First Bitcoin Mixer Penalized by FinCEN for Violating Anti-Money Laundering Laws

[Hydrogen]

WASHINGTON—The Financial Crimes Enforcement Network (FinCEN) has assessed a $60 million civil money penalty against Larry Dean Harmon, the founder, administrator, and primary operator of Helix and Coin Ninja, convertible virtual currency “mixers,” or “tumblers,” for violations of the Bank Secrecy Act (BSA) and its implementing regulations.  

Mr. Harmon operated Helix as an unregistered money services business (MSB) from 2014 to 2017 and Coin Ninja from 2017 to 2020.  Mr. Harmon is currently being prosecuted in the U.S. District Court for the District of Columbia on charges of conspiracy to launder monetary instruments and the operation of an unlicensed money transmitting business in connection with his operation of Helix.

As FinCEN clarified in its 2013 Guidance, exchangers and administrators of convertible virtual currency are money transmitters under the BSA.  As such, they have an obligation to register with FinCEN; to develop, implement, and maintain an anti-money laundering compliance program; and to meet all applicable reporting and recordkeeping requirements.  FinCEN issued further clarification in 2019 that financial institutions that are mixers and tumblers of convertible virtual currency must also meet these same requirements.

Mr. Harmon, doing business as Helix and Coin Ninja, operated as an exchanger of convertible virtual currencies by accepting and transmitting bitcoin through a variety of means.  From June 2014 through December 2017, Helix conducted over 1,225,000 transactions for its customers and was associated with virtual currency wallet addresses that sent or received over $311 million dollars.  FinCEN’s investigation has identified at least 356,000 bitcoin transactions through Helix.  Mr. Harmon operated Helix as a bitcoin mixer, or tumbler, and advertised its services in the darkest spaces of the internet as a way for customers to anonymously pay for things like drugs, guns, and child pornography.  Mr. Harmon subsequently founded, and acted as Chief Executive Officer of, Coin Ninja, which operated as an unregistered MSB and in the same manner as Helix.

FinCEN’s investigation revealed that Mr. Harmon willfully violated the BSA’s registration, program, and reporting requirements by failing to register as a MSB, failing to implement and maintain an effective anti-money laundering program, and failing to report suspicious activities.

Specifically, the investigation demonstrated that Mr. Harmon deliberately disregarded his obligations under the BSA and implemented practices that allowed Helix to circumvent the BSA’s requirements.  This included a failure to collect and verify customer names, addresses, and other identifiers on over 1.2 million transactions.  Harmon, operating through Helix, actively deleted even the minimal customer information he did collect.  The investigation revealed that Mr. Harmon engaged in transactions with narcotics traffickers, counterfeiters and fraudsters, as well as other criminals.  

FinCEN closely coordinated today’s action with the U.S. Department of Justice’s Computer Crimes and Intellectual Property Section, the U.S. Attorney’s Office for the District of Columbia, the Federal Bureau of Investigation, and the Internal Revenue Service Criminal Investigation division.

https://www.fincen.gov/news/news-releases/first-bitcoin-mixer-penalized-fincen-violating-anti-money-laundering-laws

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The following could be relevent aspects to the charges and investigation.

• Specifically, the investigation demonstrated that Mr. Harmon deliberately disregarded his obligations under the BSA and implemented practices that allowed Helix to circumvent the BSA’s requirements.  This included a failure to collect and verify customer names, addresses, and other identifiers on over 1.2 million transactions
• Mr. Harmon operated Helix as a bitcoin mixer, or tumbler, and advertised its services in the darkest spaces of the internet as a way for customers to anonymously pay for things like drugs, guns, and child pornography

Not many may be aware that proxies, vpns and tor nodes are often run by businesses with connections to intelligence agencies like the FBI, NSA, CIA. Its an industry standard for virtually anything IT related.

We may witness a transition period where bitcoin mixers gradually adopt KYC checks and engage in other practices to be more compliant with BSA.

