Iranian charged in $6 billion case with disrupting Iran’s economy by moving money for sanctions avoidance, immigrated to Canada

By Christine Duhaime | April 13th, 2019

Updated 2019-04-14

Another Iranian in Canada alleged to owe millions to Iran

Marjan Sheikholeslami, an Iranian foreign national, now living in Toronto, Canada, is alleged to have played a major part of a financial crime case with an Iranian petroleum executive, Reza Hamzehlou, and is on trial in absentia in Iran for disrupting Iran’s financial system to the tune of $6,600,000,000. Mr. Hamzehlou was the CEO of the Iran Petrochemical Commercial Company (“PCC”), an arm of the National Iranian Petrochemical Industries Company. Ms. Sheikholeslami and 13 others, including Mr. Hamzehlou, are also alleged to have violated sanctions by transferring funds out of Iran by using so-called front companies in Turkey.

The indictment is over 700 pages and involves 3 defendants who have left Iran. According to the prosecutor, among other things, Mr. Hamzahlou in collusion with Ms. Sheikholeslami, transferred $659 million to a company she owned in Turkey and transferred another $347 million to other sources in Iran, all of which were funds owed to the petroleum company. The prosecutor alleges that Ms. Sheikholeslami was the main partner of Mr. Hamzehlou. The Court hearing the case is a special one convened by the Ayatollah.

Defendant admits sanctions avoidance using front companies

Mr. Hamzehlou has admitted, through his lawyer, the sanctions avoidance aspect of the indictment using foreign front companies to move money, but says that he did it to assist the Iranian regime to sell oil. Ms. Sheikholeslami admits working with Mr. Hamzehlou for the purposes of assisting the PCC. In this article, the company is mentioned as engaged in sanctions work-arounds (aka sanctions avoidance), to export petroleum products from Iran.

But Reza Hamzehlou had more corporate activity outside of Iran besides the companies with Ms. Sheikholeslami in Turkey — he is listed in the Paradise Papers Database as owning two companies in Malta for unidentified purposes. Malta is known for its lax counter-terrorist financing and anti-money laundering compliance standards.

Mr. Hamzehlou travelled to Malta in 2008 with other business partners in a different capacity, namely the CEO of a large conglomerate called the Iranian Investment Company (“IIC”). He met with a lawyer for advice on arranging the investment of US$500 million to buy PetroPars, an Iranian petrochemical company. PetroPars has projects in Venezuela and Angola, as well as Iran. Money seemed to have been no object and Mr. Hamzehlou informed the law firm that IIC controlled numerous Iranian companies.

US govt warned about defendants’ company over terrorist financing

The Malta lawyer disclosed the existence of the client, the purpose of the meeting and client emails to, among others, the US Department of the Treasury here, informing them that he had a long-standing relationship with Mr. Hamzehlou. Tags of the communication to the US Department of the Treasury included “terrorism finance traffic”, “government” and “terrorists and terrorism” – tags which indicate that Mr. Hamzehlou’s activities raised red flags on the magnitude of international security. How Mr. Hamzehlou and his associates were able to be banked, particularly through the correspondent banking system, remains a mystery.

Mr. Hamzehlou went to Brazil and set up a company there as well, and was active in the media explaining how Iranian oil and gas products could tap into South American and Asia markets.

One defendant chairs conference for leadership of Hezbollah

Mr. Hamzehlou appears to have had a higher level of connection to the Supreme Leader, Ayatollah Khomeini. Inter alia, he is noted by Iranians online (and by a reporter with Radio Free Europe) as having been selected to chair, and did chair, a conference associated with Sheikh Naeem Qassem. Sheikh Naeem Qassem is not an inconsequential person – he is the 2nd in command of Hezbollah.

The reports say that the conference was organized for an association under the patronage of the Ayatollah. Hezbollah is a listed terrorist group. It is a significant honour in Iran to have bestowed upon you, the duty to chair such a conference and if this is true, it should not be doubted that Mr. Hamzehlou was and may still be, part of a small inner circle of persons with access to the Supreme Leader. Iranians on social media have remarked that they spotted Mr. Hamzehlou in Qom and were surprised since they thought he was incarcerated. Qom is where you go to consult with the senior clerics.

Back to the connection between Ms. Sheikholeslami and Mr. Hamzehlou – they both have said in different venues as part of the trial reporting, that they were business partners.

Marjan Sheikholeslami is also known as Marjan Sheikh al-Islamami and Marjan Sheikholeslami Al Agha. Like Mr. Hamzehlou, she is a politically exposed person.

Sheikholeslami worked for Ayatollah’s newspaper

Ms. Sheikholeslami is said to have worked as a reporter for the official newspaper of the Iranian government, the Islamic Republic News Agency. It is funded, and its content controlled by, the Ministry of Culture and what is called Islamic guidance. It publishes the voice of the Supreme Leader, Ayatollah Khomeini.

She is also alleged to have worked for Sepanir Oil & Gas Energy Engineering in Tehran, a sanctioned company, said to be owned by the Iranian Revolutionary Guard Corp. (“IRGC”) but her connection to Sepanir, if true, is not part of the current criminal proceedings in Iran.

The IRGC too was sanctioned by the US on December 19, 2014, under the Iran, North Korea, and Syria Nonproliferation Act and on October 25, 2007, was added to the Specially Designated National list maintained by the US Department of the Treasury’s Office of Foreign Assets Control, freezing its assets under US jurisdiction and prohibiting transactions with US persons pursuant to Executive Order 13382, which targets proliferators of weapons of mass destruction.

