California Man Pleads Guilty to Running Illegal Bitcoin ATMs and Money Laundering

The US Department of Justice has accepted a guilty plea from a Californian man for operating a money laundering and illegal Bitcoin business.

According to a plea agreement filed Wednesday, July 22 in federal court, 36-year old Kais Mohammad, also commonly recognized as “Superman 29”, has agreed to plead guilty to one count each of operating money laundering, unlicensed money transmitting business, and failing to maintain an effective AML (anti-money laundering) program.

Law Enforcements Spot and Study Patterns to Catch Criminals

Federal investigators revealed that Mohammed owned and operated HeroCoin, which was an illegal digital currency money services business, exchanging Bitcoin cryptocurrency for cash and charging commission rates of up to 25% that were “significantly above” the market rate.

The company also operated Bitcoin ATM kiosks in multiple retail centers, including convenience stores, gas stations, and malls throughout San Bernardino, Riverside, Los Angeles, and Orange counties. Such kiosks allowed customers to either sell Bitcoin in exchange for cash or buy Bitcoin with cash that would be dispensed on site.

Prosecutors claimed that Mohammad knew at least some of his clients’ funds were obtained through illegal activities.

As part of his plea agreement, Mohammad admitted to having exchanged more than $25 million through the firm.

Prosecutors alleged that Mohammad intentionally failed to register the firm with the U.S Department of Treasury’s Financial Crime Enforcement Network (FinCEN) or develop an effective anti-money laundering program.

Prosecutors also claimed that being a former banker, Mohammad was aware, but ignored regulations related to reporting requirements for digital currency exchanges. Regulations required Mohammad to report exchanges of currency bigger than $10,000 or any transactions over $2,000 involving customers suspected to be involved in criminal activities. But Mohammed ignored complying with these regulations.

According to court records, law enforcement officials conducted several transactions with Mohammad as a way of carrying out their investigations. One undercover agent bought $14,500 value of Bitcoin cryptocurrency during three successive transactions at a Bitcoin ATM kiosk located in Lakewood.

As per the U.S attorney’s office, Mohammad once again met in person with undercover agents who represented themselves that they worked at a ‘karaoke bar, which employed beautiful women from Korea who entertained men in several ways, including engaging in sexual activity. Mohammed agreed to accept $16,000 in cash from one of the undercover agents in exchange for Bitcoin, prosecutors reported.

Prosecutors alleged that Mohammed did not file the required currency transaction reports nor a suspicious activity report, in relation to the exchanges involving the undercover agents.

So far, no hearing date has been scheduled for Mohammad to enter a plea of guilty. He faces a maximum sentence of 30 years in federal prison. He has agreed to forfeit cryptocurrency, cash, and 17 Bitcoin ATMs that he used for his business operations.

Laundered Cryptocurrency Washed with Exchange Services

Chainalysis report reveals that a majority of criminally-connected cryptocurrencies are laundered on basic online exchange services. In 2018, doge cryptocurrencies amounted to more than $1 billion were washed by simply depositing them onto digital asset exchanges and trading them. Money launders utilized other p2p (peer-to-peer) exchange services to clean a further 12% of their illegal proceeds. This implies that over 75% of illegal cryptocurrencies were moved through an online exchange service in 2018.

The majority of illicit money flowed through either peer-to-peer exchanges or crypto exchanges, with others flowing through conversion services like gambling sites, mixing services, and Bitcoin ATMs.

Most of the digital currencies were acquired by hacking crypto exchanges directly. In 2018, about $36 million value of Ethereum was stolen through exit scams, Ponzi schemes, or phishing.