In what is the New York Department of Financial Services’ (NYDFS) first enforcement action against a NYDFS-licensed “virtual currency business,” on August 1, 2022, the agency announced $30 million settlement with cryptocurrency investing platform Robinhood Crypto, LLC (“RHC”).  The settlement addressed  charges stemming from what the NYDFS cited as various deficiencies during 2019-20 of RHC’s Bank Secrecy Act (BSA) and anti-money laundering (AML) program and RHS’ cybersecurity obligations under the agency’s Virtual Currency “BitLicense” regulation (23 NYCRR Part 200) and Cybersecurity Regulation (23 NYCRR Part 500), among other things

NYDFS has been active in crypto regulation for many years. In 2015, New York was the first state to promulgate a comprehensive framework for regulating virtual currency-related businesses. The keystones of the BitLicense regulations are consumer protection, anti-money laundering compliance and cybersecurity rules that are intended to place appropriate “guardrails” around the industry while allowing innovation. In addition, NYDFS’s Cybersecurity Regulation went into effect in March 2017 and generally requires all covered entities, including licensed virtual currency businesses, to establish and maintain a cybersecurity program designed to protect the confidentiality, integrity, and availability of its information systems. Licensed virtual currency companies are subject to the same AML and cybersecurity regulations as traditional financial services companies.

In 2019 the NYDFS granted RHC’s application for a BitLicense. The BitLicense, along with a New York state money transmitter license also granted at the time, authorized Robinhood Crypto to offer services for buying, selling and storing various cryptocurrencies to New York residents. Overall, NYDFS stated that after conducting a supervisory examination and investigation, it found that RHC had “shortcomings in the company’s management and oversight of its compliance programs” and that inadequate staffing and resources were devoted to BSA/AML, transaction monitoring and cybersecurity compliance commensurate with its growth.  As such, the agency found that RHC’s programs did not fully address RHC’s operational risks, particularly those associated with operating a cryptocurrency trading platform, and that specific policies within the program were not in full compliance with NYDFS’s Cybersecurity and Virtual Currency Regulations.  Under the settlement, beyond the $30 million penalty, RHC will be required to retain an independent consultant to perform a comprehensive evaluation of the RHC’s remediation and compliance efforts.

This is an active summer at NYDFS for crypto developments.  The RHC settlement follows on the heels of last month’s release of a stablecoin guidance meant to set foundational criteria for USD-backed stablecoins issued by DFS-regulated entities on the issues of redeemability, assets reserves and attestations about such reserves.

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Photo of Seetha Ramachandran Seetha Ramachandran

Seetha Ramachandran is a partner in the Litigation Department, and a member of the White Collar and Asset Management Litigation practices. An experienced trial and appellate lawyer, Seetha has conducted 10 criminal jury trials, argued 10 appeals before the U.S. Court of Appeals…

Seetha Ramachandran is a partner in the Litigation Department, and a member of the White Collar and Asset Management Litigation practices. An experienced trial and appellate lawyer, Seetha has conducted 10 criminal jury trials, argued 10 appeals before the U.S. Court of Appeals for the Second Circuit, and handled ancillary civil proceedings in forfeiture cases.

Seetha is a leading expert in anti-money laundering (AML), Bank Secrecy Act, economic sanctions and asset forfeiture matters. Her practice focuses on white collar and regulatory enforcement defense, internal investigations, and compliance counseling. She represents banks, broker dealers, hedge funds, private equity funds, online payment companies, and individual executives and officers in high stakes and sensitive matters. Seetha has deep experience representing institutions and individuals in financial penalty phase of criminal and regulatory matters, and is often retained to litigate forfeiture and restitution claims on behalf of victims and third parties in criminal cases, as well as handling these issues for individual defendants.

Seetha served as a federal prosecutor for nearly 10 years, including as Deputy Chief in the Asset Forfeiture and Money Laundering Section (AFMLS), Criminal Division, U.S. Department of Justice. She was the first head of DOJ’s Money Laundering & Bank Integrity Unit, where she supervised DOJ’s first major AML prosecutions, and oversaw all of the Criminal Division’s AML cases. In that role, Seetha coordinated closely with state and federal banking regulators, including FinCEN, the OCC and the New York State Department of Financial Services, giving her deep experience with how these agencies work together, especially in matters involving civil and criminal liability. Her work developing and charging criminal cases under the Bank Secrecy Act (BSA) formed the model for AML enforcement that regulators and prosecutors follow today.

Seetha also served as an Assistant U.S. Attorney for the Southern District of New York for nearly six years, in the Complex Frauds, Major Crimes and Asset Forfeiture units where she investigated and prosecuted white-collar cases involving a wide range of financial crimes, including bank fraud, mail and wire fraud, tax fraud, money laundering, stolen art and cultural property, and civil and criminal forfeiture cases.

Seetha is a frequent speaker and prolific author on topics including enforcement trends in the financial services industry, OFAC sanctions, effective AML programs and asset forfeiture.