Sheikholeslami says she returns often to Iran

Ms. Sheikholeslami made a statement recently about the case from Canada, in which she says that she did not flee Iran and returns often [which means she has an Iranian passport that she renews and switches out to use in Dubai to board a flight to Tehran. Dual passports are used by Iranians in Canada and the US so that neither country’s intelligence or secret services agencies will know that they travelled to Iran and back other than by airline reporting]. She stated that in 2014, she managed the two companies named in the indictment and that they were not involved in money laundering. She says that she has not been served in Canada with notice of the indictment and has therefore not hired a lawyer. Here is a summary of posts about her.

And another of the defendants shipped his children to Canada permanently and we took them

Another co-accused, Mohsen Ahmadian, a retired director of the petrochemical company, is accused of participating in the scheme and of moving $78 million in cash. He was an employee of the Iranian Ministry of Petroleum and his family are all politically exposed persons for several reasons, including by association with Mr. Hamzehlou. It turns out that he too has a connection to Canada – he shipped a daughter and son to Canada.

The Iranian prosecutor has changed the numbers that allegedly disappeared but it appears that of the $6 billion that was moved, half came back to the company, leaving $3 billion unaccounted for. Three weeks ago, the prosecutor said that Iran has sought the extradition of Ms. Sheikholeslami. They are likely only going to succeed in obtaining an extradition order if the charges include money laundering. In the past, however, Iran asked Interpol for extradition thinking that such a request involved an automatic request of Canada, which suggests that they do not appear to be familiar with how extradition works.

Allegedly, Ms. Sheikholeslami claimed refugee status in Canada, although that has not been confirmed, but that is unlikely because first, she says she did not flee Iran and second, it would put her citizenship at risk of being revoked for misrepresentation because one cannot both flee a country, claim refugee status for fear of prosecution in that country and then return for commercial purposes to the country in which you fear persecution shortly thereafter.

Two other indicted persons are living in foreign countries, perhaps Canada, but that has not been released by the prosecutor yet. Organizations in the EU tend to have a more relaxed approach to sanctions – here, for example, a Swedish company said it was helping Iranian companies to use Bitcoin through Sweden.

Khavari receiving an award for service from the commander in chief of the Iranian Revolutionary Guard Corps in Iran, Mohammad Ali Jafari, who was appointed by the Ayatollah.

Other Iranians chilling in Canada convicted of financial crimes

Canada has several Iranian foreign nationals wanted in Iran for financial crime, including another politically exposed person, Mahmoud Reza Khavari (you can read about him here), who was convicted of embezzling US$2.6 billion from an Iranian state-owned bank. He moved to Toronto, Canada, where he invested millions in luxury real estate, despite having no apparent job. Canada has declined to assist with his removal from the country and at one point is said to have allegedly deliberately lied to Iran about his presence in Canada. Another, Mehregan Amirkhosravi, an Iranian foreign national lives in Montreal and was also convicted in the US$2.6 billion embezzlement case.

Khavari was photographed recently in a casino in Canada and Iranians posted his photos on social media and tend to debate why Canada has not extradited him. One cannot become the CEO of a state owned bank like Khavari was in Iran without close ties to the regime and the Ayatollah. People in Vancouver say that Khavari’s son is in Vancouver and is now a real estate agent. His daughter acquired a multi-million dollar house on Drake’s street – the Bridal Path in Toronto, opposite the Granite Club with no known income to match the price of the mansion.

Update

According to media coverage in Iran, in testimony given in the trial in Tehran on April 13, 2019, Mr. Hamzehlou testified that the IIC also involved Ms. Sheikholeslami, and that is how he came to know her and to seek her assistance with sanctions avoidance. The IIC is the company referred to the US Treasury, described above, for terrorism concerns in Malta. He testified that she is a prominent person in the Iranian government, and was considered an expert at Iran’s parliament in cultural Islamic issues. Recollect that the IIC is the company that was reported to the US government for terrorist financing concerns in Malta.

Ms. Sheikholeslami’s court appointed lawyer stated, according to media coverage of the case in Iran, that she participated in sanctions avoidance through private companies as a money broker and that she had provided a public service to the country. A lawyer for one of the parties then asked why, if Ms. Sheikholeslami provided a public service to Iran, she fled Iran and carried out the financial transactions in secret through front companies. In response as to why she has not appeared to testify, her appointed lawyer said that she is in Canada.

According to media coverage in Iran, the other defendant connected to Canada, Mr. Ahmadian, testified that he moved money out of Iran through Swiss bank accounts and that he set up a Swiss private company for that purpose. He apparently testified that if he was a sinner, he would have stayed in foreign countries (e.g., Canada and the EU) and not returned to Iran. His two children acquired Canadian citizenship despite being connected to Mr. Hamzehlou, who appears to be connected to the Ayatollah, and despite that the family’s activities and source of wealth was sanctions avoidance.

A guy stole $2M in Bitcoin mining equipment, escaped from prison, jumped on a plane with the Prime Minister of Iceland and no one stopped him

By Christine Duhaime | April 7th, 2019

Sindri Por Stefansson was recently sentenced to 4 1/2 years in prison in Iceland for masterminding the theft of $2M worth of Bitcoin mining machines.

Mr. Stefansson was arrested in February 2018 in Iceland with several others, and ordered held in connection with computer theft, for over $2M worth of mining equipment.

He was held in a low-security prison, named Sogn Open Prison. The prison was so low-security that it has windows that open wide and the windows do not have prison bars. The Sogn Open Prison was, it seems, very open where security is not a thing.