Another point is, there could be bitcoin mixers running in countries which do not extradite, or conform to united states court rulings. These type of FINCEN rulings could hold no weight there. Rogue states like north korea could run as many bitcoin mixers as they desired and the USA probably couldn't do anything about it.

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[Poker Player]

Another point is, there could be bitcoin mixers running in countries which do not extradite, or conform to united states court rulings. These type of FINCEN rulings could hold no weight there. Rogue states like north korea could run as many bitcoin mixers as they desired and the USA probably couldn't do anything about it.

I was reading the article and thinking about that. Was Coin Ninja operating in the US? If I were the owner of a mixer, I would have it in a tax haven, as many crypto casinos do.

I don't understand that running a business like that, he didn't get good advice about the laws and what to do.

[jseverson]

Lol mixers are apparently money transmitters now:

An anonymizing services provider is a money transmitter under FinCEN regulations.  The added feature of concealing the source of the transaction does not change that person’s status under the BSA.  

Either way, the money laundering charge was probably because of the fact that they advertised the service to avoid law enforcement. It was the same case with BestMixer from last year:

Mixing Bitcoins that are obtained legally is not a crime but, other than the mathematical exercise, there no real benefit to it.

The legality changes when a mixing service advertises itself as a success method to avoid various anti-money laundering policies via anonymity. This is actively offering a money laundering service.

Mixers should probably fine for as long as they avoid that, and don't operate within the US so they don't get classified as money transmitters lol.

I was reading the article and thinking about that. Was Coin Ninja operating in the US? If I were the owner of a mixer, I would have it in a tax haven, as many crypto casinos do.

I'm not sure about Helix, but Coin Ninja definitely is:

https://www.crunchbase.com/organization/coin-ninja

I'm not even sure if Coin Ninja itself is a mixer or offers mixing services; the press release only explicitly stated that Helix was.

[fiulpro]

This was supposed to happen since bitcoin mixers are frowned upon by governments and at the same time mixers can be used by anyone as long as they are willing to pay the fee.

I do think that for safety purposes instead of imposing a fine on them , the mixers should be allowed to keep a list of addresses which can only be given to the police in case of absolute emergency. Because sooner or later , the government will for sure come for the mixers, they have to adapt and at the same time they have to take it in that they are being used for illegal activities and such.

So I believe we can reach a common ground , this wouldn't mean we are compromising privacy as long as the mixers keeps it strictly personal ... I do believe this would be needed for sure.

See this one wasn't the fault of the government since they did break the law ... Mixers needs to be extra careful.

[TGD]

This was supposed to happen since bitcoin mixers are frowned upon by governments and at the same time mixers can be used by anyone as long as they are willing to pay the fee.

I do think that for safety purposes instead of imposing a fine on them , the mixers should be allowed to keep a list of addresses which can only be given to the police in case of absolute emergency. Because sooner or later , the government will for sure come for the mixers, they have to adapt and at the same time they have to take it in that they are being used for illegal activities and such.

So I believe we can reach a common ground , this wouldn't mean we are compromising privacy as long as the mixers keeps it strictly personal ... I do believe this would be needed for sure.

See this one wasn't the fault of the government since they did break the law ... Mixers needs to be extra careful.

Mixers main purpose was for privacy protection, Mixer operator will kill there own business if they give there customer records on police once authority asks it. The reason why people keeps using mixer is because there's no string attached from the website once you used it. Meaning to say that the privacy of the user is always protected and this is the sole purpose of mixer.

The only way to avoid this kind of aggressive moves of the government is to prohibit all users that came from a certain country that has a strict law about this issue. Just my two cents.

[iv4n]

Anyone remembers Bitmixer.io?
The largest Bitcoin mixer is about to stop working, link to thread: https://bitcointalk.org/index.php?topic=2042470.0!
Very interesting thread for reading, and BITMIXER.IO (I don't remember was he the owner or just some moderator) said something interesting about this mixing! I agree with his words, bitcoin is a transparent system and its future is not in illegal activities (and mixing coins is in the gray area, in my humble opinion). The future of other mixer will depend on their ability to hide their servers location (or to make them out of reach for governments that find mixing illegal).

