Regulatory Challenges and Legal Issues in Cryptocurrency Sector

Xeltox Enterprises Ltd., a cryptocurrency company incorporated in British Columbia, is currently appealing a staggering fine of over $176 million imposed by Canada's anti-money-laundering regulator, FinTRAC.

This fine, totaling $176,960,190, is the largest ever levied by FinTRAC against a cryptocurrency firm. Xeltox, which operates under the name Cryptomus, argues that FinTRAC made a mistake by treating Xeltox and Cryptomus as the same entity.

According to the appeal filed on November 14, Xeltox claims it licenses the Cryptomus platform from a Panama-based company, Padel West S.A., and should not be held liable for the actions of other licensees.

However, FinTRAC asserts that it is more likely than not that Xeltox and Cryptomus function as the same entity under Canada's Proceeds of Crime (Money Laundering) and Terrorist Financing Act. In its compliance investigation, FinTRAC found Xeltox had failed to file suspicious transaction reports on 1,068 occasions, neglecting to flag transactions suspected of being linked to fraud, sanctions evasion, and even child abuse material.

The company also allegedly failed to report large virtual-currency transactions exceeding $10,000 on 1,518 occasions, and contravened a federal directive by not reporting transactions originating from Iran on 7,557 occasions between July and December 2024.

Overall, Xeltox is facing multiple violations of the Proceeds of Crime Act, including a failure to implement compliant policies and procedures. Xeltox contends that the proposed fines are so excessive they could push the company towards bankruptcy, claiming it only had $150,000 in assets and $983,000 in gross revenue during a recent period.

FinTRAC, however, disputes these claims, estimating that Cryptomus could have earned between $15.4 million and $77.2 million in profits over three years. This isn't the first regulatory challenge for Xeltox; in May, the B.C.

Securities Commission temporarily banned the company from trading securities or derivatives due to potential violations of registration requirements. Although this temporary order expired in June, the Cryptomus website is currently inaccessible in Canada.

Despite being incorporated in British Columbia, Xeltox lacks a physical presence in Canada, with no Canadian employees and its registered address linked to a mailbox service. The sole director of the company is Sabina Salim Kizi Berdieva, a resident of Uzbekistan.

Additionally, Kakhanova Renata Andreyevna, a resident of Kazakhstan, recently filed to trademark the Cryptomus name in Canada. These regulatory challenges highlight the increasing scrutiny faced by cryptocurrency companies, raising concerns about compliance and the future of the crypto sector in Canada.