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Russian National Arrested in Greece with Ties to Money Laundering, BTC-e, Mt. Gox Theft

· July 26, 2017 · 4:30 pm

Alexander Vinnik, 38, has been arrested in Greece on a U.S. warrant. While he is suspected of running one of the largest online money laundering operations, additional reports are emerging naming him as the mastermind behind the Mt. Gox heist that sent Bitcoin spiraling out of control in 2013.


The Man Behind the BTC-e Exchange

For almost seven years, BTC-e has operated as one of the oldest digital currency exchanges in the world. During that entire time, the people behind the company have been completely anonymous.

Until today.

The alleged mastermind behind a multi-billion dollar money laundering scheme and, according to sources close to the exchange, a key person behind BTC-e has been unmasked as Alexander Vinnik, a Russian national who was arrested today in Greece. Vinnik is wanted in the United States on suspicion of money laundering at least $4 billion USD through bitcoin transactions.

Vinnik is currently being held in custody by Greek authorities pending a U.S. extradition request.

Greek police have stated:

An internationally sought ‘mastermind’ of a crime organization has been arrested. Since 2011 the 38-year-old has been running a criminal organization which administers one of the most important websites of electronic crime in the world.

With Vinnik’s extradition, the U.S. investigation will go into full swing. This is the latest in a series of U.S. efforts to curb cybercrime worldwide. Last week, a multi-national coordinated raid involving the U.S. and several other countries resulted in the takedown of the Darknet site known as Alphabay.

BTC-e have long been known for their lax regulations user identity verification and their uncooperative nature when it comes to anti-money laundering organizations. Perhaps coincidentally, the exchange has conspicuously been offline since last Thursday, with the website currently citing “unscheduled maintenance” as the cause of the interruption of service.

A feed of tweets from the BTC-e is on the site as well to keep users informed.

Ties to the Mt. Gox Bitcoin Hack

Vinnik was also found to be in control of a sizable number of Bitcoins that could possibly be traced back to the hack of the Mt. Gox exchange back in 2013. A group of security experts known as WizSec published a blog post earlier today detailing how the hack took place. The group maintains that Vinnik has been their prime suspect in their years-long investigation into the Bitcoin theft and that the same conclusions about his involvement were made independently by other teams working to uncover what really happened.

WizSec explains:

In September 2011, the MtGox hot wallet private keys were stolen, in a case of a simple copied wallet.dat file. This gave the hacker access to a sizable number of bitcoins immediately, but also were able to spend the incoming trickle of bitcoins deposited to any of the addresses contained. […] By mid-2013 when the funds spendable from the compromised keys had slowed to a near halt, the thief had taken out about 630,000 BTC from MtGox.

Mt. Gox Where is Our Money

Not only can the Mt. Gox coins be traced to Vinnik, but other less known heists can be traced to him as well.

According to WizSec:

Coins stolen from Bitcoinica, Bitfloor and several other thefts from back in 2011 and 2012 were all laundered through the same wallets.

Vinnik has denied all accusations against him in a Greek court of law. More information on this story will surely be released in the coming days, so make sure to stay tuned.

Do you think that Vinnik will be extradited to the States? Or will other countries try and lay their claim to prosecute? Let us know in the comments below, and make sure to check back at Bitcoinist.com for more information on this story as it unfolds.


Images courtesy of Japan Times, Reuters/Alexandros Avramidis, Shutterstock

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Bitcoin ATM Industry Reacts to ‘Money Mules,’ Changing Markets

Source: bitcoin

Bitcoin Money Laundering

Recently, EasyBit announced the installation of 6 Bitcoin ATMs in 4 states across the US. The company expressed confidence in the future success of these machines, even dismissing news that “money mules” had used Bitcoin ATMs to launder money as a service to other criminals.

Also read: ShapeShift Removes Support for Ethereum Following Forking Mishap

The money mule accusations  are the latest in a long and growing list of alleged crimes that have been facilitated by Bitcoin and other digital currencies. Since the mainstream discovery of the Silk Road marketplace, mainstream media and anti-Bitcoin pundits have tried to connect Bitcoin use to drug trafficking, kidnapping, terrorism financing and myriad other crimes.

EasyBit, however, doesn’t seem phased by these claims, continuing their business of installing Bitcoin ATMs in new locations, hoping to stimulate a bitcoin economy in new markets.

Bitcoinist got the chance to ask Michael Dupree, founder and CEO of EasyBit, a few questions about his company and what he thinks about recent developments in the Bitcoin and finance worlds.


