Over $3.2 billion missing in digital currency fraud in China; several Bitcoin exchanges shut down and many CEOs disappear with funds

By Christine Duhaime | December 11th, 2019

A few weeks ago in China, several digital currency exchanges announced that they were suspending trading or shutting down operations altogether, leaving the recovery of potentially hundreds of millions of dollars of funds with those exchanges up in the air, and this after approximately US$3 billion went missing from two initial coin offerings (“ICOs“) in China this summer. 

The shut downs came after several government agencies in China issued notices and warnings about the risks of digital currency exchanges and of ICOs over the past few weeks. 

The agencies also announced several investigations into exchanges. So far, there are reports that over 500 people in crypto have been arrested in China in this latest crack down. 

Multiple government agencies issue warnings

Mongolia

The first government warning was from the Autonomous Region of Inner Mongolia in Northern China, on November 11th by the Ministry of Industry and Information Technology, which issued notice that it was investigating, inspecting and “cleaning up” mining operations in the region. More here, and earlier first reported here

In 2018, a number of foreign mining operators set up shop in Inner Mongolia and it now accounts for about 2% of the global mining. That’s not a lot for China, which accounts for 60% of the global mining. The government of Hong Kong told me in 2015, that China’s dominance over mining was once over 80%, and thus it is steadily declining. China is a preferred location, not because of electricity, but because of the infrastructure and ease with which mining can be launched in China.  

Beijing

Then, the  Beijing Municipal Bureau of Local Financial Supervision issued two warnings, one on November 13th and the other on November 14th. 

The first was to warn the public about fraudulent misrepresentations being made by some exchanges who were selling coins on the allegation that they were backed by, or associated with, China’s central bank, the People’s Bank of China. 

The People’s Bank of China has not issued, endorsed or backed any digital currencies with the private sector.

The second warning the next day was more of a reminder that online trading platforms, such as exchanges, must be registered and approved by provincial governments in China, and it informed the public that Beijing had not approved any exchanges and in essence if there were any in Beijing, they were not legal.

On November 18th, the China Banking and Insurance Regulatory Commission, a federal agency which regulates financial services, issued a notice about illegal fund-raising for Blockchain projects, which it described as fund-raising that is not registered and cautioned against fake Blockchain projects. 

That came at the same time as Guo Shuqing 郭树清, the Community Party Sec­re­tary for the People’s Bank of China and Chairman of the Com­mis­sion, gave a speech in Jiangxi (郭樹清:拆解影子銀行 遏制房地產泡沫化) in which he said that the Commission was cracking down on shadow banking and illegal online financial activities within China. 

A crack down on shadow banking in China is important in crypto because shadow banking includes financial transactions done outside the system, such as through exchanges. 

Shanghai

On November 22nd, the Shanghai headquarters of the People’s Bank of China issued a notice that it was cleaning up payments and settlement companies that provide services for international transactions to residents of China that are unauthorized. 

The notice essentially reiterated that in China, buying digital currencies could involve illegal sales or the illegal issuance of securities, and could involve financial fraud or pyramid schemes. It informed the public that in Shanghai alone, the People’s Bank of China had shut down 13 ICOs and 10 exchanges. 

It cautioned against hype related to Blockchain companies and said that its investigations were ongoing. 

Shenzhen

And finally, on November 22nd, the Shenzhen Financial Supervision Bureau issued a warning about the risks of online finance that included digital currency financial transactions, as illegal activities that would be “dealt with seriously.”

In China, the criminal law allows for terms of incarceration for life for violations of federal law involving financial transactions, and so the repercussions can be severe in China. 

RMB22 billion missing

China has issued warnings and undertook a crack down in 2017 and people are left wondering what’s different this time.

What’s different this time is that, in addition to multiple agency action across China, more than 500 people were arrested for digital currency fraud in connection with exchanges and ICOs, with losses for 2019 alone, estimated to exceed RMB22.6 billion in China. 

According to the news website Shanghai Securities News, the Office of the National Internet Financial Risk Special Rectification Group confirmed that law enforcement agencies have been active across China, closing down exchanges, mining operations and ICOs. 

This was further confirmed by the 2019 Financial Stability Report for China published by the People’s Bank of China at the end of November which stated that 173 digital currency exchanges in China has been shut down by the government since 2018. 

Why now? 

You might be wondering why now – why there was such activity in the last few weeks in China over digital currencies and digital currency exchanges?

There are many reasons for that. 