One day, Mr. Stefansson went online at the prison, and booked a flight to Stockholm. He then opened the window of the open prison, climbed through and walked away. No one stopped him; in fact, no one noticed at first.

He made it to the Keflavik International Airport, 100 km away, managed to acquire a passport and boarded his flight to Sweden. No one noticed; no one stopped him. Chilling on the plane with him to Sweden, was Iceland’s Prime Minister. Security of the Prime Minister seems not to be a thing either.

Long after the flight had left Iceland airspace, the prison guards noticed he was missing.

No one thought to notify officials in Sweden to arrest him when the plane landed and so, Mr. Stefansson got off the plane in Stockholm with Iceland’s Prime Minister. He traveled to Germany then to Amsterdam, where he was arrested, and returned to Iceland.

He is now back at the prison, serving his 4 1/2 year term.

The police have not recovered the stolen mining equipment yet, after a year.

Vancouver Convicted Money Launderer Listed In Offshore Leaks, Originally from China, Ordered Extradited to India for Drug Trafficking by Hong Kong Court of Appeal

By Christine Duhaime | April 6th, 2019

A Canadian, originally from China, named Xie Jing Feng, was ordered deported a few weeks ago to India by the Hong Kong Court of Appeal, to face trial for drug trafficking. Xie Jing Feng came to Canada from China in 1998, where he applied for refugee status, which was granted on the grounds that he alleged that he had a fear of persecution for being part of a Christian group in China and needed protection in Canada. He was subsequently granted Canadian citizenship, with his wife Zhu Li-chang.

He is included in the Offshore Leaks databased as a Canadian and is a convicted money launderer, who moved the proceeds of crime equal to HK$95 million through banks in Vancouver, China, Macau and Singapore. The couple lived in Vancouver, British Columbia, and had a house in Richmond. They appear to have used the Cook Islands as an offshore vehicle.

In 2008, Xie Jing Feng travelled to India where he was arrested for possession of meth. He was held in the Baroda Central Prison for three years on remand, waiting for a trial and during that time, he alleges he was routinely tortured.

In April 2011, he managed to escape prison in India and made his way to Nepal. He was arrested when entering Nepal for illegal entry and detained. Two months later, he was arrested by the Nepal Narcotics Control Bureau for drug trafficking. While being detained, he paid a government official $3,000 for a fake passport under an alias and was allowed to escape to the Airport, where he took a flight to Bangkok. He then traveled to Hong Kong and was arrested for illegal immigration for entering with fake ID. He was charged and convicted in Hong Kong of offences related to fake ID for immigration purposes and served a term of incarceration of 8 months.

Upon his release for fake ID and immigration offences, he was arrested for money laundering. It was found that he had 3 Canadian passports (two that were alleged to be fake), which he used to open bank accounts at HSBC and Standard Chartered in Hong Kong, where he laundered HK$95 million through shell companies and through his wife. The money was moved between Vancouver, China, Macau and Singapore. He was convicted and sentenced for money laundering in Hong Kong for a term of incarceration of 4 years and 4 months on April 23, 2013.

Two years into his sentence, the government of India applied for the extradition of Xie Jing Feng to India and upon his release from prison on March 21, 2015, he was arrested and detained for extradition to India. He then applied to be deported back to Canada and resisted extradition to India on the ground that he would face an unfair judicial process and would be harmed or killed.

He was ordered extradited to India and appealed that order for over 4 years, arguing that the delay to prosecute him in India (11 years) would amount to a denial of justice and he would “rot” in prison in India in remand if extradited to India.

The High Court of Appeal for Hong Kong denied the last appeal for Xie Jing Feng, and he was ordered extradited to India.

He is listed on a list of Canadians with offshore dealings that were identified as part of the investigation called Offshore Leaks by the International Consortium of Investigative Journalists, which includes the CBC. His multiple Canadian passports, his alias, David Chow, and other names with fake IDs that he used to travel, made him an elusive person to follow.

US identifies Canada as major money laundering country, and notes concern over its low prosecution rate

By Christine Duhaime | April 2nd, 2019

Canada once again a Major Money Laundering country

The 2019 International Narcotics Control Strategy Report (INCSR) published on Friday by the U.S. Department of State identifies Canada once again as a major money laundering country along with a host of risky countries for financial crime.

A major money laundering country is one whose banks and financial institutions engage in financial transactions involving significant amounts of proceeds from international narcotics trafficking. For several years in a row, Canada has been identified as such.

Canada has also been identified as a “major precursor country” which means it is a leading country that produces precursors or essential chemicals used in the production of illicit narcotics.

Low Prosecution Rates

Key findings for Canada this year include the fact of its low prosecution ability for money laundering and gaps in the law, such as for Bitcoin, and the continued substantial size of Canada’s illegal drug trafficking ecosystem and transnational organized crime.

Bitcoin Concern for organized crime

The Report notes the growing concern of digital currencies like Bitcoin, and the use of Blockchain for money laundering and drug trafficking and its gaps for AML compliance purposes. It also notes the growing concern of beneficial ownership with AML, which is important in the context of corruption because organized crime and corrupt officials use shell companies to launder money and evade sanctions.

Bitcoin Concern for Fentanyl

The Report specifically mentions the use of Bitcoin for fentanyl purchases overseas, as a global concern for all countries. It notes that fentanyl is responsible for the surging number of deaths in the US, claiming the lives of over 30,000 Americans. Carfentanil, which is 100 times more potent is not approved for human use but is being cut into drugs and sold on the street. The presence of carfentanil poses a serious threat to public health.

The Report notes that money launderers use offshore gambling companies (online illegal companies) and offshore centres (Guernsey, Jersey, Cayman Islands, Cook Islands) to anonymously launder funds.

