Over recent weeks, Global RADAR has chronicled the ongoing details of once-renowned crypto trading platform FTX’s fall from grace. Yet another twist was added to this whirlwind case last week as company founder and CEO Sam Bankman-Fried (SBF) was placed under arrest in the Bahamas after the United States filed official criminal charges against him. Over the last two years, the 30 year-old mogul played a pivotal role in developing a rapidly growing $32 billion enterprise. FTX quickly became a household name as the cryptocurrency market saw an unprecedented boom in 2021. Now SBF – the visionary entrepreneur whose personal net worth was once estimated at a whopping $26.5 billion – finds himself in handcuffs and at the epicenter of what will undoubtedly go down as one of the largest cases of financial fraud in American history.

            As SBF’s once-close political and celebrity allies continue their attempts to distance themselves from his failing empire, questions continue to circulate regarding funds in excess of $8 billion that remain unaccounted for. An indictment unsealed by the U.S. attorney’s office for the Southern District of New York formally charged Bankman-Fried with eight counts of fraud, as well as conspiring to defraud the U.S. and violating campaign finance regulations. Prosecutors have alleged that SBF misused hundreds of millions of dollars worth of customer funds to cover personal purchases as well as to pay the expenses/debts of FTX’s sister firm, Alameda Research. It has also been alleged that a significant portion of these funds were utilized for targeted political donations to the Democratic Party ahead of the 2022 midterm elections. Once the crypto market began its crash the scheme quickly unraveled and SBF was exposed as, at best, in over his head; at worst, a charlatan.

            “We allege that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto,” SEC Chair Gary Gensler said in a Tuesday statement. “The alleged fraud committed by Mr. Bankman-Fried is a clarion call to crypto platforms that they need to come into compliance with our laws.”³ While many have speculated about the timing of the arrests (as SBF was scheduled to testify in Congress last Tuesday before being apprehended), many have heralded the arrest as a means by which U.S. government regulators could send a message to the greater crypto industry – one which remains largely unregulated.

U.S. Senators To Introduce New Crypto Legislation

            In other crypto-related news, U.S. Senators Roger Marshall (R-Kan.) and Elizabeth Warren (D-Mass.) announced last week that they are introducing a bill that will attempt to bring cryptocurrency exchanges up to the same regulatory standards that American financial institutions are currently held to. In a formal announcement made at the most recent Senate Banking Committee hearing, the politicians noted that the bill coined the Digital Asset Anti-Money Laundering Act would effectively crack down on potential money laundering and terror financing efforts through the cryptocurrency market. The legislation would extend know-your-customer (KYC) rules to crypto participants such as wallet providers and miners and prohibit financial institutions from transacting with digital asset mixers, which are tools designed to obscure the origin of funds.² The measure would also create a new business classification under the Financial Crimes Enforcement Network (FinCEN) where certain crypto enterprises would be harbored under the denomination of “money services businesses”. These would include “custodial and un-hosted wallet providers, cryptocurrency miners, validators, or other nodes who may act to validate or secure third-party transactions, independent network participants, including MEV [maximum extractable value] searchers, and other validators with control over network protocols.”¹

            Just like banks, this law would require money service businesses to have written anti-money laundering policies in place and ensure that they have them properly implemented and vetted. While no finite details have been released, it is anticipated that reporting requirements will also be finalized under the new law and will include the requirement to report all transactions over a $10,000 threshold. Global RADAR will provide additional updates on this piece of landmark legislation as they become available.

Citations

1. Andersen, Derek. “Sens. Warren and Marshall Introduce New Money-Laundering Legislation for Crypto.” Cointelegraph, Cointelegraph, 14 Dec. 2022. 
2. Crawley, Jamie. “US Senators Warren, Marshall Introduce Digital Assets Anti-Money Laundering Bill.” CoinDesk Latest Headlines RSS, CoinDesk, 14 Dec. 2022.
3. Schulz, Bailey. “FTX Founder Arrested in Bahamas: How Sam Bankman-Fried’s Alleged Scheme Unraveled.” USA Today, Gannett Satellite Information Network, 13 Dec. 2022.