Feds Arrest Suspected Russian BTC-e Owner for Playing a Central Role in $4 Billion Mt. Gox Hack

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Jul 27
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The US Department of Justice (DoJ) has announced the arrest of Alexander Vinnik, a Russian national involved in laundering more than $4 billion Mt. Gox money allegedly using BTC-e, a Bitcoin exchange platform. Vinnik was arrested by the police in a village in northern Greece on Tuesday after the DoJ and other federal agencies linked him to the Mt. Gox “hack” in 2014.

Greek police called Vinnik “an internationally sought ‘mastermind’ of a crime organization.”

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Feds say that Vinnik is an owner and operator of BTC-e, one of the Internet’s most popular Bitcoin exchanges that received over $20 billion (9.4 million bitcoins) during 2011 and 2016 thanks to the secrecy that it offered to criminals.

Mt. Gox victims may finally find some closure – no Bitcoins, though

Once the most popular Bitcoin trading platforms, Mt. Gox took at least $450 million in Bitcoin and $27 million in cash when it went offline. The Japanese Bitcoin exchange suffered multiple mysterious robberies, which the DoJ says Vinnik assisted with. The 37-year-old Russian national allegedly played a central role obtaining funds from the insider (or hacker) who stole bitcoins from Mt. Gox and laundered them through BTC-e over a span of three years.

Mt. Gox was probably one of the first and most prominent examples of how fast cash could burn for investors in the unregulated world of cryptocurrency.

After the alleged hack, Mt. Gox had filed for bankruptcy in Japan while its CEO Mark Karpeles had blamed the failure on a cyberattack. However, Japanese law enforcement suspected an insider job, arresting Karpeles who is currently facing trial for embezzlement and the loss of customer funds.

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Law enforcement agencies aren’t, however, indicting Vinnik for hacking or stealing funds from Mt. Gox, but for money laundering. “He may have merely bought cheap coins from thieves and offered a laundering service,” WizSec, a Japanese security firm writes. The indictment claims that Vinnik owned several BTC-e administrator accounts and was also a beneficiary of its parent company, Canton Business.

Vinnik used both BTC-e and the now-defunct Tradehill Bitcoin exchanges for laundering the Mt. Gox “hack” money. “After the coins entered Vinnik’s wallets, most were moved to BTC-e and presumably sold off or laundered (BTC-e money codes were a popular choice),” WizSec adds. “In total some 300,000 BTC ended up on BTC-e.”

IRS Criminal Investigation chief Don Fort suggests that Vinnik not only laundered money but is also involved in other crimes like identity theft, tax refund fraud, and facilitation of drug trafficking.

“Exchanges like this are not only illegal, but they are a breeding ground for stolen identity refund fraud schemes and other types of tax fraud,” Fort said. “When there is no regulation and criminals are left unchecked, this scenario is all too common.”

If found guilty, Vinnik faces up to 55 years in prison and a $500,000 fine for operating an unlicensed money service business, money laundering, and engaging in unlawful monetary transactions.

The Financial Crimes Enforcement Network, the US agency responsible for enforcing money laundering laws, has also announced a $110 million fine on BTC-e.

“We will hold accountable foreign-located money transmitters, including virtual currency exchangers, that do business in the United States when they willfully violate US anti-money laundering laws. 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.” FinCEN

BTC-e is currently offline and traders are also reportedly locked out of their funds. The company’s Twitter account claims that the disruption will be fixed in 5 to 10 days and is due to “unscheduled ongoing maintenance.”

Vinnik’s arrest is the latest in a series of US operations against Russian cyber criminals and follows the DoJ’s move to shut down two of the biggest dark web marketplaces earlier this month. The news also comes as another shock to the cryptocurrency community that has faced continued blows this month, with at least 4 reported hacks where investors have collectively lost over $50 million.

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