Bitcoin ATM Industry Evolving and Growing With the Bitcoin Market

Why did you choose these 6 locations? Do these places have established bitcoin markets, or are you looking to create new markets in these areas?

Michael Dupree, founder and CEO of EasyBit

We are always looking to expand our marketplaces and provide Bitcoin ATMs services to a larger number of customers. Currently we are contemplating a growing market that, even though it is growing fast, is still quite new so most of the locations are “under development.”  

What do you think about the news regarding “money mules” using bitcoin ATMs to launder stolen money? Is it going to hurt the reputation of bitcoin ATMs or Bitcoin in general?

Criminal activities related with Bitcoin are almost as old as Bitcoin itself, same thing we can say about credit cards, cash or any other type of exchange. They are good in general, and do not undermine the benefits that the technology provides to the society.

In Easybit we follow a strict procedure of Know Your Customer (KYC) and Anti Money Laundry (AML) as well as all government regulations, and we are also constantly working on improving the processes in order to avoid any illegal use of the ATMs.

Are there any precautions bitcoin ATM manufacturers and administrators can take to prevent money laundering?

Having a good compliance process that can identify your customers properly, for example through the use of systems like Blockscore and SSN, as well as working closely with the Office of Foreign Assets Control (OFAC) is the best way to dissuade any kind of unwanted use of the ATMs.

You mentioned that the installation of a bitcoin ATM seems to be followed by increased adoption in the area. Can you elaborate on that? Do you have any data to back that up?

A map of EasyBit’s Bitcoin ATM locations in the US

Even though Bitcoin was created 7 years ago, it is a completely new technology if we compare it to around 60 years of credit cards and more than 200 years of paper currency, so it is understandable that it is not yet widely known. It is estimated that only 1 in 5000 people in the world know or have heard about it, which means that curiosity is obviously a major factor when speaking about adoption.

When we put an ATM in a bar or a restaurant, a lot of people that may have never heard about cryptocurrencies suddenly find out that they can have their money stored in their phones, so they give it a try.

After that, many of our new customers realize the other benefits of using bitcoins and become regular users.

We haven’t heard much about bitcoin ATMs lately, what is your argument for their continued relevance or usefulness, especially when people can use services like LocalBitcoins?

LocalBitcoins is an excellent service but it is more susceptible to scams than using an ATM. Also some customers feels more comfortable using the machines for cash transactions.

What’s going to happen to bitcoin ATMs if these visions of a “cashless society” come true?

Nothing last forever and we are well aware that the market is dynamic and continuously evolving, so if the society turns to a cashless structure we, as all ATM companies, will have to adapt to that change providing new types of services. What we are sure about is that it is a thrilling opportunity to live in this moment of big social, political and economic changes and we want to be here for the long term.


Thank you, Michael, for taking the time to chat with us. Bitcoinist will continue following the Bitcoin ATM industry and will report on how they react and adapt to further changes in the bitcoin economy.

Do you think Bitcoin ATMs still serve a purpose? Let us know in the comments below.


Images courtesy of Business Insider, EasyBit.

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Bitcoin ATM Industry Reacts to ‘Money Mules,’ Changing Markets

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Chinese Court Awards Damages Against OKCoin, Says It Operates Illegally

Source: bitcoin

Chinese Yuan

A Chinese civil court has awarded damages against the parent company of popular bitcoin exchange OKCoin, saying the business is improperly registered and facilitates criminal money-laundering.

Also read: Network Engineer Tries to Thwart UK Bill That Plans to Expand Surveillance State

It is the first major court ruling against a bitcoin exchange in China, which could have ramifications for other Bitcoin businesses in the country.

The decision was actually published online in China on July 29, but did not become widely-known until today. It pertains only to OKCoin’s China-based entity OKCoin.cn, and not its Singapore-registered international exchange OKCoin.com, which is a separate business.

The case is reportedly an appeal stemming from a 2014 case that OKCoin’s parent company Lekuda also lost. The defendant, Huachen Commercial and Trading Co. Ltd., claimed a criminal had defrauded it of 12 million RMB ($1.8 million USD) and then laundered the money by buying bitcoin, which was then withdrawn to an account in Macau.

The initial ruling awarded 80 percent of the damages the defendant company had sought, but the appeal reduced this to 40 percent.

OKCoin ID Reviews Not Strict Enough

In the ruling details, the court criticized OKCoin for not strictly reviewing its users’ real identities, meaning criminals could easily use the exchange to launder proceeds from their illicit activities.

The criminal in this case had set up a number of accounts on OKCoin using fraudulent identity documents purchased online.

