BTC-e Faces $110 Million Penalty for Violating US Anti-Money Laundering Laws

BTC-e operator and alleged MtGox Bitcoin launderer Vinnik faces a $12 million fine and decades in jail.

As speculation regarding the shutdown of BTC-e and the arrest of its operator in Greece has circulated around the cryptocurrency community for the past two days, American authorities have finally shed light on what’s really going on.

The U.S. Attorney’s Office from the Northern District of California has confirmed that the Bitcoin exchange and its operator were charged in a 21-count indictment by a grand jury for an alleged international money laundering scheme including allegedly laundering funds from the hack of MtGox.

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The accusations

The indictment describes Alexander Vinnik as the owner of multiple BTC-e accounts administrator accounts, and also a primary beneficial owner of BTC-e’s managing shell company, Canton Business Corporation. According to the indictment, numerous withdrawals from BTC-e administrator accounts went directly to Vinnik’s personal bank accounts.

The indictment alleges that BTC-e was operated to facilitate transactions for cyber-criminals worldwide and received the criminal proceeds of numerous computer intrusions and hacking incidents, ransomware scams, identity theft schemes, corrupt public officials, and narcotics distribution rings. Thus, the indictment alleges, BTC-e was used to facilitate crimes ranging from computer hacking, to fraud, identity theft, tax refund fraud schemes, public corruption, and drug trafficking.

As reported yesterday, the investigation has revealed that BTC-e received more than $4 billion worth of bitcoins over the course of its operation.

The indictment alleges that Vinnik obtained funds from the hack of MtGox and laundered those funds through various online exchanges, including his own BTC-e and a now defunct exchange, Tradehill, based in San Francisco, California.

As for 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 (KYC) verification, and no anti-money laundering program, as required by American 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.

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FinCEN judged a $110 million civil money penalty against BTC-e for wilfully violating U.S. anti-money laundering (AML) laws. $12 million was decided for Alexander Vinnik for his role in the violations. If convicted of these crimes, Vinnik also faces a maximum of 55 years in an American prison.

Homeland Security, FBI, IRS and more

A plethora of American agencies were involved in the investigation of BTC-e and the subsequent arrest of Vinnik and they were quick to take the credit as soon as the case was unsealed.

“We will hold accountable foreign-located money transmitters, including virtual currency exchangers, that do business in the United States when they willfully violate U.S. AML laws,” said Acting FinCEN Director Jamal El-Hindi. “Today’s action should be a strong deterrent to anyone who thinks that they can facilitate ransomware, dark net drug sales, or conduct other illicit activity using encrypted virtual currency. Treasury’s FinCEN team and our law enforcement partners will work with foreign counterparts across the globe to appropriately oversee virtual currency exchangers and administrators who attempt to subvert U.S. law and avoid complying with U.S. AML safeguards.”

“Cryptocurrencies such as Bitcoin provide people around the world new and innovative ways of engaging in legitimate commerce. As this case demonstrates, however, just as new computer technologies continue to change the way we engage each other and experience the world, so too will criminals subvert these new technologies to serve their own nefarious purposes,” said U.S. Attorney Brian Stretch. “This office will continue to devote the necessary resources to ensure that money launderers and cyber-criminals are detected, apprehended, and brought to justice wherever and however they use the internet to commit their crimes.”

“As this case demonstrates, the Criminal Division employs a multi-faceted approach to dismantling criminal enterprises, by prosecuting the criminal actors themselves, and by shutting down their ability to monetize their crimes through entities that facilitate money laundering,” said Acting Assistant Attorney General Blanco. “The Criminal Division will work tirelessly to identify those who use technology to conduct and obscure their criminal activity, as we ensure there are no safe havens from U.S. justice for those who seek to victimize Americans.”

“Homeland Security Investigations is strongly committed to tracking down criminals who seek to strike at the foundations of global financial security through complex money laundering schemes,” said HSI Acting Executive Associate Director Derek Benner. “The resulting indictment is a clear representation of why our close law enforcement partnerships are vital to our shared missions. HSI will continue to aggressively target those who deliberately seek to exploit financial systems for personal gain.”

“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. Through his actions, it is alleged that he stole identities, facilitated drug trafficking, and helped to launder criminal proceeds from syndicates around the world,” said Chief Don Fort, IRS Criminal Investigation. “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.”

“BTC-e was noted for its role in numerous ransomware and other cyber-criminal activity; its take-down is a significant accomplishment, and should serve as a reminder of our global reach in combating transnational cyber crime,” said Special Agent in Charge of the USSS Criminal Investigative Division Michael D’Ambrosio. “We are grateful for the efforts of our law enforcement partners in achieving this significant result.”

“The arrest of Alexander Vinnik is the result of a multi-national effort and clearly displays the benefits of global cooperation among US and international law enforcement,” said FBI Special Agent in Charge, Amy Hess. “This investigation demonstrates the long-term commitment given to identifying and pursuing criminals world-wide with a whole of government approach. This was a highly complex investigation that has only reached this stage due to the persistent and dedicated efforts of all the parties involved. We must continue to impose real costs on criminals, no matter who they are or where they attempt to hide.”

“The Federal Deposit Insurance Corporation Office of Inspector General works to ensure the integrity of the financial service sector and is committed to holding accountable those involved in criminal activity that undermine its integrity,” said Inspector General Lerner. “This investigation demonstrates what can be achieved among the cooperative partnerships in the domestic and international law enforcement community.”

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