Key Findings

Volume 1 The key findings of Volume 1 on drug trafficking vis a vis Canada are that:

  • Canada is a source of fentanyl to the United States.
  • Canada is a primary source country of high-potency marijuana and MDMA to the United States.
  • Canada exports illegally, synthetic opioids to the United States.
  • Canada exports, illegally, synthetic drugs and amphetamine-type stimulants to Asia and Australia.
  • Cannabis destined for the US is produced mostly in British Columbia.
  • Methamphetamine continues to be produced in large quantities in Canada.
  • Canadians buy cocaine mostly from South America, and some of that transits through the US.
  • Afghanistan is the primary source of heroin for Canadians.
  • Canada says imports of fentanyl from China via mail decreased.

Volume 2 The key findings in respect of money laundering  in Volume 2 for Canada are:

  • Canada needs to enhance its money laundering prosecution capabilities, given its low conviction rate.
  • The illicit drug market is the largest criminal market in Canada.
  • Transnational organized crime represents the most threatening and sophisticated actors in Canada.
  • Transnational organized crime has access to professional money launderers in Canada.
  • Laundering methods in Canada primarily involve cash smuggling, money services businesses, casinos, real estate, wire transfers, offshore companies, credit cards and digital currencies, like Bitcoin.
  • Money laundering activities in Canada involve drug trafficking, fraud and corruption.

Vancouver ICO firm co-founders allegedly defrauded investors

By Christine Duhaime | March 30th, 2019

RCMP Investigation

According to court filings in Canada, Kevin Hobbs and Lisa Chang, the two co-founders of an ICO called EtherParty FUEL and an associated company, Vanbex, based in Vancouver, are allegedly under investigation by the Federal and Serious Organized Crime Division of the RCMP for, inter alia, fraud and are also allegedly under investigation by the Canada Revenue Agency for tax offences.

Documents filed in court allege that Kevin Hobbs has a criminal record in the US and Canada. Specifically, according to court documents, Mr. Hobbs’ criminal history includes:

  • 2005 – convicted in the US for possession of 100 pounds of marijuana in an incident in which he allegedly had US$178,000 in cash in a suitcase.
  • 2008 – convicted of possession of proceeds of crime for allegedly having $32,000 in cash in heat sealed plastic bags in a suitcase at an Airport and of laundering the proceeds of crime.
  • 2009- convicted in connection with a grow-op operated from a home he was allegedly renting and of unlawful possession of marijuana.

This month, the Director of Civil Forfeiture of the Ministry of the Attorney General of British Columbia, filed a civil forfeiture action in rem against Kevin Hobbs and Lisa Chang and as against property they own.

Mr. Hobbs and Ms. Chang have since filed a Response to Civil Claim, denying the allegations, which is summarized below. They also filed a defamation lawsuit against a former contractor whom they say defamed them and reported them to law enforcement on the basis on non-factual information.

$30 Million Allegedly Not Used on Tech

The civil forfeiture pleadings allege that Mr. Hobbs and Ms. Chang interchangeably under Vanbex, EtherParty and FUEL, represented to investors that the FUEL ICO could be used for smart contracts and would dramatically increase in value, and then they, by “deceit, falsehood and other fraudulent means”, defrauded investors of over $30,000,000 raised.

The application alleges that Mr. Hobbs and Ms. Chang used investor funds for their own use. Among other things, they are alleged to have bought a luxury condo in Vancouver for $4 million and Mr. Hobbs allegedly bought one in Toronto for $3.7 million.

Alleged Lambo & No Occupation

According to court documents, they also allegedly bought and rented luxury vehicles, including a Lambo. The Toronto condo for $3.7 million was paid for entirely in cash, according to court documents.

The court documents state that Mr. Hobbs and Ms. Chang have no known occupation to the government plaintiff. Clearly, though, they have an occupation running Vanbex, which is a company that exists in British Columbia.

The pleadings allege that in two years, Vanbex developed no usable product or service. EtherParty’s tech concept was to create technology to enable anyone to easily create smart contracts. Its white paper is here.

According to court documents, Mr. Hobbs is alleged to have gambled over $1.8 million using the ICO investment funds at a Vancouver casino, and was allegedly placed on a watch list by the BCLC for buying in with unsourced funds.

According to court documents, when Mr. Hobbs and Ms. Chang realized they were under investigation, they allegedly attempted to liquidate the assets deliberately.

Only 2 clients?

Some of the ICOs Vanbex indicates they worked on include Dash, Factom, Tron and Storj. The court filings allege that Mr. Hobbs and Ms. Chang lied (the government’s word) and that Vanbex and its subsidiary companies were shell companies which only ever had two clients.

Some of Vanbex’s partners listed on its website are:

  • The University of British Columbia
  • Polymath, a Toronto-based ICO
  • Enterprise Ethereum Network
  • CoinPayments, a Vancouver digital currency exchange which allows trading on the darknet through the TOR onion router

It also had a number of advisors at the time of the forfeiture, including a Toronto native named Michael Perklin.

Neither Mr. Chang nor Mr. Hobbs have been charged in connection with the forfeiture action. All that has occurred is that the government has filed a Notice of Civil Claim and two applications to seize their assets and has successfully obtained a seizure order over those assets. All of the statements in the Notice of Civil Claim and Notice of Application(s) are allegations that have not been proven in any court, although there are Affidavits in support thereof. The order is not a mareva injunction, or an order as against the whole world in respect of other of their assets. Mr. Hobbs and Ms. Chang are sharing a lawyer. There does not appear to be counsel yet for Vanbex or for EtherParty or separate counsel for each of Mr. Hobbs and Ms. Chang.