[coolcoinz]

From June 2014 through December 2017, Helix conducted over 1,225,000 transactions for its customers and was associated with virtual currency wallet addresses that sent or received over $311 million dollars.

How are they even able to measure that in USD? Between 2014 and 2017 the price of Bitcoin was jumping between as low as $100 and $20000 so it was 311 million when? In 2017? If so it was only 100 million in 2020... Also, if he was mixing cryptocurrency without even touching USD how can they call it money transmitting? Is RPG gold also money? It's classic abuse of power on their side if you ask me.

[Febo]

First Bitcoin Mixer Penalized by FinCEN for Violating Anti-Money Laundering Laws

I am not really sure if this was first one. I know many more were taken down, but yes maybe their trial was not finished yet.  But in general, any central point of failure will be abused from Government. Mixers are centralised and easily to be taken down. This was known in 2012 or 2013 or whenever first mixers showed up. Only way to achieve anonymity is by permissions decentralised ledger.

[Fortify]

Not many may be aware that proxies, vpns and tor nodes are often run by businesses with connections to intelligence agencies like the FBI, NSA, CIA. Its an industry standard for virtually anything IT related.

I think this point is a bit misleading. VPN's are regularly used to connect to a local network within a company and that type are very unlikely to be of interest to the intelligence agencies. Proxies can also be used for both good and bad. However TOR nodes tend to have a slightly different reputation and are not commonly used in general commercial enterprises. Grouping them all up is a bit unfair. In response to the main piece of news: these bitcoin mixers literally have no other purpose than to disguise the source of funds, which is pretty much the definition of money laundering and it was always going to end up badly for them. Kind of glad that law enforcement have finally taken some action, as it has been going on for years.

[deisik]

The future of other mixer will depend on their ability to hide their servers location (or to make them out of reach for governments that find mixing illegal)

There's another consideration

We don't how many mixers out there are actually honeypots, i.e. run by government agencies to catch criminals, which is virtually anyone using such a service (from a government point of view). Paradoxically, but governments may not be interested in shutting down this activity altogether, at least as long as they can control the best part of it. They can even turn a blind eye to some small-time criminals so as not to expose and betray themselves when going after big fish

[Johnyz]

First Bitcoin Mixer Penalized by FinCEN for Violating Anti-Money Laundering Laws

I am not really sure if this was first one. I know many more were taken down, but yes maybe their trial was not finished yet.  But in general, any central point of failure will be abused from Government. Mixers are centralised and easily to be taken down. This was known in 2012 or 2013 or whenever first mixers showed up. Only way to achieve anonymity is by permissions decentralised ledger.

Many stopped their operations due to this issues but this is the first time to hear a legal actions against a mixer. Well, Mixers is indeed against the AML because we don’t know the identity of the users and they can easily mixed their coins and leave no traces behind. I’m still proud that some mixers are still doing good right now, I just hope that they are not being used by the hackers and scammers.

[erikoy]

So meaning that there could be second or more bitcoin mixer could be penalized or punish by law because of money laundering?

What can we expect? This is the feature of bitcoin mixer is to only be use the service of mixing bitcoin parts and make it as a whole. If there is money laundering happen then it should not be the service to get punished instead those people who are using the service. So sad that there are really mistakes and misconception regarding services like this and now being accused in money laundering.

[stadus]

This means any mixer that are operating now are prone to getting penalized and shot down, regardless of what they offer or security they have, people can still use them for money laundering, that is for a simple reason that they don't require a KYC and all transactions are anonymous.

[samcrypto]

This means any mixer that are operating now are prone to getting penalized and shot down, regardless of what they offer or security they have, people can still use them for money laundering, that is for a simple reason that they don't require a KYC and all transactions are anonymous.

That’s also my thinking since they don’t have KYC and AML already knows that there’s a malicious transactions on-going in cryptomarket especially on Mixers, they are on big risk to face the same faith. It looks like, we really have no choice to remain anonymous, but that’s fine if you’re just a simple crypto users. Scammers, hackers, and money that is being used for terrorism is already happening on crypto space, AML is working for this one closely. I hope that those Mixers who are still in operation will come up into a solution for this one so they won’t ended up like this.