The first is that China has quite advanced research, including academic research, and advanced government investments into Blockchain technology and before the government begins to release its projects to the public, it needed to clean up the ecosystem and get rid of businesses operating outside of the law. 

Partly, that is just for the adherence to the rule of law but also, when unlicensed or unlawful businesses are allowed to operate with lawful ones, it creates an anti-competitive business environment, which is unfair and which the law is designed to prevent and it also creates uncertainty among the public.

So the move is designed to reestablish the rule of law in the crypto space, clean the slate and allow for a fresh start in China for businesses in the Blockchain space. 

The other part, though, was that China was rocked by several digital currency schemes that, as China put it, caused significant damage to the financial order. 

Plus token

The first scheme which caused damage to the financial order was an ICO called Plus Token, which, it appears, was a Ponzi scheme (and may well be China’s largest Ponzi scheme involving digital currencies). 

The Plus Token was sold online and at events in China, Korea and Hong Kong. It was headquartered in Yancheng in the province of Jiangsu, and it is believed that upwards of US$3 billion was allegedly taken by six employees – Chen Bo, Yuan Yuan, Ding Zanqing, Peng Yixuan, Wang Renmi and Dong Jianhua. 

The six employees fled to the Republic of Vanuatu in June 2019. The Vanuatu government confirmed that four of them had acquired citizenship in advance, which would suggest that there was an exit strategy that was planned.

The six were subsequently arrested in Vanuatu by Chinese officials and removed to Mainland China in July. Plus Token then filed for bankruptcy. 

And this is kind of interesting – allegedly, before fleeing, one of the employees inserted Hex code into a Bitcoin transaction that said: “Sorry, we have run” but there is no confirmation that that is accurate, especially since it was not written in Mandarin.  

Wave Field Super Community

The second scheme, Wave Field Super Community, was a wallet and exchange service for digital currencies which went dark on June 30th in China, after an alleged hack. 

But some people have done some casual tracing and remarked that all the digital currencies in its wallets had been transferred out before the alleged hack, suggesting that there was nothing to hack. It had hundreds of thousands of customers and they are allegedly out over US$150 million.

CEOs disappear from China

Following these events in the summer, the government of China decided to act. 

As described above, it led a coordinated strategy of published warnings to the public and arrests to signal a change in approach. After the publication of the warnings, several digital currency exchanges shut down or were faced with situations where their CEOs disappeared. 

Idax CEO allegedly missing with cold wallet of customer assets 

One of those exchanges that was facing a disappearing CEO was Idax, one of the largest in China.

 It announced online on November 29th, that its CEO had disappeared on November 26th, a week or so after the warnings started to be published. 

The CEO is Lei Guorong. He owns over 17 companies in China. Idax is a Mongolian company that has been in operation since 2014. It had an office in Shanghai, and operated as an exchange without authorization in China.

The CEO kept the digital currencies of all of the customers in a cold wallet which he controlled and sometime around the time of his disappearance, employees said they were unable to access any of it, implying that all of the consumer funds disappeared when the CEO disappeared. 

However, several weeks before the disappearance of the CEO of Idax, its employees were responding to consumers in writing that, because of congestion from an overload of withdrawal requests, they were unable to process withdrawals, knowing that those statements were untrue.

Idax had statements on its website that were also untrue, including that it was supported by the government of Mongolia to conduct its digital currency business. 

Idax was the 24th largest exchange and it said that it processed over US$700 million in volume. It had its own ICO, that is now worth nothing. 

BISS exchange employees arrested

Another exchange called BISS was reported to have been raided by the police in Beijing and several employees, as well as its CEO, were allegedly arrested and are in remand pending an investigation for participating in an illegal exchange. 

The exchange is up but not operating. Its website alleges that it was based in the Cayman Islands but it was in China. It also had an ICO that is now worthless. 

Three other exchange CEOs allegedly disappeared

The media in China have reported that the CEOs of three additional digital currency exchanges recently disappeared with the USB sticks that hold the digital currencies of their customers. 

Another digital currency exchange in China notified its consumers that, without their consent, it was converting their digital currencies into its own exchange ICO; in other words, it was cashing out the Bitcoin and more valuable digital currencies owned by its customers and replacing them with its own exchange coin, so that the exchange keeps the valuable liquid digital currencies and consumers get illiquid less valuable exchange coins, the legality of which seems highly questionable and seems to be an illegal conversion.