Criminal History Details

According to older court records on Lexis-Nexis, unrelated to this civil forfeiture action, Mr. Hobbs’ criminal history seems tied to a series of events that occurred during the course of one summer. On balance, he does not appear to have a criminal history, per se, that extended beyond events in 2005, except as alleged now by the government.

According to public Court records, the history as taken from the Court’s writings is this:

In March 2005, Mr, Hobbs was placed under police surveillance in Canada. On April 8, 2005, Mr. Hobbs arrived to check in for a last-minute flight and was detained at the Halifax Airport.

A police dog at the Airport had made a positive indication of Mr. Hobbs’ suitcase for the presence of drugs. Mr. Hobbs was detained. He denied the police permission to search his suitcase without a warrant, and the police held onto the suitcase to obtain a warrant. Mr. Hobbs was permitted to leave the Airport.

The police subsequently obtained a warrant and opened the suitcase in the presence of Mr. Hobbs. Therein, they located $32,000 in cash in heat sealed plastic bags and mostly in denominations of $20 with elastic bands around the bundles of cash.

The $32,000 suitcase incident

Mr. Hobbs later indicated that the $32,000 was being taken to Vancouver to gamble. There were no drugs in Mr. Hobbs suitcase. However, the heat sealed plastic bags containing the money tested positive for the presence of cocaine, as did the handle of his suitcase and his clothing, according to Court judgments.

The US$178,000 suitcase incident

Three months after the Airport incident, he went to New York, and on July 28, 2005, he was arrested in a hotel room and found to be in possession, with two other persons – one from Vancouver – of 100 pounds of marijuana and US$178,000 in cash in a suitcase. The drugs and money were forfeited. In New York, Mr. Hobbs pled guilty to criminal possession of marijuana in connection therewith and intimidating a victim or a witness and received a sentence of one year incarceration. He was credited for time served during remand. Mr. Hobbs said that he was in the wrong hotel room with the wrong people at the wrong time and none of the property was his.

The grow-op incident

A week after the New York hotel incident, police executed a search warrant on a large house rented by Mr. Hobbs and located a grow-op in the basement. The grow-op was described in Court documents as semi-sophisticated.

Mr. Hobbs was arrested on August 18, 2005, and charged with unlawful possession of property or proceeds of property knowing that part or all of it was derived from an indictable offence and with dealing in those proceeds with intent to convert the proceeds knowing or believing that all or part of it was derived from the commission of an indictable offence. He was also charged with the grow-op operation and possession of a controlled substance. Mr. Hobbs may not have been present during any of this incident since it appears that he was incarcerated in New York.

At his trial, Mr. Hobbs maintained that the $32,000 cash was from casino winnings. The RCMP testified that the money could not be derived from gambling because of the way it was packaged (e.g., wrapped in elastic bands in plastic bags). Mr. Hobbs testified that he was a professional poker player and he was going to gamble with the $32,000 at River Rock Casino, which was having a big poker tournament at that time. A River Rock Casino executive testified that there was no poker tournament scheduled at the time that Mr. Hobbs had deposed. The RCMP testified that, at that time, the money he had in his suitcase was equal to the price of a brick of cocaine and given that his clothing and other items tested positive for cocaine, they suspected he was going to Vancouver to purchase coke and resell it in Halifax.

Mr. Hobbs was convicted and appealed his convictions many times over several years, one quite successfully and some as a self-represented litigant.

Response from Mr. Hobbs and Ms. Chang

The personal defendants have posted a Response to Civil Claim on the corporate website in which they deny all of the allegations made by the government. Among other things, the defendants say that Vanbex, the corporate entity, did not solicit funds for the FUEL ICO and that the purchasers thereof were informed of the risks of the FUEL ICO, and that such risks were prepared by a lawyer. The Response says that Vanbex currently has 50 employees and many clients, as well as more clients seeking their services currently.

The Response also clarified that Vanbex is a consulting company while EtherParty is an entity that develops technology. The Response states that the Lambo was actually bought, and not leased, as the government alleged and after it was bought, it was sold.

With respect to gambling, the Response states that Mr. Hobbs did not use company money to gamble at a casino. The Response dives into how the FUEL ICO was sold online and somewhat into the secondary market sales by its purchasers. The relief sought is to overturn the forfeiture action.

Although the Response does not expressly say so, it is possible that the defendants are objecting to the characterization of FUEL as a securities if such a characterization has been advanced by other parties, on the basis that the Howey Test is not applicable in Canada. There may be some merit to that, if that is what is happening, because at least two lawyers in Canada are of the view that one of the four aspects of the test does not apply in Canada.

On August 22, 2018, Mr. Hobbs said that he lived on Argyle Street in Halifax until he was 16-years-old and then moved to British Columbia at 16 years of age.

Updated on 05-06-2019.

A guy says he gave $3M of Bitcoin to a stranger to sell in Hong Kong and, you guessed it, says he never saw it again

By Christine Duhaime | March 7th, 2019

Updated December 26, 2019 – On November 1, 2019, the High Court of Hong Kong reversed its decision and agreed to order a mareva injunction sought by Nico Constantijn Samara against CitiBank and Gatecoin digital currency exchange.

This is one of those stories that could only happen in the Bitcoin world.

In June 2017, a guy named Nico Constantijn Samara, from the Netherlands, who owned over 1,000 Bitcoin worth US$3.1 million, travelled to Hong Kong to sell them to a stranger. When he arrived, he discovered that under Hong Kong banking law, non-residents cannot open accounts. So he agreed to transfer his Bitcoin to a stranger, who would use an exchange to cash out the Bitcoin, and because he could not obtain a bank account, he would allow the proceeds from the Bitcoin sales to go to the stranger’s bank account at Citi.

