prosecutors were reportedly looking into whether Bahamas-based FTX had knowingly served American customers. The three-year-old exchange barred American customers, but federal prosecutors and other regulators have in the past accused other exchanges of doing too little to ensure no American customers had access to their exchanges.
In May, Arthur Hayes, co-founder and former CEO of the Seychelles-based BitMEX crypto derivatives exchange, was sentenced to six months house arrest and two years probation for that type of violation. At the time, Williams had said:
"While building a cryptocurrency platform that profited him millions of dollars, Arthur Hayes willfully defied U.S. law that requires businesses to do their part to help in preventing crime and corruption. He intentionally failed to implement and maintain even basic anti-money laundering policies, which allowed BitMEX to operate as a platform in the shadows of the financial markets."
That covered the period from September 2015 to September 2020.
"As a result of its willful failure to implement AML and KYC programs, BitMEX was in effect a money laundering platform," the DoJ said in its release. "For example, in May 2018, Hayes was notified of allegations that BitMEX was being used to launder the proceeds of a cryptocurrency hack. Neither Hayes nor the company filed a suspicious activity report thereafter, nor did they implement an AML or KYC program in response."
Beyond that, Hayes and two co-founders, Benjamin Delo and Samuel Reed, each paid $10 million civil penalties in May to settle a lawsuit by the Commodity Futures Trading Commission (CFTC) that they violated the Commodity Exchange Act.
FTX handled both cryptocurrency spot trading and derivatives trading.
