Founders of crypto exchange linked to Bermuda companies facing criminal charges
Companies affiliated with a cryptocurrency exchange facing criminal and civil charges in the United States for allegedly facilitating money laundering may yet get a licence to operate in Bermuda, according to the Government’s fintech consultant.
Denis Pitcher told The Royal Gazette that if Bitmex – which set up an office here in 2018 and is currently hiring for a senior business development representative – could show it was taking corrective action to meet global anti-money laundering requirements then it could potentially get the go-ahead from the Bermuda Monetary Authority.
“Our hope is to attract players that are looking to showcase that they are doing the right thing,” said Mr Pitcher.
“ … if they [Bitmex] were looking for a jurisdiction to showcase they are doing their due diligence to a top global standard, then I would think we would be in consideration.”
He said the charges against Bitmex meant Bermuda – with its “robust” digital asset regulatory framework – was “definitely in consideration for other entities … that as a result of this are very keen to showcase that they are actively doing their due diligence, that they are trying to take the right steps”.
Bitmex is one of the world’s largest cryptocurrency derivatives trading platforms and is owned and operated by HDR Global Trading Ltd, a Seychelles-incorporated entity.
Company founder and former CEO Arthur Hayes – who is now being sought by US authorities for questioning – visited Bermuda in June 2018 and met David Burt.
The Premier tweeted photos of the meeting and wrote that Mr Hayes “met our #FinTech team to learn more about our digital asset regulation, with a view to establishing a Bitmex office in Bermuda”.
HDR Global Services (Bermuda) Ltd was incorporated here as an exempted software technology development company soon after, on July 3, 2018.
HDR Capital Ltd, an investment holding firm, was incorporated as an exempted company here on April 5, 2019.
The firms are understood to be based at Seon Place, on Front Street.
Mr Hayes, who has a Hong Kong address, is listed as the director of both entities on the Directors’ Register at the Registrar of Companies.
He and HDR Global Services (Bermuda) were named last month as defendants in a civil action brought by the Commodity Futures Trading Commission in the United States District Court for the Southern District of New York.
The lawsuit alleges that five Bitmex entities and the owners and operators of the Bitmex trading platform operated an unregistered trading platform and violated multiple regulations, including failing to implement required anti-money laundering procedures.
Mr Hayes, along with Bitmex co-founders Ben Delo and Samuel Reed and employee Gregory Dwyer, also face criminal charges brought by the Department of Justice of wilfully failing to “establish, implement and maintain an adequate anti-money laundering programme”.
The criminal indictment alleges the Bitmex exchange was being used by hackers to launder stolen money, and by people in countries under US sanctions, including Iran.
It also claims the company solicited and accepted customers in the US, despite not being registered with the CFTC and even after it sought to exempt itself from US law by incorporating in the Seychelles.
Bitmex denies the allegations, stating it has “always sought to comply with applicable US laws, as those laws were understood at the time and based on available guidance”.
The company announced on October 8 that all four men had resigned from their roles at Bitmex and at sister company, 100x Group.
Neither of the Bermuda-registered HDR firms have a licence to operate from the BMA and Mr Pitcher stressed he had no knowledge of whether licence applications had been submitted, as the BMA does not disclose such information
He said of Bitmex: “They've never broadcast that they are in Bermuda.
"[But] it's never been a secret. Arthur Hayes said in 2018 that he was going to set up a company and he did.
"He just unfortunately decided to keep his exchange registered and regulated in the Seychelles instead of getting it regulated here.“
Mr Pitcher added: “So many of the companies that have gone and gotten registered in the Seychelles haven't had a whole lot of oversight.
"The risk you face – and this is the risk that Bitmex faces – is if you haven't had oversight then you have to justify that you have been taking corrective action, that you have been doing your due diligence to manage global risks.“
He noted that Bitmex had hired Malcom Wright, a virtual assets compliance expert, as its chief compliance officer following the US criminal charges.
“What that says, as an opinion of mine, is that they are taking steps to try and sustain the business.
“That means they are doing everything they can to show that they are taking corrective action and part of that action could be getting regulated in a jurisdiction like Bermuda to show that they have cleaned things up because the only way they would get regulated in Bermuda is if they clean things up …”
It wasn’t possible to get comment from HDR before press time last night.