The stranger’s name was Stive Jean-Paul Dan, aka Steve jean-Paul Dan, aka Stive Jean Paul Dan, aka Steve Jean Paul Dan.

According to Court documents, Mr. Samara transferred 1,000 Bitcoin away, to a wallet address at Gatecoin, where Mr. Dan had an account. And Mr. Samara started selling some of the Bitcoin and cashed out, from time to time, from the exchange to his Citi bank account.

According to Court documents, the stranger gave Mr. Samara access to his Citi bank account online so that he could transfer the proceeds to Germany, where Mr. Samara had a bank account.

Allegedly, a total of $520,000 was transferred from the exchange to Citibank and accessed by Mr. Samara from Hong Kong, where he transferred it to Germany. But Mr. Samara had transferred $3,118,139 in Bitcoin to Mr. Dan. Soon after, his access to the Citibank account was allegedly removed and he was out $2.5 million, and shortly thereafter, he was unable to reach Mr. Dan.

Mr. Samara asked the exchange, Gatecoin, to place a hold on the Bitcoin wallet of Mr. Dan, which they did without a Court order. They informed Mr. Samara that Mr. Dan had only 40 Bitcoin left. A month after that blockage, Mr. Dan tried to withdraw funds at Gatecoin, which Gatecoin informed Mr. Samara of.

Mr. Samara applied to the Hong Kong Court ex parte, for a mareva injunction successfully over the bank account and Bitcoin wallet.

Mr. Dan applied to have the mareva injunction set aside on the basis that there was no basis for it to have been done ex parte.

The Hong Kong Court held that there was no reason for Mr. Samara to have applied ex parte because Citibank and Gatecoin had already, without Court orders, frozen the accounts and the lack of movement for 3 months on a mareva made it non-urgent. Mr. Samara’s delayed for three months because his law firm appears to have taken that long to work on it, according to the affidavit evidence.

The Hong Kong Court accepted that a mareva injunction is a nuclear weapon in law and there must be objective evidence that ties the order to the person for the Court to agree to launch a nuclear weapon against a person. It will not be done on mere allegations, unsupported by real evidence. At the hearing, the defendant denied all the allegations.

A mareva injunction requires an undertaking as to damages by the applicant (for the harm they cause by that nuclear weapon if they are later determined to have been wrong). Mr. Samara was asked to provide an undertaking to continue the mareva injunction, but refused to show his financials. As a result, the mareva was removed.

This case is additionally odd because while a mareva injunction is a nuclear weapon, this one was not – it was merely over two accounts which held funds owned by Mr. Samara.

We don’t know what happened to Mr. Samara’s $3M in Bitcoin.

Alleged drug dealer in Vancouver tied to Silk Road, facing extradition to US

By Christine Duhaime | March 3rd, 2019

Vancouver’s James Ellingson

A Vancouver man, James Ellingson, is the subject of an extradition request by the Southern District of New York (“SDNY“), based on charges that include money laundering and narcotics importation.

Ellingson was arrested in Vancouver on October 29, 2018, under an Extradition Act provisional warrant. According to the SDNY, Ellingson sold drugs on the darknet site Silk Road, that was shut down by the FBI.

Marijuanaismymuse

He is alleged to have been a user named “Marijuanaismymuse” and under that user name, allegedly was a prolific drug seller, selling 19 kilos of marijuana (this is what 19 kilos of marijuana looks like), 7 kilos of MDMA, 4 kilos of meth (this is what 4 kilos of meth looks like), 2 kilos of cocaine (this is what 2 kilos of cocaine looks like) and 100 grams of heroin to various online purchasers and was paid with Bitcoin, allegedly in an amount that exceeded $2 million.

Bitcoin proceeds

The alleged proceeds of crime earned in Vancouver in Bitcoin were allegedly funnelled through a Canadian digital currency exchange. Drug sales on the darknet, if they involve Vancouver traffickers, are shipped by Canada Post in little packages to buyers.

Ellingson allegedly has a long criminal record in Vancouver, including convictions for criminal harassment, assault, possession of a prohibited weapon, drug trafficking and drug possession and according to the allegations, appears to have continued criminal activities on the darknet.

In order to locate the user behind “Marijuanaismymuse”, the FBI undertook Bitcoin wallet tracing and obtained a court order for Gmail records. According to affidavit evidence, Ellingson communicated with Ross Ulbricht, the founder of the darknet site, Silk Road.

Redandwhite connection?

It is also alleged that Ellingson may be the user “redandwhite.” Redandwhite is significant because it is the person who Ross Ulbricht contacted about killing a person in Vancouver who was blackmailing him.

Ulbricht wrote to Redandwhite for the contract killing and said: “would like to put a bounty on his head if it’s not too much trouble for you. What would be an adequate amount to motivate you to find him? Necessities like this do happen from time to time for a person in my position.” Ulbricht went on to clarify that it didn’t need to be “clean”.

You can read the transcript for the contract killing here.

Redandwhite quoted a price of $300k+ for clean and $150k -$200k for non-clean, to which Ulbricht replied: “Are the prices you quoted the best you can do? I would like this done asap.”

The parties allegedly agreed on a price of 1,670 Bitcoin for the job and the payment was recorded on the Blockchain.  A day later, Redandwhite informed Ulbricht that the problem was taken care of and allegedly sent photographs to confirm the murder had occurred.

