Fintech special report: Executive fined $150,000 over anti-money laundering breaches
An Australian cryptocurrency executive extradited to the United States from Bermuda has been sentenced to a year’s probation and a $150,000 fine after he admitted breaching an anti-money laundering law.
Gregory Dwyer, 39, who was head of business development at the cryptocurrency derivative exchange platform Bitmex, pleaded guilty in August to violating the Bank Secrecy Act by wilfully failing to establish, implement and maintain an anti-money-laundering programme at the company, and of aiding and abetting the same.
He was sentenced on November 16 by Judge John Koeltl in the Southern District of New York — two years after he and Bitmex founders Arthur Hayes, Ben Delo and Samuel Reed were first accused of criminal offences by the US Department of Justice.
The indictment alleged that the Bitmex exchange was being used by hackers to launder stolen money, and by people in countries under US sanctions, including Iran.
It also claimed that the “purportedly offshore” company solicited and accepted customers in the US, despite not being registered with the Commodity Futures Trading Commission and even after it sought to exempt itself from US law by incorporating in the Seychelles.
The court heard that Dwyer “aided and abetted Bitmex’s failure to institute anti-money laundering or know-your-customer programmes, despite closely following US regulatory developments that made clear the legal obligation to do so if Bitmex operated in the United States, which it did.
“Dwyer knew that Bitmex’s purported withdrawal from the US market after in or about September 2015 was a sham, and that purported ‘controls’ Bitmex put in place to prevent US trading were an ineffective façade that did not, in fact, prevent users from accessing or trading on Bitmex from the United States.”
Sentencing Dwyer, the judge said he could travel internationally, maintain his primary residence abroad and have contact with his co-defendants for business purposes.
Bitmex set up an office in Bermuda in 2018 after Hayes visited the island and met with David Burt to find out more about Bermuda’s new digital asset regulations.
Mr Burt, who was heavily promoting Bermuda as a fintech-friendly jurisdiction, tweeted photos from their meeting, showing both men smiling and shaking hands in the Cabinet Office.
Earlier today I welcomed @BitMexdotcom Co-Founder & CEO, Arthur Hayes to #Bermuda. He met our #Fintech team to learn more about our digital asset regulation, with a view to establishing a BitMEX office in Bermuda. pic.twitter.com/rpyxkg5uGH
— Premier David Burt (@BermudaPremier) June 28, 2018
Bitmex chose to get licensed in the Seychelles but did set up an office in Bermuda and Dwyer moved here to run it in 2019.
In November 2020, the DoJ announced that it was seeking Hayes for questioning and that he, Reed, Delo and Dwyer were facing criminal charges.
Hayes and Bitmex affiliate HDR Global Services (Bermuda) were also named as defendants in a civil action brought by the Commodity Futures Trading Commission.
Dwyer voluntarily appeared at Magistrates’ Court in August 2021 and was extradited to the US soon after.
Bloomberg reported that month that the group of companies that operated the Bitmex exchange were to pay $100 million to settle the allegations that they allowed years of illegal trades and violated anti-money-laundering rules.
Hayes eventually turned himself in to police and he, Reed and Delo pleaded guilty to the same charge as Dwyer.
Hayes was sentenced to six months of home detention and two years of probation; Delo got 30 months’ probation and Reed got 18 months’ probation.
The three agreed to pay a fine of $10 million each to the CFTC representing their pecuniary gain from the offence.
The companies incorporated here by Hayes, HDR Global Services (Bermuda) and HDR Capital, remain on the Register of Companies, but are not licensed under Bermuda’s Digital Asset Business Act 2018.
A spokeswoman for Dwyer said today: “As head of business development at Bitmex, Mr Dwyer never served in any compliance, legal or regulatory role and had only a very nominal ownership interest in the company.
“Even the [US] government concedes that Mr Dwyer did not have control over Bitmex’s operations or the company’s approach to compliance, and we are not aware of charges of this nature ever being brought against a similarly situated individual.
“Mr Dwyer worked for several years developing strategic partnerships to help build Bitmex into a successful trading platform for sophisticated institutional and retail customers.”
