In a statement posted on its Twitter account on April 22, popular cryptocurrency exchange Bittrex has debunked the claims from the New York State Department of Financial Services (NYDFS) that it has North Korean users trading on its platform.
The NYDFS through the Executive Deputy Superintendent for Banking Shirin Emami, had published an op-ed where she pointed out that an examination of Bittrex’s accounts revealed the existence of at least two users based in North Korea.
“More may exist. At least one North Korean account was active into 2017. At least two Iranian accounts were still active in the Bittrex system when DFS examiners visited Bittrex in 2019, and potentially usable.”
However, in its tweet, the exchange offered a reason as to why the regulator’s examiners could have thought these users were North Korean. The tweet acknowledged the allegations from the NYDFS over the constitution of traders on its platform. However, after it examined the accounts flagged by the state regulator, it informed the latter that the same accounts had been investigated back in 2017.
In part, the statement from the exchange reads:
“South Korean residents mistakenly selected North Korea in our country dropdown menu, but we determined through country identification, physical, and IP addresses that ALL were from South Korea.”
No Approval for Bittrex
The entire situation started earlier this month, when the NYDFS denied the virtual currency license application that Bittrex had put forth, on the grounds that the exchange had failed to implement the best controls and policies as regards Anti-Money Laundering (AML), Office of Foreign Assets Control (OFAC) and Know Your Customer (KYC) standards.
Bittrex had applied for the BitLicense a permit required for crypto businesses to operate in New York since August 2015, although it had also continued to operate under the terms of “safe harbor,” with the permission of the NYSFDS. In a letter sent to Bittrex on April 10, the regulator pointed out that it had issued various compliance notices to the exchange and assisted it in a bid to “address continued deficiencies and to assist Bittrex in developing appropriate controls and compliance programs commensurate with the evolving nature of the sector.”
After various deficiencies in Bittrex’s security were found, the regulator had a team of examiners conduct a review of the exchange’s operations at two of its offices. Per the review’s results, the exchange failed to demonstrate that it would “conduct business honestly, fairly, equitably, carefully, and efficiently.”
Following the denial of the exchange’s application, the NYDFS gave Bittrex a 24 hours window to cease all of its business operations in the state and 14 days to submit a letter indicating that it had completely shuttered its operations in the state as well.
Bittrex Fights Back
Initially, Bittrex published a press release responding to the denial of its BitLicense application.
The release, which was published on the same day its application was denied, conveyed the exchanges disappointment at the regulator’s decision, as well as its belief that the imposition of this licensing requirement “harms rather than protects” crypto investors and customers based in New York.
It pointed out that the capitalization requirements set by the NYDFS were significantly higher than those of any other state. According to the exchange, the requirements were based on a pre-existing “hot wallet vs. cold wallet” storage formula, which failed to consider Bittrex’s range of assets, as well as the risks of moving assets from hot to cold storage regularly.
The exchange also highlighted that it screens every new customer to find out if they’re Specially Designated Nationals (SDNs; entities and vessels which U.S. companies and citizens are prohibited from engaging in business with) are properly screened), and it also tracks SDN updates from the OFAC.
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