Ordered not to communicate with Ulbricht

Ellingson is out on bail in Vancouver, waiting for a hearing on the application for his extradition to the US, and has been ordered not to communicate with Ross Ulbricht.

Ross Ulbricht is incarcerated in the US, serving a jail term at a maximum security facility of double life imprisonment plus 40 years with no possibility of parole. He has exhausted all his appeals and will never be released. He is not allowed to communicate with anyone on the outside except his family once a week. He was one of the world’s foremost money launderers and created the darknet drug trafficking Bitcoin model, which resulted in the deaths of several teenagers around the world from fentanyl overdoses. He was tried as a super kingpin. His right hand man was another Canadian.

You can read about Ross Ulbricht’s trial here. Ulbricht and the drug traffickers who were vendors on the Silk Road Tor website, trafficked significant volumes of illegal drugs and other illegal services worldwide, including fentanyl.

No actual murder?

It seems likely that Ulbricht was played and the person who blackmailed him was the same person who offered to help kill the blackmailer, and ergo, the murder didn’t actually take place. And that person, it would appear from theories, may be Redandwhite.

But that theory has at least one hole – if true, it would have been a substantial set of facts that Ulbricht could have introduced at his trial to mitigate the factual matrix in respect of the allegations that he was a murderer. Inter alia, Ulbricht would have known if the communications came from the same IP address and same device. So would the FBI in their investigation. And so would the digital currency exchange in Vancouver that provided the Bitcoin exchange services for both ends of the deal, e.g.., to the blackmailer and the hit man. Ulbricht did not introduce any technical evidence at his trial in respect of IP addresses or Bitcoin wallet intersections or Bitcoin account holders, to show that the blackmailer and the hitman were one and the same person and that no one was at risk of being murdered.

In Vancouver, no evidence was introduced at the extradition hearing of Ellingson as to the receipt, conversion and such of the $2 million that allegedly passed through Ellingson’s Bitcoin wallets at the digital currency exchanges for the alleged drug trafficking activities.

Vancouver, Venezuela, Crypto

By Christine Duhaime | February 15th, 2019

According to this article in Vancouver, a Vancouver based charity called GiveCrypto.org, is sending, transferring or donating (perhaps all 3), digital currencies from the US (via Coinbase, a digital currency exchange) to people in Venezuela. The article does not say who receives the digital currencies in Venezuela, how they receive it or how much they receive. Is it via an exchange in Venezuela? Does that exchange trade the sanctioned Petrocoin? Are any persons on sanctions lists in Canada or the US receiving the digital currency? So many issues – so few answers.

How artificial intelligence is changing investigations, policing and law enforcement

By Christine Duhaime | February 13th, 2019

Artificial intelligence is having a significant positive impact on the ability of law enforcement to identify criminals and to detect and investigate crime.  In the process, it is changing the face of policing.

Early AI in Money Laundering

AI in law enforcement is not new. Two areas where AI was used early on in law enforcement were for border control and anti-money laundering law in the US.

The US Customs and Border Protection Agency created an AI system using rule-based reasoning to identify suspiciousness for immigration purposes in the mid-1980s.

And in 1993, FinCEN developed a system called the FinCEN Artificial Intelligence System, which links and evaluates financial transactions for indications of suspicious transactions characteristic of money laundering or terrorist financing to identify unknown, high value leads for investigation and, if warranted, prosecution.  In its first two years, FinCEN’s AI System identified over US$1 billion in potential laundered funds that humans alone could not detect.

AI systems are changing investigations.  They allow investigators to detect criminality in ways not before possible of transactional data to be processed and linked to identify patterns and connections.  AI systems can process big data rapidly, reducing the amount of time investigators would otherwise spend manually combing through large data sets for leads and patterns in financial crime. In financial crime law especially, investigations are often hampered by manpower shortages.  Mining and processing by data solve manpower shortage problems and accelerates pattern detection to identify anomalous behaviour and detect criminal actors.

This is especially useful for transnational criminal organizations.  They usually involve repetitive patterned behaviour in select areas of criminality, such as drug trafficking, extortion, cybercrime and money laundering.  They also involve multiple offenders connected through various relationships such as family, friendship or business associates.  In terms of behaviour, they typically travel and dine together. Learning and linking associations between members of criminal organizations and their business enterprises is a critical part of how anti-money laundering legal experts and law enforcement uncover criminal activities and criminal networks.  Combining AI and traditional link analysis in investigations is enabling the public and private sector to have deeper intelligence.

At FinCEN, because specialized money laundering and terrorist financing expertise is distributed among FinCEN agents, the system incorporates a wide range of shared knowledge.  The design of the suspiciousness evaluation modules, with individual rule sets addressing specific money laundering indicators, facilitates the incorporation of additional indicators and improves accuracy of findings. Using AI technology, an organization like FinCEN can identify multiple businesses linked to certain financial transactions to detect money laundering activities, criminal associations to support enforcement.

Facial Recognition

Facial recognition is undergoing a renaissance with AI and changing policing.  Facial recognition was developed in the late 1980s by the Central Intelligence Agency.  Back then, the CIA’s facial recognition system combined image analysis technology with collateral information tied to a database that was used to identify people.  Since then, facial recognition technology has played a role in law enforcement since the mid-1990s.  For example, border agencies at airports in China and Japan have deployed facial recognition systems for years to control immigration and in the process, built two of the world’s largest facial recognition databases.  China’s federal facial recognition database is tied to national identity cards and intelligence agencies.

The Jiao Tong University has built a facial recognition system that can identify criminals with 89.5% accuracy rate using machine vision algorithms based on examinations of photographic records of known criminals and non-criminals.

