Crypto and fintech groups fined $5.8bn in global crackdown on illicit money

9 January, 2024 by Laura Noonan and Alan Smith in London

Crypto and fintech groups were for the first time fined more for lax controls than the entire traditional financial system last year, as global authorities cracked down on illicit money flows in finance’s new frontiers.

Data analysed by the Financial Times showed crypto and digital payments companies paid $5.8bn in fines last year for shortcomings in customer checks and anti-money laundering controls, as well as for failing to uphold sanctions and other financial crime issues.

The $5.8bn total, which included a $4.3bn penalty against crypto exchange Binance billed as a warning shot by US prosecutors, dwarfed the $835mn paid by traditional financial services groups last year, the lowest level in a decade.

Dennis Kelleher, chief executive of Washington-based Better Markets, which advocates for tighter regulation, said the figures were more reflective of bad practice in newer corners of finance than an improvement in traditional banks.

“The pervasive fraud and criminality in the high-profile crypto arena forced regulators and prosecutors to divert resources,” he said, describing it as an attempt to “stop the egregious conduct and try to deter it from getting even worse”.

The data, compiled by compliance software provider Fenergo, showed that total fines for money laundering and other financial crime violations rose more than 30 per cent to $6.6bn, but remained well below the 2015 peak of $11.3bn.

Annual tallies were heavily influenced by multibillion-dollar fines, such as last year’s against Binance, BNP Paribas’s $8.9bn fine for sanctions violations in 2015 and Goldman Sachs’s $5bn in 2020 over issues related to Malaysia’s 1MDB sovereign wealth fund.

The number of fines against crypto and payments providers increased significantly last year. Crypto firms recorded 11 fines versus an average of less than two a year for the previous five years, while payments firms incurred 27 fines against their average of about five a year from 2018 to 2022. Almost all of the payments groups fined last year were less than 20 years old.

“We can only expect the focus on these firms’ [anti-money laundering] controls to increase.”
Andrew Barber, Partner, Pinsent Masons

“Most jurisdictions have yet to regulate crypto firms in line with global standards, so we can expect further fines to come in this area,” said David Lewis, a former head of the Financial Action Task Force, the world’s money laundering and terrorist financing watchdog.

“This lack of oversight and proper regulation is a real concern as the risks of cryptos continue to increase, and criminals seek to exploit loopholes wherever they can,” added Lewis, who is now head of anti-money laundering at advisory firm Kroll.

Andrew Barber, a partner at the law firm Pinsent Masons, said fines against crypto and payments groups could be even higher in future years as governments introduced new regulatory regimes.

“Firms that historically operated without regulatory oversight will need time to adjust,” he added. “We can only expect the focus on these firms’ [anti-money laundering] controls to increase.”

Regulators in several jurisdictions have been warning payments firms to improve, with the UK’s Financial Conduct Authority last year chiding the “unacceptable” risks posed by the sector.

Charles Kerrigan, a crypto specialist and partner at law firm CMS, said fines would likely fall in the coming years because crypto was already much more tightly controlled than it was in its infancy. “It’s got to a point now where law enforcement are openly saying they wish people would use crypto to commit crimes but you’d have to be mad to do that,” he added.

Kerrigan also said that crypto was not big enough to fuel significant levels of financial crime or to be a significant source of financial crime fines in the longer term. Its global market cap is just $1.8tn, compared with the hundreds of trillions of assets in the traditional financial system.

“There will be fines because regulators want to make a point [about crypto],” he said.

Rory Doyle, head of financial crime policy at Fenergo, said fines against traditional financial institutions could rise again “as suspicious patterns begin to emerge” from dealings with Russian entities.