Eleven years ago, Kais Mohammad was a bank employee who trained colleagues in compliance procedures as part of his work.
But by December 2014, the then-30-year-old personal banker had started on a different career path: opening an unregistered network of Bitcoin ATMs in and around Los Angeles that slowly grew to 17 kiosks and would ultimately process between $15 million and $25 million worth of transactions with minimal oversight, according to federal prosecutors.
Mohammad, who also exchanged his clients’ cash for digital tokens in person, pleaded guilty to money laundering charges as well as to failing to register as a money services business and maintain an effective compliance program on Wednesday.
But he knew from the start that his Bitcoin ATM activity required registering with the Treasury Department’s Financial Crimes Enforcement Network: he acknowledged as much when asked by the machines’ manufacturer in January 2015 if he was aware of all regulatory requirements he would have to abide by as an operator, prosecutors in the Central District of California said.
Still, Mohammad waited until July 2018 to apply with FinCEN, and did so only after the bureau contacted him directly about it, according to the 39-page plea agreement.
He then continued secretly meeting customers in person, in coffee shops around L.A., to exchange up to $25,000 in cash for Bitcoin, a service he advertised on a peer-to-peer currency platform, localbitcoins.com, under the username “Superman29.” His fees, as high as 25 percent of the transaction value, were “significantly above the prevailing market rate,” prosecutors said.
Furthermore, an agent with Homeland Security Investigations was able to buy nearly $15,000 worth of Bitcoin from one of Mohammad’s machines in Lakewood, California, in a series of three linked withdrawals on Sep. 12, 2018, without triggering a single currency transaction report.
Undercover HSI agents also bought Bitcoin from Mohammad in person three times between February and August 2019, for a combined value of $57,000. Mohammad completed one of the transactions even after an investigator claimed to work at a “karaoke bar” that paid Korean women to have sex with clients, prosecutors noted.
Mohammad’s Bitcoin ATM network, which advertised itself as “Herocoin,” comprised machines in gas stations, malls and convenience stores in at least 16 different cities around the L.A. area, such as Riverside, Arcadia, Culver City and San Clemente.
The kiosks’ settings enabled customers to conduct transactions of up to $3,000 without providing any form of identification, or to split their withdrawals or deposits in smaller sums or through different machines to avoid triggering reporting requirements, even though Mohammad was technically capable of tracking the transactions, according to the plea agreement.
It is unclear what portion of the $15 to $25 million that eventually ran through Mohammad’s network consisted of illicit proceeds.
The case bears strong resemblance to the prosecution of Kunal Kalra, who similarly admitted in August 2019 to laundering up to $25 million through Bitcoin ATMs and exchanging cash for cryptocurrency for clients he met at coffee shops in L.A.
Kalra was the first cryptocurrency kiosk operator that federal prosecutors accused of failing to register with FinCEN, ACAMS moneylaundering.com reported at the time, citing the Justice Department.
Kalra and Mohammad, however, ran separate operations, a department spokesperson told moneylaundering.com in an email Wednesday.
Charges against Kalra, for example, also included selling methamphetamine to an undercover agent in 2017, and opening bank accounts in the names of other individuals and of fake businesses to continue operating his kiosks.
The public-facing nature of Bitcoin ATMs would make avoiding registration with FinCEN difficult, and in fact many operators seek out the bureau’s permission proactively, Joe Ciccolo, founder of BitAML, a cryptocurrency compliance advisory based in Roseville, California, said at the time of the Kalra plea.
“There are a lot of [compliance] mechanisms built into the back end of kiosks, but it’s up to the operator to deploy them,” Ciccolo said.
Contact Daniel Bethencourt at firstname.lastname@example.org
|Topics :||Anti-money laundering , Cryptocurrencies , Money Services Businesses , Info. Security/Cybercrime|
|Source:||U.S.: Courts , U.S.: FinCEN|
|Document Date:||July 23, 2020|