Social Media Crackdown

And finally, you may have heard that Binance and Huobi’s Weibo accounts were closed or that their offices were allegedly raided in Shanghai around the time of the warnings that were issued by several government agencies in China. In fact, there was a bit of a Twitter storm involving Binance because it was reported that Binance’s Shanghai office had been raided, which Binance denied. 

So, what did happen? 

Well Binance’s co-founder said on Weibo that China came to them in advance of the November crackdown, and that they were no longer in China by the time the warnings were issued and the crackdown started. For Binance, it seem like they were given a heads up, which is entirely possible if a company has a good relationship and a transparent dialogue with Chinese government officials. 

I’ve heard the same thing from a China digital currency exchange actually located in Canada.

Many tech and AI companies from China continue to have a presence in China for survivability, revenues and access to Chinese tech university talent while operating in secondary offices under the radar in Canada. All they do is bring in the tech and AI talent from China and the crypto space is no different.

Suumary

In summary, what is the outlook for China? 

It looks like the landscape in China has changed for digital currencies and exchanges, as well as for mining. China has put the community on notice that it’s has zero tolerance for crypto activities that are pursued outside of regulation. 

For Canada, which is a recipient of vast sums of digital currencies imported into the country from China in violation of currency control laws, we will likely see an uptick in transactions that move money out of China to Canada, and then it may subside and move underground. 

I don’t think we’ll see a large impact on mining, because Inner Mongolia was not a large center of mining operations to begin with. 

With respect to prosecutions, China does not publicize all of its criminal trials and so we are unlikely to have much information on the prosecutions of those arrested in this wave of crackdowns. 

Interestingly, though, under Chinese criminal practice, if those who are being prosecuted return the digital currencies back to the government, they face much less severe sentencing, so we may see some of the US$3 billion that is missing make its way back into China through crypto transactions on the Blockchain for sentence reduction. 

But I think there’s more to come from China on the law enforcement side mostly involving exchanges, and if so, it will happen before the Chinese New Year. 

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Bitcoin advisor arrested for allegedly providing technical education on Blockchain to North Korea

By Christine Duhaime | November 30th, 2019

Unsealed criminal complaint

The US Attorney for the SDNY, together with the FBI yesterday announced the arrest of Virgil Griffith, a cryptocurrency advisor, in connection with technical services he allegedly provided to educate the Democratic People’s Republic of Korea (“North Korea”) on sanctions avoidance and money laundering. Griffith was the subject of a criminal complaint filed on November 21, 2019, that was unsealed upon his arrest.

The US Attorney General alleges that Griffith provided highly technical information knowing that it could be used to help North Korea launder money and evade sanctions, and in so doing, put the US financial system at risk. Part of that technical education allegedly took place at something called the Pyongyang Blockchain and Cryptocurrency Conference that was held in North Korea.

He was denied permission to travel to Korea but went anyway

The sanctions in respect of North Korea are in respect of concerns over the proliferation of weapons of mass destruction and terrorism. The unsealed criminal complaint says that it is unlawful for US citizens to travel to North Korea, and despite that, Griffith went there after being denied permission by the US government to do so, and outright disobeyed instructions from the US State Department.

It is alleged that Griffith informed attendees at the Conference that Blockchain and digital currencies could be used to achieve independence from the financial system and circumvent it, including discussions in respect of mining digital currencies.

Allegedly he acknowledged sanctions avoidance

The FBI extracted his cell phone information and therein, he is alleged to have said that the interest of North Korea in his expertise was probably sanctions avoidance and later, sent digital currencies to North Korea despite sanctions in place.

Griffith was a math and science whiz, who, according to this article, considers himself a super hero in the computer sphere, who has invented a number of technical firsts.

Blockchain used to defeat the rule of law

The concern of digital currencies and mining being used for sanctions avoidance is not new but has been growing recently. For example, there are concerns that Iran (through mining) and a self-proclaimed state in the Ukraine (the PRIZM coin owned by Aleksei Muratov), may be engaged in sanctions avoidance, as well as Venezuela (the Petro coin). The Petro coin uses NEM, which is supported in Canada in terms of transactions by a Vancouver digital currency exchange, which would allow sanctioned transactions to be cashed out in Canada. Venezuela said it sold $5 billion of the Petro coin around the world and then its ICO website went dark and remains offline.

The US government has, on several occasions, issued guidance and expressed concerns to the digital currency ecosystem about the use of digital currencies to circumvent the rule of law, including recent FinCEN advisory.

