FBI Issues Alert on Unregistered Crypto Services Amid Fraud Concerns

2024-05-08, 02:01

[//]:content-type-MARKDOWN-DONOT-DELETE
![](https://gimg2.gateimg.com/image/article/1690791857hotspot.jpeg)
## [TL; DR]
The FBI has warned its citizens to stop investing in unregistered crypto businesses.

Crypto users can check with FinCEN to find out if a crypto business has registered its services with the United States.

Know your customer and anti-money laundering measures can help to prevent crypto frauds.

## Introduction
The United States, through its different regulatory agencies like FBI, is taking the lead in enforcing its financial regulations that apply to the blockchain sector. Although, in the past it was only focussed on litigation measures, recently it started to  educate its citizens against investing in unlicensed crypto services.

Today, we analyze the FBI’s warning to its citizens to desist from investing in unregistered crypto businesses. We will also discuss how crypto investors can check whether or not a crypto business is licensed to operate in the United States.

## FBI Warning Crypto Services
The US Federal Bureau of Investigation (FBI) has warned its citizens against using crypto money transmitting services that have not been registered as Money Services Businesses (MSB) as the United States federal law stipulates. The regulatory authority explained the crypto services risks such businesses pose to their users.

In most cases such businesses fall short in terms of [anti-money laundering compliance](https://www.gate.io/learn/articles/what-is-anti-money-laundering/81 "anti-money laundering compliance") crypto. The Federal Bureau of Investigation (FBI) clarified the United States’ position on the registration and operations of Money Services Businesses (MSB) through a government press release. 
![](https://gimg2.gateimg.com/image/article/17151332701.jpg)
FBI warned Americans against using unlicensed money-transmitting - FBI

Basically, all crypto money transmitting services in the United States should register with the Financial Crimes Enforcement Network (FinCEN) before operating.

Therefore, the best thing the investors can do to verify if a crypto project is licensed is to check with FinCEN. Nevertheless, the FBI emphasized that the fact that a crypto firm is registered with FinCEN does not mean that it is legitimate and safe to use. Each investor should, therefore, carry out additional research.

Read also: [Cryptocurrency laws in United States and other countries](https://www.gate.io/blog_detail/384/cryptocurrency-laws-in-united-states-and-other-countries "Cryptocurrency laws in United States and other countries")

One of the things that an investor should validate is whether or not the investment platform collects Know Your Customer (KYC crypto) information. Know your customer is a set of steps which businesses take to verify the identity of customers as a means to understand their financial risks and related activities.

## How Crypto Users Who Use Unregistered Crypto Money Transmitting Services May be Affected? 
There are several ways in which the investors who use unregistered money transmitting services can be affected. The first risk is that some of these illegal crypto businesses may not be legitimate which may result in direct loss of invested funds. For example, some of them may close their businesses and disappear with investor funds. On the other hand, some may misappropriate investors' money.

Second, the services of people who invest in businesses which are not compliant with KYC crypto may be interrupted during litigation processes. For example, US regulators may use legal enforcement actions to stop the operations of certain businesses on temporal or permanent bases. For example, the FBI may do so if the customer cryptocurrencies are intermingled with funds that have been obtained through illegal means.

In a recent [press release the FBI stated](https://www.ic3.gov/Media/Y2024/PSA240425 "press release the FBI stated"), “Cryptocurrency money transmitting services that purposely break the law or knowingly facilitate illegal transactions will be investigated by law enforcement. Using a service that does not comply with its legal obligations may put you at risk of losing access to funds after law enforcement operations target those businesses.”

Although the recent FBI warning against using Money Services Businesses that do not comply with existing Know Your Customer (KYC) and Anti-Money Laundering (AML) laws seems general, some analysts believe that it is mainly targeted against crypto mixing services like Tornado Cash and Samourai.

Regarding this, a Cointelegraph publication quoted [Michael Balcina, the Digital Asset Partner at Piper Alderman Lawyers, as saying](https://cointelegraph.com/news/fbi-warning-crypto-money-transmitter-appears-aimed-samouri-wallet "Michael Balcina, the Digital Asset Partner at Piper Alderman Lawyers, as saying"), “While this appears an attempt to warn consumers away from smart-contract driven privacy tools like Samouri or Tornado Cash, it’s a very broad warning which misses a great deal of nuance in how decentralized systems operate.”

And Bacina believes that any United States enforcement against unlicensed crypto businesses will help to protect investors. He added, “The sooner fit-for-purpose regulation and clear guidance for cryptocurrency replaces regulation by enforcement, the better the outcomes for consumers will be.”

