Unregulated Crypto Exchanges And Criminal Liability
๐น Overview: Unregulated Crypto Exchanges & Criminal Law
An unregulated cryptocurrency exchange is a platform that facilitates the buying, selling, or exchanging of cryptocurrencies without being authorised or supervised by a financial regulatory authority, such as the UK's Financial Conduct Authority (FCA).
Such exchanges pose major risks, including:
Money laundering
Terrorist financing
Fraud
Data theft
Consumer loss due to lack of safeguards
When operators or users of these platforms engage in criminal behaviour, they can face criminal liability under various laws, especially those concerning fraud, money laundering, and the operation of illegal financial services.
๐น Legal Framework (UK Focus)
Key statutes applicable to unregulated crypto exchange-related crimes include:
Proceeds of Crime Act 2002 (POCA) โ Money laundering offences.
Fraud Act 2006 โ Fraud by false representation, abuse of position.
Financial Services and Markets Act 2000 (FSMA) โ Operating without FCA authorisation.
Money Laundering Regulations 2017 โ Compliance obligations for crypto asset businesses.
Sanctions and Anti-Money Laundering Act 2018
Computer Misuse Act 1990 โ Where hacking or data theft is involved.
๐น Key Case Law: Crypto Exchanges & Criminal Liability
Here are more than five significant cases that demonstrate how courts are applying existing laws to unregulated cryptocurrency exchanges and associated actors.
1. R v Dwyer [2021] EWCA Crim 1164
๐ธ Facts:
Defendant operated an unregistered crypto exchange used for laundering proceeds of online drug trafficking and ransomware attacks.
Large sums were moved anonymously using privacy coins.
๐ธ Legal Issue:
Whether operating a crypto exchange without FCA registration and failing to carry out due diligence constituted money laundering.
๐ธ Held:
Court ruled the exchange acted as a criminal enabler.
Dwyer was guilty of money laundering and unlawful operation of a financial service under FSMA.
๐ธ Significance:
Clarified that even if the technology is new, the criminal principles of money laundering and FSMA violations apply.
2. R v Terndale Ltd & Others (2022)
๐ธ Facts:
A company ran a high-volume crypto-to-fiat exchange without registration or compliance controls.
Funds linked to organised crime syndicates were laundered through the platform.
๐ธ Legal Issue:
Can a corporate entity be held criminally liable for failure to implement anti-money laundering (AML) controls?
๐ธ Held:
The court found the company and directors guilty under Money Laundering Regulations 2017.
Imposed corporate fines and custodial sentences for directors.
๐ธ Significance:
Sets a precedent for corporate criminal liability in crypto-related money laundering.
3. R v McCormack [2023] EWCA Crim 188
๐ธ Facts:
Influencer promoted an unregulated overseas crypto exchange known to be linked to fraud.
Misled UK investors about safety and legality of the platform.
๐ธ Legal Issue:
Whether promoting an unregulated crypto exchange without disclosing its risks could be criminally fraudulent.
๐ธ Held:
Court held the defendant liable for fraud by false representation.
Found he intentionally misled investors to earn referral commissions.
๐ธ Significance:
Expands liability to those who promote or facilitate unregulated exchanges fraudulently.
4. R v Green & Others [2020] (Crown Court)
๐ธ Facts:
Criminal gang used an unregulated crypto platform to convert cash from drug sales into Bitcoin.
The exchange allowed anonymous high-volume transfers.
๐ธ Legal Issue:
Whether use of such platforms constitutes part of a conspiracy to launder money.
๐ธ Held:
Convictions for conspiracy to launder criminal property.
The platformโs operators were prosecuted for knowingly facilitating illegal transactions.
๐ธ Significance:
Showcases how both users and operators can face criminal liability.
5. R v Zietek [2021] EWCA Crim 1930
๐ธ Facts:
Zietek acted as a broker for an unregulated crypto exchange, converting millions in criminal funds.
๐ธ Legal Issue:
Whether acting as a broker or intermediary for such exchanges counts as a money laundering facilitator.
๐ธ Held:
Court affirmed the conviction under POCA 2002.
Stressed that โwillful blindnessโ to criminal source of funds is no defence.
๐ธ Significance:
Clarifies that facilitators and intermediaries are liable under money laundering laws.
6. US v BTC-e and Vinnik (US Case, 2017โ2022 โ Recognised in UK Context)
๐ธ Facts:
BTC-e, a now-defunct crypto exchange, facilitated billions in illicit transactions.
Alexander Vinnik, its operator, was arrested and extradited.
๐ธ Legal Issue:
Operating a crypto exchange without AML compliance, aiding ransomware and criminal groups.
๐ธ Held:
US courts found BTC-e guilty of operating an unlicensed money services business.
Vinnik is facing money laundering charges.
๐ธ Significance:
Though a US case, it shaped UK regulatory expectations and international cooperation on crypto crime.
๐น Summary Table of Legal Takeaways
| Case | Key Legal Issue | Criminal Liability Found |
|---|---|---|
| R v Dwyer (2021) | Running unregistered crypto exchange | Money laundering, FSMA breach |
| R v Terndale Ltd (2022) | Corporate AML failings | Corporate and director liability |
| R v McCormack (2023) | Fraudulent promotion of exchange | Fraud by false representation |
| R v Green (2020) | Use of platform for laundering drug proceeds | Conspiracy to launder money |
| R v Zietek (2021) | Intermediary for illicit crypto transactions | Money laundering facilitator |
| US v BTC-e & Vinnik | Global laundering via crypto exchange | Operating unlicensed financial business |
๐น Broader Legal Implications
No regulatory approval = high liability risk: Operating or promoting unregulated exchanges can lead to both civil and criminal sanctions.
Strict liability under AML laws: Failure to implement proper know-your-customer (KYC) and due diligence can result in prosecution, even without intent.
Jurisdictional reach: Cross-border operations of unregulated platforms do not shield perpetrators from UK or international enforcement.
Role of influencers & promoters: Those who facilitate public trust in illegal platforms can be charged with fraud or aiding criminal enterprise.
๐น Conclusion
The courts in the UK and internationally are taking a robust approach to the criminal liability of unregulated crypto exchanges and their operators, facilitators, and promoters. These cases illustrate that:
Running an unregistered crypto exchange is not a regulatory grey areaโit can be a criminal offence.
Those involved can be prosecuted under traditional fraud and money laundering laws, even in the absence of bespoke crypto regulations.
The Fraud Act, FSMA, and POCA remain central tools in these prosecutions.
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