Operating Outside the Scope of its License

The ruling also suggested OKCoin was operating illegally, since its operating license doesn’t cover its bitcoin exchange business.

It would be difficult to comply fully under these conditions, since there is no existing legislation to regulate Bitcoin businesses in China, and no license to obtain even if it were sought.

The judgment said OKCoin “should register at the administration of Industry and Commerce and get a business license.”*

“Lekuda’s registered business scope only includes these areas: technology development, transfer of technology, technical services, technical marketing, consulting and investment management. Trading Bitcoin for profit-making purposes is beyond the range permitted by the administrative authorities.”

Bitcoin in China a Gray Area

Since the Chinese government has a history of placing restrictions on Bitcoin companies’ operations, many in the country will no doubt be watching and treading carefully in the near future.

Authorities first tried to forbid bitcoin exchanges from performing direct transfers in and out of banks in early 2014, and requested the five major exchanges at the time sign a statement warning their customers of the risks of speculating on bitcoin price.

Since then, however, Bitcoin businesses have found ways to continue operations as usual within the gray legal area. Chinese bitcoin exchanges are among the world’s most active and widely used, mainly due to zero-fee structures.

*English translations of judgment via Reddit.

Do you think the ruling is likely to lead to another crackdown on Bitcoin business in China? Are Chinese exchanges more likely to be more thorough with ID procedures in future?


 

Images courtesy of Wikimedia Commons, OKCoin.

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Charlie Shrem Went To Jail One Year Ago Today

Source: bitcoin

Charlie Shrem Went To Jail One Year Ago Today

One year ago today, former BitInstant CEO and early Bitcoin proponent Charlie Shrem began serving his two-year prison sentence. The former CEO of BitInstant, a popular Bitcoin exchange in the early days of Bitcoin, was arrested at JFK airport in January 2014. He was just 24 year old.

Also Read: Synthetic Cannabis Proliferates On The Dark Web

$1 Million In Laundered Bitcoins

Later convicted of abetting more than $1 million in bitcoin sales to Silk Road users, and also cited as a Silk Road user himself, Shrem faced a detailed case against him. He was charged alongside Robert Faiella, who was known as BTCKing on the Silk Road.

“Hiding behind their computers, both defendants are charged with knowingly contributing to and facilitating anonymous drug sales, earning substantial profits along the way,” DEA agent James Hunt stated.

When arrested, Shrem was the Vice Chairman of the Bitcoin Foundation, which proved a big scandal for the beleaguered and rebranding Foundation. BitInstant, backed by the Winklevoss twins, was offline at the time.

Shrem, who worked as both Chief Executive Officer and Compliance Officer, was charged with operating an unlicensed money transmitting business (as was Faiella); failing to file suspicious activity reports, thusly in violation of the Bank Secrecy Act.

“As alleged, Robert Faiella and Charlie Shrem schemed to sell over $1 million in Bitcoins to criminals bent on trafficking narcotics on the dark web drug site, Silk Road.” Manhattan U.S. Attorney Preet Bharara stated. “Truly innovative business models don’t need to resort to old-fashioned law-breaking, and when Bitcoins, like any traditional currency, are laundered and used to fuel criminal activity, law enforcement has no choice but to act. We will aggressively pursue those who would coopt new forms of currency for illicit purposes.”

IRS Special-Agent-in-Charge Toni Weirauch said: “The government has been successful in swiftly identifying those responsible for the design and operation of the ‘Silk Road’ website, as well as those who helped ‘Silk Road’ customers conduct their illegal transactions by facilitating the conversion of their dollars into Bitcoins. This is yet another example of the New York Organized Crime Drug Enforcement Strike Force’s proficiency in applying financial investigative resources to the fight against illegal drugs.”

The complaint stated that Shrem knew Faiella’s business was on the Silk Road, and knew what the Silk Road was, and had even been a user. Shrem, never shy, often spoke of alcohol and marijuana use: “I won’t hire you unless I drink with you or smoke weed with you—that’s a 100 percent fact,” Shrem once told a reporter for Vocativ.

Charlie Shrem: Bitcoin’s First Felon

The charge of one count of conspiracy to commit money laundering carries a maximum sentence 20 year prison sentence, including the count of operating an unlicensed money transmitting business, a maximum five year prison sentence. Shrem also was charged with the willful failure to file a suspicious activity report, a maximum sentence of five years in prison; overall, he faced thirty years in prison. He received two years, a term he was “content” with and considered a “relatively short sentence.”

