We have previously written about New York’s BitLicense regulations, which prohibit companies from engaging in “virtual currency business activity” in New York, or with New York residents, without a license. Bittrex, based in the State of Washington, is one of the more established cryptocurrency exchanges. On April 10, 2019, the New York State Department of Financial Services (“DFS”) published a letter denying Bittrex’s BitLicense application.
According to the DFS press release, the application was denied primarily due to deficiencies in Bittrex’s BSA/AML/OFAC compliance program; deficiency in meeting DFS’s capital requirement; and deficient due diligence and control over Bittrex’s token and product launches. DFS said that it had sent multiple deficiency letters and conducted an on-site review. The letter also highlighted the following problems:
- Bittrex’s current policies and procedures are either non-existent or inadequate.
- Bittrex’s transaction monitoring and sanctions compliance program is based on manual processes rather than readily available automated processes
- DFS’s concern regarding the lack of training is compounded as recent hires within the compliance team do not have the requisite BSA/AML/OFAC knowledge or expertise.
- There is lack of customer due diligence as evidenced by the fact that some of the accounts at Bittrex are identified by “clearly false names” such as “Give me my money,” “Elvis Presley,”
“abc-abc,” and “Donald Duck.”
According to DFS, Bittrex was required to immediately cease operating in New York State, effective April 11, 2019, and within 60 days wind down its business in New York, including transferring positions and transactions, and provide for the safe custody of assets involving New York residents, as appropriate.
Bittrex released its own statement on April 10 in which it said that the DFS Letter “contain[ed] several factual inaccuracies.” It explained that the examples cited by DFS were from 2017 and it now has full customer identification. Bittrex also said that it does fully train its employees in AML policies and procedures.
Bittrex also pointed out that, in negotiations with DFS, DFS provided a framework under which it would have granted a BitLicense to the company. However, the framework would have, among other things, restricted Bittrex to offering only 10 coins to New York residents and required Bittrex to obtain DFS approval to form or acquire any other entity. After determining that the requirements imposed by the DFS would have materially affected other parts of its business, including how Bittrex operates in other states and countries, the company decided it could not agree to the DFS framework.