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How did that happen?? A digital currency was launched by a Russian national on a US sanctions list, with ties to a $100M Ponzi scheme

By Christine Duhaime | November 25th, 2019

Russian on OFAC list launches a coin

The Kharon Brief has an interesting article here about Aleksei Muratov (Алексей Муратов), also spelled Aleksey Muratov, a Russian foreign national who is on the US OFAC sanctions list here, who founded, launched and owns an initial coin offering called PRIZM.

More surprisingly still, despite sanctions law, correspondent banking law, and bank contractual arrangements that prohibit dealing in assets, however indirectly, of OFAC sanctioned persons, or of using the financial system in respect of those assets, PRIZM is listed on a few digital currency exchanges around the world. Not only can a person buy PRIZM on those exchanges, other exchanges have website posts that encourage the public to buy Bitcoin or Ether through them to enable them to buy PRIZM, irrespective of the law.

He’s also chairman of the Donetsk People’s Republic, which the Ukraine says is a terrorist organization

Muratov is the Central Executive Committee chairman of the Donetsk People’s Republic, a self-declared sovereign state seeking independence from the Ukraine. The Ukrainian government says the organization is a terrorist organization. According to an official investigation conducted in the Netherlands, Donetsk People’s Republic operatives fired the missile that downed the Malaysian Airlines flight MH-17, killing 283 passengers on board.

PRIZM whitepaper

The PRIZM coin has a white paper for investors. It explains that the purpose of its digital currency is to move money anywhere in the world. It promises returns of up to 9.9% for mining via “proof of steak” (presumably they mean “proof of stake” and not the meat product). The coin is popular and does have a Blockchain explorer, which shows peers validating transactions – most have IPs from Russia, Kazakstan and Germany. Its Instagram account promises that by using PRIZM, a user can avoid financial crime laws altogether – it says no identity is collected or required, and it is completely anonymous. It goes so far as to say its transactions are also anonymous and a user can move money anywhere on the planet in seconds.

On Instagram, it promises anonymous money
transfers anywhere on the planet

PRIZM’s promoter is the founder of the defunct WEX exchange, which has US$450 million allegedly missing

PRIZM is being promoted by Dmitriy Vasilyev, the Russian national who co-founded the World Exchange Services (WEX) digital currency exchange in Singapore, where the AML laws are lax. The WEX rose from the ashes of the BTC-e digital currency exchange, shut down by the FBI in conjunction with the Canadian darknet site AlphaBay. At that time, they launched an ICO, the WEX ICO, possibly to acquire users from the former BTC-e. More recently, Vasilyev was arrested in Italy in connection with WEX. The WEX ICO is no more.

Dmitriy Vasilyev, from BTC-e to WEX to PRIZM

The other co-founder of WEX, Alexei Bilyuchenko (who was an admin of BTC-e), alleges that WEX lost US$450 million because Russian agents from the Federal Security Service forced him to hand over the Trezors holding all of the pooled digital currencies of the exchange and of its customers, as well as the passwords. Part of what he alleges doesn’t make sense because he also alleged that it would take two weeks to transfer the digital currencies in the Trezors to the Russian agents. It doesn’t make sense because if a person has the Trezors with the passwords, he or she has the digital currencies.

PRIZM is tied to anti-vaxxers

The PRIZM coin has a political agenda, beyond the fact that its founder is a leader of the separatist Donetsk People’s Republic. The PRIZM coin is promoted as an “activist” coin on its social media accounts, affiliated with an organization called Change The World (CTW). It is an anti-vaxx organization, calling for an end to all vaccinations globally. Proceeds from buying PRIZM coins go to anti-vaxxers. They also support the Donetsk People’s Republic.

PRIZM founder says ICOs can bypass sanctions and joins ceremony burning US currency

That PRIZM may have been created in part to move money to avoid sanctions is suggested from comments Muratov has made. For example, on Twitter below, he suggests digital currencies can be used to bypass US sanctions. He also runs PRIZM mining farms, creating his own stash of PRIZM coins that he can convert to Bitcoin or cash out on any exchange.

In another possible sanctions statement, people from CTW with Muratov (in the grey hooded jacket), held a ceremony for PRIZM which involved the burning of US dollar bills; whether fake or real is unknown.

Burning US cash for PRIZM

And a few months ago, an orthodox priest blessed PRIZM.

Bless this ICO.

Both groups (PRIZM coin and CTW) held a black tie ball for their so-called activists in Russia, and used pictures of Hollywood movie stars and a famous model in the video to suggest they attended the ball (and ergo support PRIZM). None of the movie stars or models in their video attended the event.

