• The US regulators charged BitMEX with violating Bank Secrecy Law and failing to prevent money laundering.
  • The US authorities have been keeping a close eye on the cryptocurrency industry.
  • DeFi segment is not immune to the law enforcement actions.

The Commodity Futures Trading Commission (CFTC) and the Department of Justice (DOJ) accused the larges trading platform of trading cryptocurrency derivatives with 100x times leverage, including futures, options, and swaps, of offering the US citizens illicit derivative instruments. 

Moreover, the founder and CEO of BitMEX, Arthur Hayes, along with Ben Delo, Samuel Reed, and their first employee Gregory Dwyer have been charged with violating the Bank Secrecy Act. According to the statement, published on Thursday, October 1, they "willfully failing to establish, implement, and maintain an adequate anti-money laundering ("AML") program." 

Samuel Reed has been taken under custody, while Hayes, Delo, and Dwyer are at large. However, the partner of Anderson Kill P.C, Stephen Pally,  noted that the money laundering allegations are particularly harmful and may result in jail term.  

The expert emphasized that the offshore jurisdiction registration could hardly help them escape the punishment as the US regulators tend to be very aggressive in pursuing their interests internationally.

The US authorities mean business

As the FXStreet previously reported, US regulators stepped up their game to identify and investigate illegal activities or violations within the cryptocurrency industry.

Recently, the Securities and Exchange Commission (SEC) won a case against Kik Iinteractive Inc for carrying out the unregistered token sale and went after SALT Blockchain for the same allegations.

BitMEX, along with several other legal entities and individuals,  got much more severe charges from the Department of Justice and another US regulator, CFTC. 

While the cryptocurrency industry remains mostly unregulated in the United States, the companies are neither released from complying with the effective legislation nor immune to the law enforcement action.

Is DeFi out of reach?

BitMEX, Kik, SALT are all centralized entities that can be easily fined or shut down by the authorities. They have a registration and function more like a company, meaning that there is always someone responsible for violating the laws, and someone who can be held accountable.

The decentralized finance (DeFi) industry is a different story. DeFi platform is basically a bunch smart contract that uses decentralized information feeds and algorithms and automates financial transactions. As no third-party is involved, the process becomes cheaper, faster, and often more efficient than on centralized platforms. 

To put is short, DeFi apps are governed by computer code, making it unbiased, free from human errors, and wrongdoing. 

The anonymity and autonomy of the decentralized finance lead many people to believe that these services are immune to the pursuance by the governmental authorities. After all, you cannot penalize a smart contract or throw it into jail.

However, this is just wishful thinking, and Adam Cochran (@AdamScochran), the partner of Cinneamhain Ventures, explains why in this recent thread on Twitter.

Not so fast, US authorities have long arms

DeFi may be out of reach when it comes to charges related to consumer protection as it is still in a grey area and not covered by the existing regulations of SEC and CFTC. However, the charges under the Bank Secrecy Act handled by the Department of Justice is quite another matter. 

Let's face it, DOJ has no business in protecting customers; its primary goal is to prevent money laundering and punish everyone involved in this process, Adam Cochran explains. 

The expert notes that DOJ has a record of pursuing individuals on Localbitcoins and Paxful on the allegations that they have 
been involved in facilitating money laundering or failed to comply with preventative measures.

Basicaly, the DOJ doesn't care if the violator is a company or an individual. The only thing that matters is whether they make it easier to legalize the money generated by criminal activity. 

People are always involved

Her is another point to consider: DeFi is definitely automated, decentralized, and not run by an individual or a group of individuals. However, there are a lot of people involved in creating the platform and benefitting from it. According to Adam Cochran, DeFi protocols are not entirely outside the authorities' reach, who can find ways to kill it.

The expert further elaborates that the government can find and shut down the developers or front-ends, seize domain names, and host services. If this happens, users are likely to flee from the platform, eventually killing it.

To conclude: the DeFi industry is still in a grey zone when it comes to regulation. It operates autonomously, and often no one can be held accountable if something goes wrong or people are cheated. 

However, the recent case with BitMEX illustrates the vulnerability of the industry as a whole. The authorities will not turn a blind eye on violations happening in DeFi projects, and while it may be hard to reach them at this stage, they will soon find out how to apply BSA and prevent the wrongdoing.


 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Cryptos feed Join Telegram

Recommended content


Recommended Content

Editors’ Picks

Ripple does not stand a chance against SEC, affirms former securities regulator

Ripple does not stand a chance against SEC, affirms former securities regulator

Former Chief Robert Cohen believes the Securities & Exchange Commission's (SEC) ’s case against payment giant Ripple is key, however the outcome may not be as significant. The regulator is likely to file a motion for reconsideration on losing the case against Ripple. 

More Ripple News

Cardano’s Vasil hard fork launches on testnet positioning ADA price for a breakout

Cardano’s Vasil hard fork launches on testnet positioning ADA price for a breakout

Cardano price is at a point in its journey where things could go either way. As ADA consolidates above a stable support level, things could turn ugly if it breaks or bullish if it bounces. Therefore, investors need to be careful with their decision.

More Cardano News

Why this boring phase of LUNA price will result in handsome returns

Why this boring phase of LUNA price will result in handsome returns

LUNA price has been consolidating tightly since June 30, after undoing the gains seen over the previous week. This small range, suggests that an explosive move is around the corner, although the direction of a breakout remains to be seen.

More Terra News

Argentines take refuge in stablecoins after economy minister resignation

Argentines take refuge in stablecoins after economy minister resignation

Following the resignation Saturday of Argentina's economy minister Martin Guzmán amid an economic crisis, Argentines purchased between two and three times as many stablecoins as they do on a typical weekend, crypto companies in the country told CoinDesk.

More Cryptocurrencies News

Bitcoin: This support level can define BTC’s fate

Bitcoin: This support level can define BTC’s fate

Bitcoin price ended Q2 with a -56% return, which is the first in its 11-year history. On-chain metrics hint at bottom formation but technicals reveal more room to the downside. Bitcoin price has finished the first half of 2022 and things are not looking good. With record negative returns, BTC is likely to continue heading lower, especially if one particular support level is breached. 

Read full analysis

BTC

ETH

XRP