The US continued its take down of Bitcoin companies this week with the unsealing of an indictment against BTC-e and Alex Vinnik, and his arrest in Greece. The Indictment against Vinnik and BTC-e was obtained in January 2017, and was sealed until now so that he could be located internationally and arrangements made to effect his arrest. The Defendants are charged with operating an unlicensed MSB and 16 counts of money laundering.
According to the indictment, BTC-e operated an unlicensed MSB since 2011 that processed several billions of dollars worth of payments in digital currencies and acted as a money laundering service for cyber-criminals around the world. Vinnik is alleged to be the founder and controller of BTC-e. More particularly, BTC-e is alleged to have moved money and provided wallets (effectively to have “banked”), via Bitcoin, international bad actors who were engaged in ransomeware cybercrimes that demanded extortion payments in Biticoin.
It also allegedly banked criminals who were engaged in international drug trafficking, weapons dealing and it allegedly provided Bitcoin services to a number of corrupt public officials, although the indictment does not identify which public officials used the Bitcoin exchange. Allegedly BTC-e had no anti-money laundering controls, policies or procedures in place. Many Bitcoin exchanges provide deposit taking services for customers by virtue of the fact that they take in deposits into their bank accounts without having a bank licence and in that sense, are said to provide “banking” services, in addition to currency conversion services.
BTC-e is alleged to have accepted a significant number of transactions from the US although it advertised that it did not. It is not known where BTC-E operated as it advertised that it was in Bulgaria but was incorporated in the Seychelles and had companies in Russia, France, Singapore, BVI and New Zealand. BTC-e had 700,000 customers globally. It was Russia’s most popular digital currency exchange and over the course of its history, it received over 9 million Bitcoin worth over $18 billion. According to the indictment, BTC-e was the exchange for Liberty Reserve, which was taken down in 2013 by the US government, and many of the same people allegedly used both services.
In order to deflect law enforcement, BTC-e is alleged to have posted comfort statements on its website that were untrue, such as that it verified the identity of its customers when they were onboarded and that it did not accept funds from US persons. In essence, it is alleged that the exchange made statements about anti-money laundering compliance that were completely untrue in order to lure customers to do business with it, suggesting that it was law-abiding when the US government alleges that it was not.