The FBI has facial recognition systems as well that access and scan over 411 million photos in state and federal databases.

US Customs and Border Patrol is developing drones with sensors, cameras and facial recognition capabilities to allow it to film persons near borders to see if they are matched in law enforcement databases using remote drones, including matching from the IDENT database which has more than 170 million facial images collected from foreign nationals as they enter the US.

The UAE has built police robots whose primary function is to scan faces using facial recognition programs for enforcement.

In the private sector, Google and Facebook apply facial recognition on photographs voluntarily uploaded by users on their platforms, and they group photographs of people together, informing their AI systems to associate photographs with the same person automatically.  However, such automatic linking of a person by tech companies raises privacy law issues in respect of the collection, retention and use of the likeness of a person, and issues of informed consent.

Also in the private sector, organizations such as casinos, use facial recognition programs to take images of the public and extrapolate certain information for compliance and enforcement purposes to detect if a person is to be prohibited from gambling for any number of reasons, including if they are a member of organized crime.

CCTVs in public places operate the same as in casinos in the sense that facial recognition systems work with machine learning systems to scan faces and inform law enforcement of suspicious activities, such as when the same people appear at the same locations more often than statistically probable.

For example, facial recognition and machine learning tech can detect if the same person interacts on the same street corner frequently and the system may then predict that the person is selling illegal drugs or will record a person entering a high end hotel at the same time frequently and predict that they are selling prostitution services.

There are obvious concerns with such judgement calls.  In the example above, the person who interacts at the street corner frequently could be a girl selling Girl Guide cookies and not a drug trafficker.

For a response to be sufficient to justify reasonable grounds to suspect and justify a search or seizure or reporting, it must be accurate and be based on an understanding of the law.  Systems are only as good as the coding and if that coding involves criminal prosecutions and is not done with lawyers, it may fail constitutional thresholds.

Predictive AI

Another area where AI is changing investigations and law enforcement is predictive AI.

Predictive AI is expected to become embedded in policing to predict and stop crimes before they happen.  In the future, it is highly probable that a machine will identify criminals all on its own and alert law enforcement on how and where to locate a suspect, with the evidence detailing the crime packaged by systems for arrest and prosecution.

Chicago is already evaluating predictive AI with the use of public data, such as social media data, and other sources to identify people likely to be criminals before they commit crimes.  The research is controversial because it assumes criminality can be predicted.

Automating the process cuts down on the time a human would take to identity the data and come to the same conclusion.  The advantage of using data vacuumed from a social media account is that it can pick up repeat information (such as the hashtag #drugs), correlations among social media posts, repeat locations, connections and references to other people that a human could not detect without years of analysis.

Moreover, using social media as the collateral information allows financial crime investigators to detect, within seconds, things that are out of pattern – for example, if a person has geo-tagged frequent visits to expensive resorts or restaurants that are inconsistent with their salary, that may be indicative of possession of proceeds of crime.

Today, we can identify criminal actors in organized crime before there is sufficient evidence to prove criminal conduct but that is markedly different from predicting criminality of an individual.  With respect to the former, identity is based on the fact that members of criminal organizations and gangs are part of the same circles and networks.  Statistically speaking, they are likely to so-called infect each other with criminal interests.

It sounds great in theory that we can predict criminality but there are risks because machines are not infallible and neither are humans.  Often humans make bad judgment calls in their life decisions, or lack the maturity, intellect or education to comprehend the consequences of what they post online for the world to see and how it is being used. People who are unaware of data vacuuming may be harmed by the storing of their social media in a permanent database when it is later used for criminal predictability.

Borg Collective?

Accessing big data and undertaking data vacuuming and then applying machine learning to that data may lead to a form of constructive knowledge, legally speaking, allowing for law enforcement to have constructive awareness of predictions of criminality, ignoring the individual reasonable suspicion requirements.  One scholar has suggested that this would turn our police agencies into something like the “Hive Mind” that collects and processes data from millions of datasources, CCTVs and drones, similar to the Borg Collective in Star Trek allowing police agencies in the future to rely on global real-time updated databases in respect of individuals for law enforcement.

Other AI in Law Enforcement

In other contexts, securities commissions, including the US Securities Exchange Commission and the Australian Securities and Investments Commission, use AI to detect rogue market behaviour among traders and brokers. Nasdaq is looking at developing AI software to use machine intelligence to understand the language used by traders and identify key indicators of fraud or criminal activities when they happen.

In the same vein, autonomous boats equipped with sonar AI capabilities are used to detect and report illegal fishing in oceans and other illegal activities, such as drug trafficking off coastal waters.

AI is also being used to create safer cities.  Students at Berkeley University developed an app that brings real-time crime incident information to users, using historic and location data to identify safe navigation paths and alerts.  The app features a dynamic crime map, notifications about nearby crimes and automated reporting of incidents.  It draws upon various data sources, including police dispatch data, crowd-sourced information and historic data.

The world is rapidly changing with AI and policing is no different.

World’s first bi-national government issued digital currency launched in Middle East

By Christine Duhaime | January 20th, 2019

Saudi Arabia and the United Arab Emirates announced yesterday in Abu Dhabi that they have created and launched a joint new bi-national digital currency. The name of the coin has not been released, not the type, not the amount issued, nor its price per coin. According to the governments of both nations, the new Saudi / UAE coin will be used by partnering banks so that those two governments can obtain an understanding of how Blockchain functions. The central banks of both countries are also participating in the coin issuance and its operation. The creation of a bi-national government issued digital currency is the first in the world.