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Alleged ‘shadow banker’ for crypto exchanges moves toward guilty plea on unlicensed money transmission business charge

Yilun Cheng

Alleged “shadow banker” Reginald Fowler appears set to plead guilty to operating an unlicensed money transmittal business on Friday.

In Apr. 2019, Fowler and Israeli national Ravid Yosef were arrested together for allegedly running “a shadow bank that processed hundreds of millions of dollars of unregulated transactions on behalf of numerous cryptocurrency exchanges,” according to an announcement by the U.S. Attorney’s Office. 

In his latest move, Fowler was present at a change of plea hearing to the last of those charges, according to a report from Inner City Press. The move does not yet appear to be finalized, according to the report.

As the publication noted:

"Judge Carter said, We are here for a change of plea, and there was no objection. But then:  No sentencing date, no agreement on restitution; plea begun, but then fell apart. Fowler did not object when Judge Carter said, we are here for change of not guilty to guilty plea.

In fact, Judge Carter repeatedly asked Fowler, do you understand the elements of the charge you are pleading guilty to? This after Assistant US Attorney Sebastian Swett added the section of the law under which such businesses must be registered: 31 US Code Section 5330. Yes, was Fowler's answer. And that he is 60 years old and has a Masters Degree.

But then it all fell apart..."

Major exchanges including Bitfinex, Binance, Kraken, and BitMEX have all reportedly used services provided by payment processing firm Crypto Capital at one time or another – which Fowler allegedly co-founded – as The Block previously reported. These “shadow banking” transactions often circumvent Know Your Customer (KYC) and anti-money laundering rules.

In fact, Bitfinex allegedly entrusted more than $800 million to the firm in question to which it subsequently lost access amid a dispute between the two companies. QuadrigaCX, the defunct Canadian crypto exchange now entangled with ongoing investigations, also stored client funds at Crypto Capital, according to Bloomberg.

In June, Fowler entered not-guilty pleas to all four charges directed at him: bank fraud, conspiracy to commit bank fraud, operating an unlicensed money transmission business, and conspiracy to operate an unlicensed money transmission business. As a response, the U.S. Attorney's Office dropped all counts except for the “operation of an unlicensed money transmittal business.” 

Meanwhile, Yosef was charged but has not yet arrested, CoinDesk reported. 

Editor's Note: This article and its headline have been amended to clarify the nature of today's hearing.