Lawmen May Have Mt. Gox Launderer in Custodybr>
A Russian man accused of money laundering was arrested today and charged with receiving funds from the half-billion-dollar Mt. Gox hack in 2014.
Alexander Vinnick, age 38, was arrested in Greece, and the indictment against him was unsealed late on Wednesday in the Northern District of California. The indictment alleges that Vinnik obtained funds from the hack of Mt. Gox and laundered those funds through various online exchanges, including his own BTC-e and a now-defunct digital currency exchange, Tradehill, based in San Francisco, California. The indictment alleges that by moving funds through BTC-e, Vinnik sought to conceal and disguise his connection with the proceeds from the hacking of Mt. Gox and the resulting investigation.
As for defendant BTC-e, the indictment alleges that, despite doing substantial business in the United States, BTC-e was not registered as a money services business with the U.S. Department of the Treasury, had no anti-money laundering process, no system for appropriate “know your customer” or “KYC” verification, and no anti-money laundering program as required by federal law. According to the company’s website, BTC-e is located in Bulgaria but organized or otherwise subject to the laws of Cyprus. The exchange allegedly maintains a base of operations in the Seychelles Islands and its web domains are registered to shell companies in, among other places, Singapore, the British Virgin Islands, France, and New Zealand.
In addition to the indictment, the Financial Crimes Enforcement Network assessed a $110 million civil penalty against BTC-e for willful violation of money-laundering laws. Vinnick was assessed a $12 million penalty for his role in the operation.
Security firm WizSec of Tokyo has been investigating the Mt. Gox bitcoin theft, and today posted a lengthy analysis that believes the man in custody may be behind the operation filtering the stolen funds, most of them never recovered.
The announcement of the arrest and indictment came from a joint task force of the Justice Department’s Criminal Division, Internal Revenue Service, Immigation and Customs Enforcement’s Homeland Security, the Federal Bureau of Investigation, the US Secret Service, the Federal Deposit Insurance Corporation, and US Dept. of the Treasury.
“Mr. Vinnik is alleged to have committed and facilitated a wide range of crimes that go far beyond the lack of regulation of the bitcoin exchange he operated,” said Don Forst, a Chief of the IRS Criminal Investigation. “Through his actions, it is alleged that he stole identities, facilitated drug trafficking, and helped to launder criminal proceeds from syndicates around the world. Exchanges like this are not only illegal, but they are a breeding ground for stolen identity refund fraud schemes and other types of tax fraud. When there is no regulation and criminals are left unchecked, this scenario is all too common. The takedown of this large virtual currency exchange should send a strong message to cyber-criminals and other unregulated exchanges across the globe.”
THE MT. GOX CONNECTION
By 2014, Japan-based Mt. Gox was handling more than 70 percent of all bitcoin transactions worldwide, becoming the leading bitcoin exchange. But in February of that year, it suddenly suspended trading, closed its website and exchange, and filed for bankruptcy. The company revealed that 850,000 btcoins were missing, an amount that was estimated to be valued at $450 million USD at the time.
Tokyo security company WizSec has been on the trail ever since. The company believes the funds were taken directly from the Mt. Gox hot wallet.
Mt. Gox CEO Mark Karpeles was arrested in August, 2015 by Japanese police and charged with fraud and embezzlement. The charge against him claimed he manipulated the Mt. Gox system to increase the balance in his own account. He is on trial in Japan on those charges as of this month, but the case is unrelated to the overall theft that resulted in the company declaring bankruptcy.
Only $91 million in Mt. Gox assets have been tracked to date.
WizSec emphasized that Vinnik is, at least so far, identified strictly as a money launderer and not as a hacker. “He may have merely bought cheap coins from thieves and offered a laundering service,” WizSec posted. “He is, however, a crucial piece of the puzzle, as he will have likely known who he was dealing with and laundering for, and so represents a major breakthrough in the case.”