The spokeswoman claimed the US government took a “heavy-handed approach with respect to the prosecution of Mr Dwyer” which was “regrettable”.
She said: “Mr Dwyer is relieved to have this matter behind him and looks forward to getting on with his life – both personally and professionally.”
Note: this article has been edited to include a statement from a spokeswoman for Dwyer and to attach the US Government’s sentencing letter.
Lots of fintech companies, including many involved with cryptocurrencies, have incorporated or talked publicly about setting up in Bermuda since the Digital Asset Business Act 2018 was enacted.
A rash of them staged photo ops with David Burt and signed memorandums of understanding with the Government as the legislative framework was being introduced — and plenty pledged money and jobs. The Government said in a press release at the time: “Bermuda’s development of a fintech industry continues at a dizzying pace …”
Four-and-a-half years on, there are 16 DABA-licensed firms, with about the same number understood to be in the licence application process, and seven licensed digital asset insurers. Next, the digital asset industry forum, estimates about 50 jobs have been created.
The Royal Gazette looks at how things panned out with several firms who came in the early days of DABA.
Omega One was the first fintech firm to get a DABA licence. Its CEO, Alex Gordon-Brander, signed an MOU with the Premier in May 2018. The company said it expected to add 20 local jobs in Bermuda over three years. The MOU outlined the company’s plan to donate 10 per cent of its venture philanthropy to support “community sporting clubs in Bermuda”. Omega One’s licence expired in September 2019, its office on 32 Parliament Street is no longer there and the company appears to have folded. Stafford Lowe, a spokesman for Next, said he did not know what happened to the company but suspected it “started strong but — potentially — just fell by the wayside as many start-ups do”.
Blockchain technology firm Shyft signed an MOU with the Government in May 2018, pledging to invest up to $10 million in Bermuda over a three-year period by creating jobs and boosting local businesses, education and infrastructure. Shyft entered into a partnership with the Ministry of National Security for a digitised national identity programme — PerseID — which was to have been rolled out in early 2019. Mr Burt said at the time it was part of a digital transformation that he believed would culminate in “completely paperless government” within five years. The national ID scheme has yet to be launched and it was not possible to get comment from anyone at Shyft, which is based in Barbados.
Binance — the world’s largest cryptocurrency exchange — came to the island in April 2018 for what the Premier hailed as an “historic” day as its CEO, Zhao Changpeng, signed an MOU with the Government. Mr Burt said Binance planned to “develop a global compliance base here in Bermuda” that would create 40 jobs, at least 30 of them Bermudian, and that it would spend up to $10 million on training for Bermudians in blockchain technology development. An affiliate company is registered here but Binance is headquartered in the Cayman Islands, having previously been based in Malta. The Premier was asked by the Gazette last year if he still expected Binance’s proposals to happen. He said: “We continue to attract companies to Bermuda that wish to be under the regulatory umbrella of the Bermuda Monetary Authority. Though Binance is not currently one of those companies, there is no telling what the future will hold.” Britain's Financial Conduct Authority said last year that Binance was not capable of being supervised properly and its high-risk investments posed a significant risk to consumers. Last week, more than $1 billion were pulled out of Binance in a single day, as investors reacted to the FTX crash.
Mr Burt signed an MOU in June 2018 with B-Seed Partners, FinHigh Capital and BFS Holdings Ltd with a plan to launch an initiative called the Bermuda Fintech Accelerator (BFA). The Premier said this could lead to a potential investment of up to $10 million. A press conference heard that BFA planned to "deploy in Bermuda a developed pipeline of fully funded fintech projects and cutting edge fintech technology not yet available in Bermuda, which will benefit the community through efficiencies, the creation of jobs and educational opportunities for Bermudians“. The scheme was intended to provide fintech training here and in Korea, at the Sogang University in Seoul. There have been no further announcements about the project since.
Note: The BMA publishes a list of present licence holders on its website but its head of communications said it was unable to share a list of all the firms to whom it has issued licences since DABA was passed. It has not acknowledged a public access to information request for the list.