Ties to Ponzi scheme called MMM

News articles that interviewed Muratov allege he is a nuclear engineer and was the Head Engineer of the Kursk Nuclear Power Plant in Russia for ten years, a post he left to go into politics at 24-years-old, which would mean he was the head of the nuclear plant’s engineering at 14-years-old, which means he entered university at 6-years-old.

In Russia, he was the deputy of the Kurchatov City Duma and later moved to India where he was associated with a Ponzi scheme called Mavrodi Mondial Moneybox (MMM). He was arrested in India in 2013 in connection with MMM. Allegedly, Russian consular officials in India assisted him to flee to Russia to avoid prosecution for MMM.

Sergey Mavrodi

MMM was a Russian Ponzi scheme that had three or more iterations. The first iteration was started in the 1990s by a Russian named Sergey Mavrodi, as an investment fund that promised returns of 3,000% to investors. Investors lost over US$1 billion (equal back then to 1/5 of the central bank’s reserves) but despite the losses, part of the Russian population continued to support Mavrodi. Mavrodi admitted MMM was a Ponzi scheme but said it was, in his view, a virtuous one. Here, after he is released from prison, he admitted that Russian investors were illiterate and did not know what they were giving money to him for, and that he put most of the money in beneficial ownership arrangements (in shares of other corporations held in the names of other persons for him) and had no intention of paying the US$1 billion back.

The Mavro ICO

The later iteration involved Bitcoin payments. It launched after the death of Mavrodi. It had its own digital currency called the Mavro (named after Mavrodi). One Bitcoin was equal to one Mavro. To acquire Mavro coins, a member had to first help another person by sending them Bitcoin, and once a person sent Bitcoin, he or she would get an equal amount of Mavro sent to a wallet plus 30%. And if they promoted MMM on social media, they could earn more Mavro. Many of the Ponzi participants had accounts on BitcoinTalk where they solicited payments in Bitcoin. The Mavro appears to have been capable of being used for nothing and in essence, it would appear that members were just sending Bitcoin away to strangers and getting nothing in return except access to a wallet that held a certain balance of Mavro coins.

At its peak, the iteration of this MMM scheme circulated more than US$150 million dollars a day. The scheme was a a zero-sum investment model, in which one person’s loss was another’s gain. The Ponzi scheme took money from victims in over 80 different countries, mostly from India and Indonesia but transactional analysis showed that much of the funds stayed in Indonesia, suggesting the funds are parked there and scientists found that a large portion of the proceeds of crime from the Ponzi scheme went through digital currency exchanges.

Muratov does not downplay a role in MMM or his admiration for Mavrodi. They are promoted on the CTW blog here, which alleges that MMM and Mavrodi were responsible for the growth of digital currencies in the world and the blog promises to continue the work of Mavrodi with MMM.

MMM is starting a new iteration with a new website for the coin, with a promotional video explaining how the Mavro coin was founded by Mavrodi after his incarceration, and extolling the virtues of MMM. It’s basically a commercial about how Mavrodi was a hero for taking a US$1 billion from Russians under the MMM banner and how the Russian government stole all the money (so Mavrodi couldn’t pay anyone back).

The theory that the Russian government is allegedly forcibly taking assets when they go missing is a new recurring theme advanced by some Russian digital currency people (Mavro coin; WEX coin; WEX exchange), who seem to be interconnected.

Slick new ICO video for 2019

Financial crime risks

Despite the heightened financial crime risks arising from, among other things: the sanctions listing; the connection to a separatist state engaged in terrorist-related activities blowing up critical infrastructure for political purposes; the downing of MH-17 that killed hundreds of people; the ties to the MMM Ponzi scheme; the ties to BTC-e, AlphaBay and WEX; PRIZM continuing the work of Mavrodi with MMM; and the ability to use PRIZM to send money to any person anywhere irrespective of whether they are on a prohibited list, a digital currency exchange in Canada posted guidance showing how it will conduct financial transactions for users to buy and sell PRIZM.

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The Com Man: Canadian ICO founder who led a rich and famous lifestyle with private jet trips, diamond watches and fast cars, arrested for alleged Ponzi scheme – Part 1

By Christine Duhaime | November 16th, 2019

Canadian ICO founder arrested; investors all over the world may be out at least $80 million

A Canadian from Montreal, Quebec, named Aziz Com Mirza, was arrested in Dubai on October 27, 2019, and is chilling in the Al Awir jail, on allegations of running a Ponzi scheme. Mirza founded a Canadian initial coin offering (“ICO”) which has since gone offline and investors of the digital currency say they are unable to get their investment back. According to information Mirza himself released, he got US$60 million from pre-ICO sales alone.