In an X post, Ryan Sean Adams, Bankless co-founder, suggested that the FBI is targeting private developers, as the next screenshot shows.
![](https://gimg2.gateimg.com/image/article/17151334172.jpg)
Source: x.com

## Red Flags: How to Identify and Avoid Unregistered Crypto Services
In its statement to the public, the FBI clearly explained how its citizens can easily identify unregistered crypto services businesses. Registered crypto services normally request Know Your Customer (KYC) information. Such KYC protocols usually diligently assess the risks associated with investors, which may reduce cases of crypto fraud.

Related news: [How Blockchain Technology Will Impact the Banking Industry](https://www.gate.io/learn/articles/how-blockchain-technology-will-impact-the-banking-industry/2696 "How Blockchain Technology Will Impact the Banking Industry")

The Bureau said, “Beware of financial services that do not ask for KYC information including name, date of birth, address, and ID before allowing you to send or receive money or cryptocurrency.”

As hinted earlier on, the agency advised the public to check if an MSB is registered with the [U.S. Treasury Department’s Financial Crimes Enforcement Network](https://www.fincen.gov/msb-state-selector "U.S. Treasury Department’s Financial Crimes Enforcement Network") (FinCEN).However, it further cautioned against investing in a KYC protocol simply because it is registered with FinCEN. It explained:  “The inclusion of a business on the MSB Registrant Search web page is not a recommendation, certification of legitimacy, or endorsement of the business by any government agency.”

FBI also advised the US citizens against using an app merely because it is found on App Store or any other related platforms. The reason is that some of the apps that are found on such platforms may not comply with the crypto law of the United States.

## Correlation between the Absence of KYC Protocols and the Increased Likelihood of Scams
The FBI has also observed that crypto platforms that lack KYC protocols are highly likely to be the sites of criminal activity, such as scams. This is because users are not vetted, which allows criminals to operate on such platforms. Verifying users using KYC during onboarding will primarily help to trace criminal activities and prevent money laundering.

KYC helps to build trust and confidence in crypto investment platforms like exchanges as customers are aware that all participants have been verified. Generally, crypto platforms that have KYC protocols conduct on-going checks [that prevent fraud](https://www.gate.io/learn/articles/top-10-crypto-scams-and-how-to-avoid-them/2556 "that prevent fraud") and other related criminal activities.

## Case Study: The Enforcement Action against Samourai Wallet
The FBI warning crypto services came a few days after the U.S. Department of Justice (DOJ) took enforcement action against Keonne Rodriguez and William Lonergan Hill, the co-owners of Samourai—a <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> wallet and crypto mixing service—for operating an unlicensed money transmitting business, conducting over $2 billion in unlawful transactions, and laundering more than $100 million in criminal proceeds.

Hill was apprehended in Portugal, and the United States authorities are seeking his extradition. In addition, the U.S., in collaboration with Iceland, seized Samourai’s web servers and domain. In a press release, the DOJ claimed that Hill and Rodriguez knew they were facilitating money laundering.

Damian Williams, a U.S. Attorney, [said](https://www.justice.gov/usao-sdny/pr/founders-and-ceo-cryptocurrency-mixing-service-arrested-and-charged-money-laundering "said"), “Keonne Rodriguez and William Lonergan Hill are responsible for developing, marketing, and operating Samourai, a cryptocurrency mixing service that executed over $2 billion in unlawful transactions and served as a haven for criminals to engage in large-scale money laundering.

“Rodriguez and Hill [allegedly knowingly facilitated the laundering of over $100 million](https://www.gate.io/profile/LBMdFR0AW1xZWCcOAREFAF9YHlUIDAO0O0OO0O0O "allegedly knowingly facilitated the laundering of over $100 million") of criminal proceeds from the Silk Road, Hydra Market, and a host of other computer hacking and fraud campaigns.” If found guilty they may be imprisoned for up to 25 years.

In the meantime, Rodriguez, appearing in a Manhattan courtroom, pleaded innocence to the charges. The Samourai Wallet enforcement action highlights the need for crypto businesses to balance legal compliance and privacy. It also enlightens crypto users about using crypto money transmitting services that comply with crypto law in the United States and other countries.

## Conclusion
The US Federal Bureau of Investigation (FBI) has warned crypto users in the United States to desist from using unregistered crypto businesses as their services may be terminated as part for law enforcement action. For example, the [DOJ stopped the operations of Samourai](https://www.gate.io/post/CryptoNews_/status/5538868 "DOJ stopped the operations of Samourai") which it accused of perpetrating money laundering and operating unlicensed money transmitting services.

<div class="blog-details-info">
<div>Author:**Mashell C.**, Gate.io Researcher
<div class="info-tips">\*This article represents only the views of the researcher and does not constitute any investment suggestions.
<div>\*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.
</div>