On March 25, 2015, five days before reporting to prison, Shrem published a blog called “So, I’m going to prison. Reflection from Bitcoins’ first felon.” He wrote:

“On March 30th, I’ll be self surrendering to Lewisburg Federal Prison Camp in Pennsylvania. It’s been a long hard fight, from getting arrested at JFK airport while landing home, to solitary confinement and being under house arrest the for the past 14 months. When the government indicted me and requested 30 years, I kept my head up with the help of friends, family, and the Bitcoin community. While some distanced themselves, most stood by and fought. I owe my life to those people. Of course I don’t look for sympathy, I did the crime and I will do the time. They say those who stand by you in the bad times, deserve to be with you in the good times. Good times are coming and I look forward to it. I also want to thank those select few in the SDNY District Court and NYSPT for treating me with dignity and respect.”

Its could very well be Shrem is released before his full two years is up, if he’s been on good behavior, which I am sure he has been. Shrem’s arrest came at a time when the War on Drugs is seemingly dwindling. The ambiguity of laundered funds, however, touches a nerve with the American public as it can be associated with terrorism, and likely would make most juries skirmish.

What Shrem plans on doing once he’s out of prison has yet to be seen. The Winklevoss twins, who had invested in BitInstant, publicly separated themselves from Shrem after the arrest. When he comes out, he will be entering into a Bitcoin industry that is much transformed from just one year ago, namely as a result of the entrance of some of the world’s largest financial institutions and technology multinationals into the space.

What do you think about Charlie Shrem’s prison sentence? Let us know in the comments below!


Images courtesy of 

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Belgian Government Aims To Prevent Bitcoin Money Laundering

Source: bitcoin

Bitcoinist_Belgian Government

According to a recent article in Belgian newspaper De Morgen, the government is setting plans in motion to target money laundering actions in Bitcoin. Similarly to any type of payment in the world, Bitcoin has become a tool wielded by internet criminals. However, the popular digital currency does not provide privacy or anonymity, and tracking down individuals using Bitcoin for money laundering purposes is a lot easier compared to when cash is involved.

Also read: UniChange Launches Bitcoin Debit Cards!

Money Laundering And Bitcoin Is Not Such A Big Issue

There is still a lot of confusion as far as Bitcoin and digital currencies are concerned. Far too many people still believe Bitcoin offers anonymity and privacy, even though nothing could be further from the truth. However, it only makes sense government officials want to prevent money laundering from happening, and they will be taking a closer look at the concept of Bitcoin altogether.

First of all, Bitcoin is a far cry from anonymous, as every transaction can be tracked on a public ledger in real time. As part of this technology, both the sender and recipient will be visible for the entire world to see, although no personal information about the users is shown at any point. Identifying people by their wallet address is quite a challenge, but sooner or later, the funds will end up at a Bitcoin exchange.

This is where the illusion of anonymity or privacy ends completely. Anyone who wants to use a Bitcoin exchange will have to go through a verification procedure and submit a copy of government-issued ID. All of this information is verified independently, and allows for Bitcoin addresses to be linked to individual users. This makes the entire concept of money laundering with Bitcoin impossible. 

Cash money, on the other hand, does not disclose personal information either. Once a cash bill or coin leaves the bank ecosystem and ventures into the world, there is no way of tracing the recipient or origin of the funds by any means. This makes cash the most anonymous way of transferring value around the world, and it is favored by [online] criminals above anything else, especially for money laundering purposes..

That being said, governments around the world are worried about Bitcoin being used for money laundering, as they do not grasp the full concept of how this digital currency works. News articles like the one in De Morgen is not something digital currency users need to worry about, unless they have been using Bitcoin for this kind of illegal activity in the past.

What To Do With 1,100 Seized Bitcoins?

In early 2015, the Belgian government seized a total of 1,100 bitcoins as a result of an investigation. Even though the digital currency is not recognized as an official currency, it is hard to decide what they should do with the funds. This is another reason why a proper regulatory framework is needed for Bitcoin, even if this effort starts out from the prospect of addressing money laundering.

It remains to be seen how the Belgian government decides to treat Bitcoin in the near future, and what the regulatory framework will look like. The popular digital currency is not subject to taxation right now as decided upon by the EU, but the growing interest in Bitcoin by Belgian consumers will impact the economy in the long run.

What are your thoughts on this decision by the Belgian government? Are they doing the right thing by looking at regulating Bitcoin? Let us know in the comments below!

Source: De Morgen (Dutch)

Images courtesy of Shutterstock, Cues

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Belgian Government Aims To Prevent Bitcoin Money Laundering

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