The ICO, called HabibiCoin, was pitched by Mirza as the first digital currency in the world created by the rules of Islamic finance, and was marketed specifically to the Muslim community in the US, Europe, Canada and the Middle East. Mirza called it the “Bitcoin of the Middle East”.

It was sold to the public online for $0.05 a coin from April 2018 until December 2018. It accepted Ether for payment and it also paid promoters to pump it on Telegram, Twitter and Instagram, which is a scheme common in the ICO space whereby people act in an investor relations capacity, encouraging the public to send investment funds and are paid commissions in return for investments they successfully pump. Such pumping of investments, even ICOs, is contrary to the anti-fraud and anti-touting provisions of the federal US securities laws and related rules.

According to Mirza, funds raised from the HabibiCoin would be used to buy and develop real estate and thus by owning HabibiCoin, investors would own a real estate interest presumably managed by Mirza that would pay them 15% – 25% commission on their investment (see Howey Test here and how this fits in the investment contract matrix).

The Com Man promised the coin would never go down. It went to zero

The white paper represented that the HabibiCoin was “asset backed”, e.g., backed by existing real estate, which Mirza represented, made it “more stable” than others. He promised investors in the white paper that the price of the HabibiCoin could never go down in value because of its alleged asset-backed nature.

But the HabibiCoin did go down – it is now worth $0.

It appears that the Ether sent to buy HabibiCoin by investors was never converted into the so-called HabibiCoin, and nor was the digital currency listed on any exchange. Mirza represented in the white paper that upon investing, an investor could see in his or her Habibi wallet, the amount of coins invested. That didn’t happen either – there was no Habibi wallet created.

To sell the ICO, Mirza alleged he was a serial entrepreneur but this article says he is a serial scammer (see this article in the Gulf News) with over 50 investors who went public with stories of how they were duped into giving Mirza money for the ICO and for various alleged Ponzi schemes.

Investment clubs to ‘get rich quick’ ended in quick devastation for investors

One of the schemes was an investment club operated by Mirza and allegedly his brother, Rafaqat Mirza, aka Rocky. Over 300 investors say they were duped into investing £5,000 each and another 1,200 say they invested between £15,00 and £25,000 each, to join the club to learn how to get rich quick.

Instead, they say they went broke quick and the £20 million raised under that networking scheme evaporated partly allegedly into a shell company controlled by a third Mirza brother in Dubai.

A shell company is a corporate entity set up by corporate lawyers in what are called money laundering havens, where financial institutional compliance is known to be lax, such as Dubai. In a shell, the directors, officers and shareholders are fake to enable the corporate entity to open a bank account to move money without traceability back to controlling persons.

Where did the millions go?

Where did the money go? 

Aziz Com Mirza was at least transparent about that it seems. He took to Instagram and painstakingly showed the world his lavish spending lifestyle before his account went dark.

Some of the money appears to have gone to allow him to live in the expensive 160 story luxury Burj Khalifa condo building in Dubai. Some of the money went towards diamond watches, a garage full of the world’s most expensive fast cars, and private jet trips.

Tracing the money on social media

I can show you where some of the money appears to have gone according to the Com Man’s social media trail, below.

  1. One of the world’s most expensive buildings – here is a short video of Aziz Com Mirza driving visitors to his home in Dubai:

2. The world’s most expensive watch – here is his $1.2 million Hublot diamond watch:

3. Fast supercars – here he is in one of his Ferraris explaining that ‘dream chasing is nothing more than the science of chasing your dreams’. Investors paid him millions of dollars to hear investment catch phrases like that and learn how to be rich like him:

But one Ferrari wasn’t enough. Here are three in his garage in Dubai:

And why stop there – he also has Bentleys and Rolls Royces:

4. And then there are trips on yachts and private jets:

5. And wait, he has a horse called Sultan:

He invited a handful people on an empty big yacht in Dubai for a little cruise.

Dreams of making the world a better place

Aziz Com Mirza wrote on Instagram that he had developed an “inner superhero”. In addition to soliciting funds for his ICO and network clubs, he solicited funds to allegedly feed millions of starving people in India every year. I heard from one Canadian who gave him thousands of dollars to feed the poor. He explains, below, from the comfort of a US$500,000 Rolls Royce how he wants to leave the world better than he found it:

There are three other Canadians who helped sell, promote or pump the HabibiCoin; one of them is good friends with a Toronto ICO founder and a Toronto anti-money laundering outfit that sells online forms for compliance.

