Canada’s anti-money-laundering watchdog has levied its largest-ever penalty – more than $176-million – against cryptocurrency exchange Cryptomus for failing to flag transactions allegedly linked to serious crimes such as the trafficking of child-abuse material.
The Financial Transactions and Reports Analysis Centre of Canada, or FinTRAC, announced the record-breaking, $176,960,190 fine against B.C.-based Xeltox Enterprises Ltd., which operates as Cryptomus, on Wednesday.
FinTRAC said it conducted a compliance examination and found that the exchange had failed to file suspicious transaction reports on 1,068 separate occasions in July, 2024.
Cryptomus has previously run into regulatory difficulties with the B.C. Securities Commission and had faced a temporary ban on some activities.
On Wednesday, FinTRAC said in an online notice Cryptomus neglected to flag transactions for which there were “reasonable grounds to suspect” that the money had been obtained through fraud, the trafficking of child-abuse material, sanctions evasion and ransomware payments
The Globe and Mail did not receive a response to requests for comment sent to an e-mail address and a Telegram account listed on a Cryptomus press release.
The penalty is the latest incident of FinTRAC levying record-breaking fines against players in the rapidly expanding virtual currency sector.
Wednesday’s penalty surpassed FinTRAC’s previously highest-ever fine of nearly $20-million, levied against Seychelles-based crypto exchange KuCoin last month.
“We’ve seen increasing fines from FinTRAC over the past 18 months or so leading up to this,” said Adam Garetson, a partner at Gowling WLG and the leader of the firm’s blockchain and digital assets group.
“We are seeing a strong signal from FinTRAC that financial service providers, including those dealing in virtual currencies, have serious anti-money-laundering obligations, and failure to comply can result in very large penalties.”
FinTRAC said that growth in the cryptocurrency space comes with heightened money-laundering risks, as the sector has vulnerabilities that can be exploited by criminals if proper controls are not put in place.
According to the 2024 Geography of Crypto Report by blockchain analytics company Chainalysis, the total value of global crypto activity increased substantially between the fourth quarter of 2023 and the first quarter of 2024, reaching higher levels than those seen during the 2021 crypto bull market. Canadian cryptocurrency users received approximately US$119-billion of value in transactions between July, 2023, and June, 2024, according to the report.
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“Given that numerous violations in this case were connected to trafficking in child sexual abuse material, fraud, ransomware payments and sanctions evasion, FinTRAC was compelled to take this unprecedented enforcement action,” the watchdog’s director and chief executive officer, Sarah Paquet, said in a statement.
Although Cryptomus is incorporated in British Columbia, the company doesn’t appear to have a physical presence in the country. Its registered address in Vancouver is associated with a mailbox service, and it has no Canadian employees, according to FinTRAC.
Its sole director is Uzbekistan resident Sabina Salim Kizi Berdieva, FinTRAC said. Kakhanova Renata Andreyevna, a resident of Kazakhstan, filed to trademark the Cryptomus name and branding at the Canadian Intellectual Property Office in September, 2024. During FinTRAC’s compliance exam, which took place in March, the company’s representatives communicated with the financial crime watchdog from Uzbekistan and Spain.
FinTRAC found that Cryptomus failed to report large virtual currency transactions of $10,000 or more on 1,518 separate occasions in July, 2024, and that it didn’t comply with the federal government’s 2020 “Ministerial Directive on Financial Transactions Associated with the Islamic Republic of Iran.”
The watchdog said it found 7,557 instances between July 1, 2024, and Dec. 31, 2024, where the exchange failed to report transactions originating from Iran. Cryptomus was supposed to treat these transactions as high risk, verify the identities of the senders and beneficiaries, perform due diligence and report the transactions to FinTRAC.
Cryptomus also failed to develop and apply written compliance policies and procedures that are kept up to date and approved by a senior officer. In total, the exchange allegedly committed six types of violations of Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act, according to FinTRAC.
Canada’s anti-money-laundering laws require entities such as financial institutions, real estate and mortgage brokers, casinos and cryptocurrency exchanges, which are classified as money services businesses, to report certain types of transactions to FinTRAC. The centre analyzes the information it receives and discloses financial intelligence to law enforcement and national security agencies.
It’s not the first time that Cryptomus has run into regulatory trouble. In May, the B.C. Securities Commission, or BCSC, temporarily banned Cryptomus from trading securities or derivatives, or engaging in promotional activities, after obtaining evidence that the exchange may have violated the province’s registration requirements.
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Platforms that allow Canadians to buy and sell crypto assets such as bitcoin or ether are required to register with provincial securities regulators.
Although the temporary order expired on June 4, the website for Cryptomus appears to be inaccessible in Canada, displaying text that reads “Sorry, you have been blocked.”
Elise Palmer, a spokesperson for the BCSC, said the watchdog can’t comment on why the temporary order wasn’t extended.
“Generally speaking we apply for a temporary order to protect British Columbians in cases where the length of time to hold a hearing could be prejudicial to the public interest and put the public at risk,” Ms. Palmer said in a statement.
“We may not apply to extend a temporary order or may withdraw an application when those circumstances change and we determine that orders are not immediately necessary to protect British Columbians,” she added.
Ottawa is seeking to tighten financial-crime laws ahead of an international review of Canada’s anti-money-laundering regime by the Financial Action Task Force, an intergovernmental body that sets standards to combat money laundering and terrorist financing.
The federal government is proposing to significantly increase anti-money-laundering penalties and restrict large cash transactions.
Federal Finance Minister François-Philippe Champagne on Monday announced that a new Financial Crimes Agency will use funding for the RCMP to create a specialized team focused on investigating sophisticated money laundering and online fraud schemes.