OPERATING ON THE “DARKNET” BRINGS A PENALTY OF $209,144,554.
Larry Dean Harmon is a U.S. person residing in Akron, was the creator, administrator, and primary operator of Grams, a darknet website that operated on the onion router (Tor) network and advertised itself as the “Google of the Darkweb”. Grams served as a search engine and content aggregator allowing users to search for illicit goods sold on darknet markets, such as narcotics, illegal firearms, and stolen personally identifiable information (PII).
1. In 2014, Harmon began operating and administrating a convertible virtual currency exchanger called Helix through the Grams darknet .onion site that was the primary administrator and operator of Helix a service linked to and affiliated with Grams. Helix operated what is commonly referred to as a “mixer” or “tumbler” of the convertible virtual currency bitcoin, charging customers a fee to send bitcoin to a designated address in a manner designed to conceal and obfuscate the source or owner of the bitcoin. Helix was built as a function into customer’s Grams “account” and operated in the following manner:
a. Customers would send bitcoin to a wallet associated with their Grams account;
b. Customers would then complete a Helix withdrawal form, which included the amount to withdraw, a destination address, and the ability to set a time delay for the transactions;
c. Helix would transmit the bitcoin deposited into their wallet to one of the numerous accounts held at different exchangers of convertible virtual currency;
d. Helix would take bitcoin from a different account it held and transmit that bitcoin to a different bitcoin address;
e. From this bitcoin address, Helix would then transmit bitcoin to the customer, minus a fee, into the previously provided customer destination address;
f. Helix asserted that it deleted customer information after seven days, or allowed customers to delete their logs manually after a withdrawal.
g. Helix Light was a service of Helix that allowed individuals to transact without creating a Grams “account.”
2. Customers were asked to provide a destination address to receive bitcoins;
3. Helix Light would provide an address to which the customer would send the desired amount of bitcoin between .02 and 6 bitcoins;
4. Helix Light would transmit the bitcoin deposited into their wallet to one of the numerous accounts held at different exchangers of convertible virtual currency;
5. Helix Light would take bitcoin from a different account it held and transmit that bitcoin to a different bitcoin address;
6. From this bitcoin address, Helix Light would then transmit bitcoin to the customer, minus a fee, into the previously provided customer destination address.
In July 2017, Mr. Harmon, through his legal representative, registered Coin Ninja LLC (Coin Ninja) in Delaware. Harmon was the Chief Executive Officer of Coin Ninja, operating as a money services business where he willfully participated in the direction and supervision of Coin Ninja’s operations and finances.
Coin Ninja has stated on its Frequently Asked Questions (FAQ) page that it also provided a “mixing” service including an “FAQ” titled “Why should I mix my bitcoins?” Coin Ninja offers a service called DropBit, which describes itself as “like Venmo for Bitcoin” allowing customers to accept and transmit bitcoin through text messages or Twitter handles. Harmon also advertised Coin Ninja’s DropBit service on Reddit, under the moniker “doolbman,” as a service that helps circumvent know your customer procedures.
Problem #1.
Despite requiring account creation for transactions through Helix, Harmon chose not to collect information on any of the over 809,500 unique addresses sending and receiving bitcoin. Harmon developed Helix Light so that customers could conduct transactions without even creating the accounts required by the Helix service offered through his Grams platform. As a result, Harmon failed to collect and verify customer names, addresses, or any other related customer identifiers on over 1.2 million transactions between June 2016 and December 2017 alone. 14. During its short yet entire operational period, Harmon openly advertised Helix as a service that did not conduct customer due diligence, stating “My goals with Helix light and Regular helix have always and will always work to perfection for tumbling bitcoins and keeping a user anonymous.” Harmon conducted over $311 million worth of transactions in convertible virtual currencies without performing appropriate due diligence on transactions or customers.
Problem #2.
Money (Civil) Penalties:
FinCEN determined that Harmon, in his roles with Helix and Coin Ninja, willfully violated regulations and that grounds exist to assess a civil money penalty for these violations to the maximum penalty in this
matter of $209,144,554.
Problem #3.
Imprisonment (Criminal) Penalty:
Currently, Harmon has been indicted in the District of Columbia under related criminal charges pursuant to a conspiracy to launder monetary instruments and the operation of unlicensed money transmitting business.
SUMMARY:
FinCEN provided Helix with a written pre-assessment notice that included a draft ASSESSMENT and Statement of Facts (the “PAN package”) outlining violations and the factors taken into consideration in determining whether to assess a civil money penalty and the proposed civil money penalty amount and instructions on how to respond to these charges. Harmon’s legal counsel delayed replying for over eight
months delay resulting in no reply to any of FinCEN’s claims and decided not to
submit any new facts or explanations for consideration.
In light of this, FinCEN considered the nature and seriousness of the violations and harm to the public, the impact of violations on FinCEN’s mission to safeguard the financial system, Helix openly flaunted existing regulatory requirements and went out of its way to create ways for darknet customers and vendors to avoid law enforcement detection, History, and duration of violations, and of course not participating at the earliest stage with FinCEN to address the violations and worth with FinCEN rather than a blanket non-communications.
CONCLUSION:
If you want a review of your particular operation or possible future financial operation for compliance with the various Federal regulations in relation to money services or currency, please contact to schedule a private consult. We look forward to working with you.
