An Orange County man has pleaded guilty to laundering millions of dollars through in-person exchanges and a network of unlicensed Bitcoin ATMs controlled by his company. Kais Mohammad, the defendant, knew his customers laundered the proceeds of crime through his Bitcoin exchange network.
Kais Mohammad, aged 36 entered his guilty plea on July 22, 2020 to one count of money laundering, one count of operating an unlicensed money transmitting business and one count of failure to maintain an anti-money laundering program.
Mohammad operated the Herocoin bitcoin ATM network, from December 2014 to November 2019. Herocoin was described as an “illegal virtual-currency money services business.” In addition to Herocoin he also operated an account on LocalBitcoins called “Superman29.” .
On the Superman29 account he also exchanged bitcoin for cash at a far higher rate than the industry standard, he advertised rates of 25% and accepted transactions up to $25,000.
According to documented exchange on twitter, the Herocoin account confirmed a 20% rate plus a $5 fee per transaction.
@EsmeGregson:
PEOPLE NEED TO KNOW THAT HEROCOIN charges 20% plus 5 dollar “fee” per transaction. For example: $155 deposited into a HeroCoin ATM will get $120 worth of coins in your wallet. IMO charging 25% to convert CASH into digital currency is OFFENSIVE.@HeroCoinBTC in response to @EsmeGregson:
Hello, yes, that is our current rate which is displayed in the total price of BTC on the machine before purchase as well as the $5 transaction fee. We have deleted our tweet from over a year ago of our prior rates to avoid any confusion.Herocoin was not registered with the Financial Crimes Enforcement Network (FinCEN) as required by law. In 2018 FinCEN contacted Mohammad about the status of his company.
After the contact Mohammad registered his company but failed to comply with regulations, including AntiMoney Laundering (AML) policies and Know Your Customer (KYC). He did not report transactions above specified dollar amounts as required by law.
Undercover federal investigators purchased $14,000 in Bitcoin from one of Herocoin’s ATM, the purchase was made on September 12, 2018. Mohammad Never reported the transaction as required by law.
Mohammad was monitored and between February and August 2019 he regularly exchanged Bitcoin for cash with undercover agents who claimed the money was proceeds of crime. Mohammad was told by the agents that they worked for a bar that employed women to provide sexual favors to patrons.
Mohammad exchanged $16,000 in Bitcoin on August 28, 2019, for one of the undercover agents. None of the transactions were reported.
Mohammad pleaded guilty to exchanging between $15 million and $25 million during the lifetime of operating Herocoin ATMs and the “Superman29” LocalBitcoins account. He failed to ask his customers about the source of their funds. He also knew that at least one of his clients conducted illegal activity on the darknet. He forfeited the Bitcoin ATMs along with an undisclosed amount of cash. He faces a maximum sentence of 30 years in prison.
Wednesday, July 22, 2020, press release by the Department of Justice:
O.C. Man Admits Operating Unlicensed ATM Network that Laundered Millions of Dollars of Bitcoin and Cash for Criminals’ Benefit
LOS ANGELES – A Yorba Linda man has agreed to plead guilty to federal criminal charges that he operated an illegal virtual-currency money services business that exchanged up to $25 million – including on behalf of criminals – through in-person transactions and a network of Bitcoin ATM-type kiosks.
Kais Mohammad, 36, a.k.a. “Superman29,” was charged in a three-count criminal information filed today in United States District Court. In a plea agreement also filed today, Mohammad agreed to plead guilty to one count of operating an unlicensed money transmitting business, one count of money laundering, and one count of failure to maintain an effective anti-money laundering program.
According to his plea agreement, from December 2014 to November 2019, Mohammad owned and operated Herocoin, an illegal virtual-currency money services business. As part of his business, Mohammad offered Bitcoin-cash exchange services, charging commissions of up to 25 percent – significantly above the prevailing market rate – for doing so.
Using the moniker “Superman29,” Mohammad advertised his business online to buy and sell Bitcoin throughout Southern California, in transactions up to $25,000. In a typical transaction, he met clients at a public location and exchanged currency for them. Mohammad generally did not inquire as to the source of the clients’ funds and on many occasions he knew the funds were the proceeds of criminal activity. Mohammad admitted that he knew at least one Herocoin client was engaged in illegal activity on the dark web.
Mohammad later purchased and advertised on the internet a network of Bitcoin ATM-type kiosks, which were located in malls, gas stations and convenience stores in Los Angeles, Orange, Riverside and San Bernardino counties. These kiosks allowed customers to use cash to buy Bitcoin, an Internet-based cryptocurrency, or sell Bitcoin in exchange for cash that is dispensed onsite.
Mohammad processed cryptocurrency deposited into the machines, supplied the machines with cash that customers would withdraw, and maintained the server software that operated the machines. Mohammad was able to monitor transactions on the machines and identify each transaction that occurred on them.
During the time of Herocoin’s operation, Mohammad, a former bank employee, intentionally failed to register his company with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
Mohammad admitted he was aware that he was required to – but chose not to – develop and maintain an effective anti-money laundering program, file currency transaction reports for exchanges of currency in excess of $10,000, conduct due diligence on customers, and file suspicious activity reports for transactions over $2,000 involving customers he had reason to suspect were involved in criminal activity.
With respect to his Bitcoin ATM network, Mohammad further admitted that he did not have a program in place that would have allowed him to obtain identifications for customers conducting multiple transactions of up to $3,000 or verify that any identification provided was the person conducting the transaction.
After FinCEN contacted Mohammad in July 2018 about his need to register his company, Mohammad did so, but he continued to fail to comply fully with federal law concerning money laundering, conducting due diligence and reporting suspicious customers.
During the course of its investigation, law enforcement conducted multiple transactions with Mohammad, including three successive purchases of Bitcoin totaling $14,500 by the same undercover agent from an ATM kiosk in Lakewood on September 12, 2018, for which Mohammad did not file a currency transaction report as required.
From February 2019 to August 2019, Mohammad also conducted multiple in-person transactions with undercover agents who represented they worked at a “karaoke bar” that employed women from Korea who entertained men in various ways, including engaging in sexual activity, according to the plea agreement.
On August 28, 2019, Mohammad met with an agent and exchanged $16,000 in cash, which the agent represented were the proceeds from illegal activity, for 1.58592 Bitcoin.
Mohammad never filed a currency transaction report or suspicious activity report for these transactions.
In total, Mohammad admitted that he exchanged between $15 million and $25 million from in-person exchanges and transactions occurring at his Bitcoin kiosks.
Mohammad is expected to plead guilty to the charges at a hearing in the coming weeks. Upon pleading guilty, Mohammad will face a statutory maximum sentence of 30 years in federal prison. As part of the plea agreement, Mohammad has agreed to forfeit cash, cryptocurrency, and 17 Bitcoin ATMs that he operated as part of his business.
This matter was investigated by IRS Criminal Investigation, Homeland Security Investigations, and the Los Angeles County Sheriff’s Department. This investigation was conducted with the support of the Organized Crime Drug Enforcement Task Force (OCDETF).
This case is being prosecuted by Assistant United States Attorney Puneet V. Kakkar of the International Narcotics, Money Laundering, and Racketeering Section.
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