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Miners – AML and sanctions risks relate to bitcoin miners

Miners - AML and sanctions risks relate to bitcoin miners

Miners – AML and sanctions risks relate to bitcoin miners, Gatenox

The cryptocurrency market is increasingly complex. More money in the ecosystem reaches $100B transaction value per day. This means that the risk from compliance, anti money laundering, and sanctions breach perspective is increasing. 

Every person responsible for the compliance, AML/KYC, must understand this ecosystem and risks to perform all relevant checks. 

More and more corporate structures are set up and this trend is increasing. This is why Gatenox is focusing on these corporate risks. 

Once you understand the ecosystem and value flow, you can perform all necessary sanctions, PEP, and negative news verifications.

In a series of articles, I will write about:
  • Miners 
  • Stakers
  • Defi 
  • Liquidity providers 
  • Validators

Analyzing them from the compliance perspective, especially from the corporate structure (or lack of) for these companies.

Miners:

Miners are a critical element of the ecosystem and they also receive large amounts of funds. So they are top on the list of entities that compliance and regulators need to understand.

What is Bitcoin mining?

Bitcoin mining is the process of creating new bitcoins by solving extremely complicated math problems that verify transactions in the currency. When a bitcoin is successfully mined, the miner receives a predetermined amount of bitcoin.

As prices of cryptocurrencies and Bitcoin, in particular, have skyrocketed in recent years, it’s understandable that interest in mining has picked up as well. But for most people, the prospects for Bitcoin mining are not good due to its complex nature and high costs. Here are the basics on how Bitcoin mining works and some key risks to be aware of.

Bitcoin mining statistics*:

  • A miner currently earns 6.25 Bitcoin ($250,000 as of April 2022) for successfully validating a new block on the Bitcoin blockchain.
  • Creating Bitcoin consumes 143.5 terawatt-hours of electricity each year, more than is used by Ukraine or Norway, according to the Cambridge Bitcoin Electricity Consumption Index.
  • It would take nine years of household-equivalent electricity to mine a single bitcoin as of August 2021.
  • The price of Bitcoin has been extremely volatile over time. In 2020, it traded as low as $4,107 and reached an all-time high of $68,790 in November 2021. As of April 2022, it traded for about $40,000.
  • Odds of solving for a hash: 1 in 22 trillion
  • The United States (35.4 percent), Kazakhstan (18.1 percent) and Russia (11.2 percent) were the largest bitcoin miners as of August 2021, according to the Cambridge Electricity Consumption Index.

There is the significant risk related to jurisdictions where miners operate. 


In 2021, the world’s top Bitcoin mining pools all came from China, with five pools being responsible for over half of the cryptocurrency’s total hash (that is the amount of bitcoin they are able to obtain).

2022: The Top Nine Bitcoin Mining Countries By Hash Rate Share

  1. United States — 35.4%
  2. China — 21.1%
  3. Kazakhstan — 18.1% 
  4. Russia — 11.23% 
  5. Canada — 9.55% 
  6. Ireland — 4.68% 
  7. Malaysia — 4.59% 
  8. Germany — 4.48% 
  9. Iran — 3.11%
Miners - AML and sanctions risks relate to bitcoin miners-2
Miners - AML and sanctions risks relate to bitcoin miners-1

As you can see, the country’s risk related to miners is significant. 

Around 900 Bitcoins are mined per day which means 27 000 000 USD value is created daily. 

Additionally, the same miners can mine other coins like bitcoin cash, and litecoin, which probably doubles the revenue. 

Who is the most significant Bitcoin mining company?

Whinstone is North America’s largest Bitcoin-mining facility.

Whinstone US, Inc.

Company

Founded: 2019

Parent organization: Riot Blockchain

It is worth checking with them who is behind it, what is they risk exposure, beneficial owners, directors, corporate structures. 

Other examples of listed mining stocks are 

  • CleanSpark, Inc. (NASDAQ:CLSK)
  • HIVE Blockchain Technologies Ltd. (NASDAQ:HIVE)
  • Bitfarms Ltd. (NASDAQ:BITF)
  • Canaan Inc. (NASDAQ:CAN)
  • Hut 8 Mining Corp. (NASDAQ:HUT)

However, some of the other large crypto mining companies are as follows: 

  • Dalian, China. Hashrate: 360,000 TH. 
  • Genesis Mining Farm, Reykjavik, Iceland. Hashrate: 1,000 GH. 
  • Moscow, Russia. Hashrate: 38 PH. 
  • GigaWatt, Washington, USA. Hashrate: 1.3 PH. 
  • Linthal, Switzerland. 
  • Bitfury, Amsterdam, Netherlands.

Interestingly, FinCEN has made it clear that virtual currency mining operations are not considered to be money services businesses (MSBs) money transmitters.

From FIN-2014-R001 “Application of FinCEN’s Regulations to Virtual Currency Mining Operations” issued January 30, 2014:

FinCEN understands that Bitcoin mining imposes no obligations on a Bitcoin user to send mined Bitcoin to any other person or place for the benefit of another. Instead, the user is free to use the mined virtual currency or its equivalent for the user’s own purposes, such as to purchase real or virtual goods and services for the user’s own use. To the extent that a user mines Bitcoin and uses the Bitcoin solely for the user’s own purposes and not for the benefit of another, the user is not an MSB under FinCEN’s regulations, because these activities involve neither “acceptance” nor “transmission” of the convertible virtual currency and are not the transmission of funds within the meaning of the Rule.

While an individual engaged in crypto mining for their own benefit will have certain tax obligations, there is no requirement of any kind for compliance whatsoever.

So in summary, the risks related to these organisations are: 

  • Jurisdiction they operate – can be sanctioned (i.e. Iran) or high risk 
  • Sanctions / PEP risk is associated to owners, directors, and people of significant influence – almost certain that there are some people on sanctions lists in Russian miners 
  • Understanding the group structure – some risks would like to hide behind a corporate veil so you need to understand these
  • See if there are any negative news related to them
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