money laundering
Cryptocurrencies,  Europe,  United States

US sues BTC-e exchange owner Alexander Vinnik for $100 million

The FinCEN lawsuit comes in addition to criminal charges alleging money laundering for drugs and cryptocurrency exchange hackers

The U.S. is suing the founder of cryptocurrency exchange shut down two years ago over money laundering accusations for $100 million.

Alleging violations of the Bank Secrecy Act, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) filed a civil suit against BTC-e founder Alexander Vinnik on July 25, seeking to recover more than $88 million in customer funds from the exchange and $12 million in from Vinnik personally.

Bloomberg cited one legal expert speculating that the civil suit was an attempt by American authorities to get their hands on BTC-e’s assets while they still can. It also cited cryptocurrency analysis firm Elliptic in linking him to funds associated with Russian military intelligence group accused of interfering in the 2018 U.S. elections.

In its suit, FinCEN alleged “BTC-e accounts received criminal proceeds directly from various cybercrimes, including numerous hacking incidents, ransomware payments, identity theft schemes, embezzlement by corrupt public officials, and narcotics distribution.”

The lawsuit comes in addition to criminal charges alleging Vinnik knowingly helped criminals launder cryptocurrency linked to drugs, exchange hacking, and other crimes. On January 17, 2017, a grand jury indicted him on 21 counts of operating an unlicensed money services business, money laundering and conspiracy to commit money laundering, and engaging in unlawful monetary transactions.

Vinnik is currently in jail in Greece, where U.S., French, and Russian authorities have sought his extradition. While Greece initially agreed to send Vinnik to the United States, a long legal battle ended last September with the country’s supreme court ruling the Russian citizen should be sent to his home country. He has been in custody since 2017, when he was arrested at the American government’s request.

Vinnik has sought to be sent to Russia, where he faces the least serious charges. He has denied the charges, telling a Russian publication in 2017 he was wrongfully accused.

In addition to offering exchange services without “even the most basic identifying information,” FinCEN said Vinnik’s company deliberately “obscured and anonymized transactions and sources of funds. A BTC-e user did not fund an account by directly transferring money to BTC-e itself, but rather users were instructed to wire funds to one of BTC-e’s ‘front’ companies that, although nominally separate from BTC-e were, in fact, controlled by and operated for the benefit of BTC-e.”

Nothing but a username, password, and email address was needed to create an account, the agency said. 

Beyond that, FinCEN claimed users openly discussed crimes on the exchange’s forum, pointing to “user names such as ‘ISIS, ‘CocaineCowboys,’ ‘blackhathackers,’ ‘dzkillerhacker,’ and ‘hacker4hire.’” Despite this, BTC-e did nothing to investigate these clients.

The offshore exchange was based in either Cyprus or the Seychelles, according to prosecutors. BTC-e served more than 700,000 clients, including many U.S. citizens, said the suit. 

Prosecutors also alleged that the exchange “maintained a customer base that consisted largely of criminals… . BTC-e quickly became the virtual currency exchange of choice for criminals looking to conduct illicit transactions or launder illicit proceeds, all of which BTC-e failed to report both to FinCEN and law enforcement.”

Leo Jakobson, Modern Consensus senior editor, is a New York-based journalist who has traveled the world writing about meeting and incentive travel, as well as the consumer and employee loyalty business. He also covered the East Coast side of the Internet boom and bust, small businesses, and New York City crime, nightlife, and politics. Disclosure: Jakobson owns no cryptocurrencies.

Subscribe to MODERN CONSENSUS Newsletter