BTC-e and its executive Alexander Vinnik has been indicted by the Northern District of California, for the alleged crimes of conspiracy, unlawful monetary transactions, money laundering, operating an unlicensed exchange, according to a court document filed on July 25
The now-defunct exchange and Vinnik face civil penalties of $88.6 million and $12 million, plus interest and costs respectively, amounts initially determined by the Financial Crimes Enforcement Network (FinCEN) in July 2017. Overall, Vinnik has been indicted for 17 counts of money laundering and two counts of engaging in unlawful monetary transactions.
In addition, BTC-e and Vinnik have been charged with one count of operating an unlawful money services business and one count of conspiracy to commit money laundering.
The U.S. Department of the Treasury filed the complain against the firm’s blatant disregard for the law. The government alleges that BTC-e and Vinnik for laundering and holding funds for some of the most nefarious organizations involved in the cryptocurrency industry, so long as its owners profited, including funds received from the computer ‘hack’ that brought down prominent exchange Mt. Gox.
Contrary to legitimate crypto exchanges, Cyprus and Seychelles-based BTC-e billed itself as an anonymous way to buy, sell, and transact in bitcoin and other digital currencies. Wherein, anyone, anywhere was allowed to operate on its platform without “even the most basic identifying information.”
Attorneys David Anderson, Sara Winslow, and Kirsten Ault attested to this willfully substandard record keeping “contributed to its customers’ willingness to accept BTC-e’s unfavorable exchange rates compared to other legitimate” exchanges. In its 6 years, BTC-e served approximately 700,000 users trading over $296 million over more than 21,000 bitcoin transactions and other coins.
The investigators notes that not all of BTC-e’s clients were criminals:
“A significant portion of BTC-e’s business was derived from suspected criminal activity.”
The firm’s lax approach to collect user information and hosting of unmonitored open forums where users discussed ways to purchase illicit goods. The partcipants further refused to implicate the known criminals on its platform, attracting industry’s worst players and eventually the government’s attention.
The Criminal Connection
Allegedly the firm cultivated its identity as a safe-haven for the criminal element. People in the chatroom “under monikers suggestive of criminality, including user names such as ‘ISIS,’ ‘CocaineCowboys,’ ‘blackhathackers,’ ‘dzkillerhacker,’ and ‘hacker4hire,’” publicly discuss buying or accessing illicit materials on the dark-web.
Furthermore, the attorneys allege:
“On some occasions, customers contacted BTCe’s administration directly with questions regarding how to process and access proceeds obtained from the sale of illegal drugs and from transactions on known “darknet” illegal markets, including Silk Road.”
Notably, BTC-e did not report or raised an alarm at any point as the money kept flowing in. Singling out the business relationship forged between BTC-e and Costa Rica-based Liberty Reserve, the attorneys alleged that the customers were shared and the “BTC-e code” was redeemable for Liberty’s digital currency via a specific program.
Shuttered for laundering $6 billion in illicit funds, Liberty Reserve’s website was seized by U.S. authorities along with arresting its six principal operators. BTC-e failed to disclose the alliance and smuggled fund’s concealed on its platform. According to the attorneys, Coin.MX was closed on money laundering and conspiracy charges following a Federal investigation and BTC-e failed to disclose this relationship in a Suspicious Activity Report mandated under the Bank Secrecy Act.
The list goes on and according to the attorneys the firm harbored funds earned by malicious botnets, scams, and computer hijackings. BTC-e took money from identity thieves, and public officials who embezzled funds, although “despite the rampant evidence of illegal activity on its platform, BTC-e did not file a single SAR.”
No explanation
BTC-e has allegedly concealed all such illicit activity instead of speaking out, it instructed the clienrs to wire money to “front” companies, nominally distinct from the exchange. BTC-e never recorded or asked information when receiving wires.
Further, BTC-e would obscure and anonymize the funds via processing transactions through a layer of temporary addresses called a bitcoin “mixer,” a way to protect both sides of the deal. The last straw was the firm’s failure to register as a money transmitter.
A grand jury in California’s Northern District “returned a two-count indictment charging BTC-e and Vinnik with operation of an Unlicensed Money Services Business,” in May 2016. Six months later, a grand jury pushed forward a twenty-one count superseding indictment against Vinnik and his firm.
The allegation is majorly that at no point had anti-money laundering policies set in place, “let alone an effective program for detecting and preventing suspicious transactions.” Amidst the suspicious transactions, operator Vinnik also allegedly skimmed money from clients and used the platform as a personal bank.
Vinnik denied all the charges against him and also denied being an executive of the firm. Though the attorney’s office is attempting to prove he “operated several administrative, financial, operational, and support accounts at BTC-e.”