[exstasie]

We may witness a transition period where bitcoin mixers gradually adopt KYC checks and engage in other practices to be more compliant with BSA.

I doubt that. KYC would completely negate the purpose of using a mixer in the first place.

Another point is, there could be bitcoin mixers running in countries which do not extradite, or conform to united states court rulings. These type of FINCEN rulings could hold no weight there.

Exactly. This isn't the same situation as Bitcoin exchanges, who have serious risk exposure due to bank accounts. A competent mixer should be run from multiple non-extradition countries who generally don't cooperate with the US government (aka the world police). In the worst case scenario where clearnet domain and servers are seized, the service can be re-seeded within a matter of days.

I was reading the article and thinking about that. Was Coin Ninja operating in the US? If I were the owner of a mixer, I would have it in a tax haven, as many crypto casinos do.

My understanding is he was operating it from Ohio, and remained there long afterwards where he was eventually arrested. Not very smart.

[meanwords]

I guess it's inevitable. The authority really can't rule out the possibility of money laundering in mixers. I think the first mistake he made is that he wasn't able to hide his identity or his location. I mean, he's unregistered and his service is suspicious, it's not too long until they sniff him out.

This news might serve as a warning to mixer operators.

[davis196]

Not many may be aware that proxies, vpns and tor nodes are often run by businesses with connections to intelligence agencies like the FBI, NSA, CIA. Its an industry standard for virtually anything IT related.

This is true.However,the darkweb still exists...
I wonder why FBI,NSA,CIA didn't simply destroy the darkweb,since they control most of the Tor Nodes,proxies and they can request personal data from the VPN providers?Maybe spying the darkweb is better than destroying it?

We may witness a transition period where bitcoin mixers gradually adopt KYC checks and engage in other practices to be more compliant with BSA.

Another point is, there could be bitcoin mixers running in countries which do not extradite, or conform to united states court rulings. These type of FINCEN rulings could hold no weight there. Rogue states like north korea could run as many bitcoin mixers as they desired and the USA probably couldn't do anything about it.

I agree.Having a BTC mixer located on offshore servers is the safest bet.On the other hand,there's still a way around this.The USA authorities might require all the US internet service providers to block access to websites,which are located on offshore servers.

[crwth]

The biggest concern now is the collection of personal details with regards to who uses their service. That could definitely affect the current mixers running unless they have their own personal identities safe away from any law. I'm not sure how he would get out of this one, though.

It can be compared to gambling, like the licenses of the famous online companies are based and legalized in another country. Since it's online, there is still access. That's what could happen to mixers.

[Ucy]

Well, this is part of reasons transactions should be recorded on decentralized/shared ledgers that should remain unchanged/immutable.

I'd suggest that before a coin mixing service mixed coin for people, it should try to make sure that its customers have something that can identify them, and such identifiers or personal/private identifications have to be controlled by their owners/customers and also distributed on a shared decentralized network/system, in a thoroughly encrypted/cryptic  and immutable form.    The activities generated after  mixing coins for customers could then be linked to the customers' encrypted personal identities. If a serious crime or violation is committed with the mixed coins (output), it can be tagged and investigated by law enforcement people. The tagged coins could be destroyed once its owner have been found guilty of the crime, his/her encrypted identity decrypted/de-anonymized.... then virgin/new coin generated as replacement for the tainted one. If the coin has been negatively tagged but now controlled by innocent new owner, the tag could aswell be removed from the coins once the former owner who committed the crime have been justly convicted.
 I prefer the burning/destroying of coins that have been tainted by people who have been convicted after committing serious crimes with them. You burn the coins and another are immediately created as replacement!

[gentlemand]

I think they've got their wording wrong.

It should read - Man penalised for violating anti money laundering laws via mixing.

He explicitly set it up solely to aid the movement of drug money. That's nothing like a bog standard mixer being descended on out of nowhere for handling one random reprobate's funds.