Mr. Mirza has been arrested and charged only at this stage.

I’m working on Part 2 and 3 of The Com Man which will cover the activities of the other Canadians involved in the fund-raising activities.

A number of people kindly sent me information for this story and if you have information, please reach out, especially if you have any of the Ether wallet addresses where investments from the public were sent. The Com Man is part of my financial crime textbook in the works.

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Iranian president alleges nothing being done in Iran to investigate corruption by politically exposed govt officials

By Christine Duhaime | November 10th, 2019

The president of Iran, Hassan Rouhani, delivered a speech over the weekend in Iran alleging massive corruption by senior government officials, and claimed that over $700 million is gone that was under the control of the Minister of Petroleum, Bijan Namdar Zangeneh, and a further $2 billion is unaccounted for in foreign countries in another case. He also alleged that the powerful judiciary in Iran is sweeping evidence of corruption by high ranking government officials (politically exposed persons) under the rug.

In his speech, Rouhani talked about the case of Babak Zanjani, who was convicted of laundering $2.7 billion out of Iran, some of it in Bitcoin and sentenced to death in 2016. Not only has Zanjani not been executed but Iranian foreign nationals subsequent to his sentence, shared pictures of him allegedly spotted in Istanbul and Dubai. The $2.7 billion missing is supposedly about 20% of the amount Zanjani removed to other countries. He would never disclose where the money was parked. Zanjani was closely tied to the Islamic Revolution Guards Corps and moved money, in part, for them. Zanjani had ties to Sajjad Alijani, a Bitcoin dealer in Iran. In 2012, he denied he moved money for the Iranian government but in 2016, admitted that was what his business was.

Rouhani accused the government of doing nothing to repatriate the funds Babak Zanjani removed from Iran as a PEP and is doing nothing to pursue another case where $947 million is missing.

His speech was quite unusual, given that the Iranian regime does not usually attack internally. This week, the US Department of Treasury sanctioned IRGC commander Mohammad Bagheri and the new head of the judiciary, Ebrahim Raisi, whose job is allegedly to address massive corruption by PEPs in Iran who have removed funds to other countries.

It’s probably no secret that Iranian PEPS move their money and families to Vancouver, Canada, partly because Canada is a sanctions avoidance safe haven arising from the fact that Canada has not staffed its sanctions enforcement capabilities and there is a belief among some banks that correspondent banking rules do not make them subject to US sanctions law in respect of US dollar transfers.

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Interpol holds emergency meeting over Ndrangheta

By Christine Duhaime | November 9th, 2019

Interpol convened an emergency meeting a few weeks ago during its annual congress in Chile, to address information about how the Ndrangheta became the world’s largest and most powerful transnational criminal organization, and address strategies to counter their continued position of power.

With operations in 30 countries, and its controlling families in Toronto, the Ndrangheta has become the main drug trafficking organization in the world, with ties to Mexican and Columbian drug cartels. For quite a number of years, the Ndrangheta have controlled shipping ports in a number of countries to enable drug movements.

Italian journalists traveled to Toronto, Italy and Hong Kong to explore the growth of the Ndrangheta globally (a clip here), which is available to read on the La Republica website here (paywalled).

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Italian police shut down darknet market allegedly run by a teenager that listed for sale drugs, weapons, fake ID and “bank drop” money laundering services, including to Canadians

By Christine Duhaime | November 9th, 2019

Canadians among top users of seized darknet drug and weapons site

The Italian Guardia di Finanza has arrested three individuals in Italy who are alleged to have operated the darknet site on TOR called the Berlusconi Market.

The Berlusconi Market had over 100,000 illegal goods and services listed for sale such as illegal drugs, fake ID products, guns, explosives, child pornography, stolen credit card numbers and stolen bank account credentials. Its three main countries of customers were US, Canada and Australia. It accepted only Bitcoin, Monero and Litecoin for payment.

Canada is one of the leading jurisdictions for the operation and use of darknet marketplaces, and appears to be the only country in the world with a digital currency exchange (in Vancouver) that facilitates Bitcoin trades on TOR for users in any country in the world, including Iran, irrespective of sanctions.

One of the top vendors, for example, on the Berlusconi Market was a vendor named “ming-dynasty” in Canada.

