The summer of 2017 has been a wild and turbulent season for the darknet and cryptocurrencies, two of the greatest modern technologies available which provide freedom and privacy for its users. First a group of law enforcement from several countries took down the two biggest darknet markets, AlphaBay and Hansa Market, and now one of the biggest and oldest cryptocurrency exchanges, BTC-e, has been shut down and one of its owners has been arrested. Russian citizen Alexander Vinnik was arrested in the north of Greece after being indicted on 17 counts of money laundering by a grand jury in the United States. While the Department of Justice is seeking to have Vinnik extradited, FinCEN has levied a fine of over 110 million dollars against BTC-e and assessed a penalty of 12 million dollars against Vinnik.
Investigators with WizSec allege that Alexander Vinnik has ties to the hacks on the Mt Gox and Bitcoinica bitcoin exchanges. Bitcoinica was hacked in 2012 and thousands of bitcoins were stolen in the hack. Mt Gox, an exchange headquartered in Japan, was hacked in 2011 and again in 2014, and what at the time was worth millions of dollars worth of bitcoin had been exfiltrated from the site. Mt Gox had been one of the largest bitcoin exchanges, but went bankrupt in 2014 and its CEO is currently facing a trial in Japan. WizSec alleges that BTC-e was involved in laundering much of the bitcoin that was stolen from those two bitcoin exchanges.
BTC-e and Vinnik are accused of violating United States money laundering laws over its operations with customers who were located in America. The United State government is accusing BTC-e and Vinnik of helping launder over 4 billion dollars worth of bitcoin. Unlike most other bitcoin exchanges, BTC-e did not collect personal information from its customers. Exchanges based in the United States, such as Coinbase, require extensive personal information from their customers. Cryptocurrencies are becoming much more heavily regulated by both the federal government and the state governments in the United States.
“We will hold accountable foreign-located money transmitters, including virtual currency exchangers, that do business in the United States when they willfully violate U.S. anti-money laundering laws,” Acting Director of FinCEN, Jamal El-Hindi said in a press release. “This action should be a strong deterrent to anyone who thinks that they can facilitate ransomware, dark net drug sales, or conduct other illicit activity using encrypted virtual currency. Treasury’s FinCEN team and our law enforcement partners will work with foreign counterparts across the globe to appropriately oversee virtual currency exchangers and administrators who attempt to subvert U.S. law and avoid complying with U.S. AML safeguards,” El-Hindi added. FinCEN alleges that BTC-e’s customer service helped drug dealers who operated on the Silk Road, AlphaBay, and Hansa Market by giving them advice on how to launder their money.
BTC-e has a history of dealing with shady characters, 95% of all bitcoin obtained through ransomware is said to have been laundered through the site. Another shady connection the exchange has is the fact that it helped supply bitcoins to a collective of jihadist terrorists from Gaza. In 2016, the jihadists had created an online fund raiser called Jahezona (which translates from Arabic to “Equip Us”) to help arm themselves. The jihadist’s bitcoin wallet only received two transactions in July of last year, the first donation totaling 0.893 bitcoin and the second donation totaling 0.0359, for a grand total of 0.9289 bitcoin, which at the time was worth approximately 540 dollars. The terrorist group had been hoping to raise $2,500. Both transactions involved bitcoins that were purchased through BTC-e.
BTC-e had originally claimed that their site was “undergoing maintenance”. On the day Vinnik was taken into custody by Greek law enforcement, BTC-e claimed in a tweet that they would resume operations within 5 to 10 days. At that point the site had already been down for two days. The remaining operators and admins of BTC-e were reported to be negotiating with the United States’ Securities and Exchange Commission (SEC) and the Department of Justice. The investigation into Vinnik and BTC-e was conducted by FinCEN in cooperation with the FBI, the IRS’ Criminal Investigation Division, the Secret Service, and the Department of Homeland Security.