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 penalty 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.
The watchdog said 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 penalty surpassed FinTRAC’s previously highest-ever fine of nearly $20-million, levied against Seychelles-based crypto exchange KuCoin last month.
The watchdog said in a statement that the rapid expansion of Canada’s virtual currency industry 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.
“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,” director and chief executive officer Sarah Paquet said in a statement.
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FinTRAC also 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 develop and apply written compliance policies and procedures that are kept up to date and approved by a senior officer, among other violations.
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.
FinTRAC provides businesses with guidelines to help them identify suspicious transactions, for instance payments for online child sexual exploitation.
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It’s not the first time that Cryptomus has run into regulatory trouble. In May, the B.C. Securities Commission 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.
Platforms that allow Canadians to buy and sell crypto assets such as bitcoin or ether are required to register with provincial securities regulators.
It’s unclear whether the temporary order, which was set to expire on June 4, was extended.
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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.
The Liberal government first promised to create such an agency in 2021, earmarking $2-million for the initial design work in the 2022 federal budget.