Teenage computer engineering student was darknet mastermind

The Berlusconi Market was shut down by the police. Its mastermind was allegedly a teenage computer engineering student named Luis di Vittorio, who is 19-years-old.

In May 2019, Italian police arrested a prolific user of the site and seized 2.2 kg of cocaine, ketamine, and MDMA and 41 Bitcoin. The user was also an admin on the Berlusconi Market, which led to the arrest of the other admins.

In addition to Luis di Vittorio, Giannicola Ruscino and Gianluca De Martino were also arrested on allegations that they are the co-owners of the site. Berlusconi Market processed $2 million in transactions per year, a low amount compared to the Canadian owned darknet site that operated for several years in Quebec.

Money laundering “bank drop” services for sale

The Berlusconi Market even listed for sale the services of vendors all over the world who would conduct what are called “bank drops”, which are money laundering services whereby the proceeds of crime are dropped in bank accounts for a third party for a commission in order to obfuscate the source and the movement of funds.

As the investigation unfolds, it will be interesting to see who in Canada offered for sale or bought “bank drop” money laundering services. Considering the connection to Italy, it may be safe to presume those services were Toronto-area based.

Bitcoin digital currency exchange used by darknet site seized

During the operation, commercial premises of a digital currency exchange were seized in Barletta, Italy, which the admins presumably used to buy and exchange Bitcoin. Darknet operators and its users ultimately must exit out through a digital currency exchange in order to cash out and so they tend to have several accounts at multiple digital currency exchanges to spread the risks across countries and areas. One of those is always, according to known typologies, in their real name.

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First of its kind PEP lawsuit? Lebanese lawyer sues Minister of Foreign Affairs for money laundering and taking state assets

By Christine Duhaime | November 9th, 2019

A Lebanese lawyer, Maitre Marwan Salam, has sued the Lebanese Minister of Foreign Affairs, Gébran Bassil, for corruption, money laundering and enrichment from state assets.

Massive protests have been taking place in Lebanon for several weeks over political corruption. Last month, the New York Times reported that the Lebanese prime minister, Saad Hariri, had sent a South African bikini model a wire transfer of $16 million and bought her two luxury cars. She earned $5,400 per year modelling. They met at a resort in the Seychelles where she was paid to attend and entertain rich men for a weekend.

Bassil and Hariri are government officials, and politically exposed persons in anti-money laundering law, meaning that they are at high risk for money laundering. They are at high risk because statistically it is PEPs who tend to use their positions of power to move state assets, including the proceeds of corruption, to another country, usually a safe haven island whose sole business is the protection of the identity of beneficial owners of trusts and corporations so that they can get bank accounts to move money without transparency.

The lawsuit seems to be the first PEP lawsuit of its kind.

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Canadian jailbird was able to traffic in fentanyl internationally using Bitcoin, US authorities say, and launder money from jail

By Christine Duhaime | November 9th, 2019

A Canadian incarcerated near Montreal, Jason Berry, is facing extradition to the US over charges that, from jail, he trafficked fentanyl all over the world.

According to the extradition request, the fentanyl sold by Berry caused the death of several Americans, as well as Canadians from overdoses.

Berry is serving a 12 year sentence for previous drug trafficking offences. According to the charges, he used a cellular phone that was smuggled into prison to run the operation, access the darknet, place orders in China, move around his Bitcoin from exchanges, receive Bitcoin from drug buyers and send it to sellers in China.

Berry is alleged to have had accomplices who took care of the shipments from China and out to drug buyers. You can read more at the Journal de Montreal here.

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Money laundering things on Instagram … a small warehouse of hundreds of millions of dollars in cash perhaps connected to Canada

By Christine Duhaime | November 9th, 2019

In the last five years, social media has emerged as one of the most important sources for financial crime investigations, particularly for red flags for money laundering, such as identifying patterns of wealth that are inconsistent with income, and in making connections between members of organized crime.

On one Instagram account, we located a person who posted a video of a small warehouse full of cash in Dubai – so much that it would be equal to hundreds of millions of dollars. When we asked if it was money laundering, the user replied on Instagram to us: “Yes…

Us: “Money laundering?”

Instagram user: “Yes…”

A few hundred million in laundered cash.

And later, he posted another video filling up a bathtub with cash.

Cleaning cash in a bathtub.

And in case you’re wondering, the Instagram account holder is from Azerbaijan but lives in Istanbul and Dubai and seems to be a diamond wholesaler.

And in case you are also wondering, yes, he has a base in Canada.

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