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Federal Indictment: Bitcoin exchange was a nexus of crime for Russian hackers in billion dollar money laundering scheme

July 31, 2017  |  Posted by: Francesca Falzarano
Federal Indictment: Bitcoin exchange was a nexus of crime for Russian hackers in billion dollar money laundering scheme

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A man from Russia has been charged with managing a black market Bitcoin exchange that assisted in laundering billions of dollars and stood at the center of several criminal enterprises, a federal indictment revealed.

The indictment based out of California, which was unsealed on Wednesday, presented a list of crimes that the Bitcoin exchange, also referred to as BTC-E, helped, including ransomware fraud, theft, drug trafficking and corruption.

According to the New York Times, the suspect charged in the case, Alexander Vinnik, 37, was taken into custody in Greece last week. Vinnik had “directed and supervised” BTC-E’s services.

Criminals who robbed or extorted Bitcoin from their victims would transport the virtual currencies to BTC-E, which would then convert the virtual currency into regular currency using bank accounts listed under shell companies.

Officials with the Justice Department said that the exchange appeared to have been responsible for laundering over $4 billion, with most of the money turned into U.S. dollars and Russian rubles.

The site served 700,000 users internationally.

US authorities have accused Alexander Vinnik of “being the leading members of an organization that was running large amounts of money through an online Bitcoin digital exchange platform

BTC-E users had noted that the exchange’s site was down, though the site’s administrators had announced on social media that they were trying to get it back up.

Vinnik’s arrest occurred shortly after authorities in the U.S. and Europe busted two online drug markets in which Bitcoin was the main currency.

Within the Bitcoin community, it has been common knowledge that drug dealers could use BTC-E to turn their proceeds into cash.

Vinnik and his co-conspirators are also accused of robbing funds from the Tokyo-based Bitcoin exchange Mt. Gox, which filed bankruptcy in 2014 after they disclosed they were the victim of a hacker invasion.

Mt. Gox’s chief executive officer, Mark Karpeles, said at the time that it had lost over 800,000 Bitcoins, some of which the company later said it had gotten back.

The indictment added that hundreds of thousands of Bitcoins were moved from Mt. Gox into accounts at BTC-E that were directly managed by Vinnik.

The stolen currency was then transferred to a different virtual currency exchange, Bitstamp, and was sold for traditional money, which were deposited in bank accounts that Vinnik operated in Latvia and Cyprus.

At least 300,000 Bitcoins followed this path, which would be close to nearly $800 million today.

Soon after Vinnik’s arrest, WizSec, a Japanese computer security company that has been investigating the Mt. Gox theft, revealed that it had tracked the stolen money to Vinnik and had provided its findings to authorities.

WizSec said that the theft of Mt. Gox’s funds started in September 2011 and persisted until 2014, with most of the funds ending up at BTC-E.

BTC-E was launched in 2011, just as Bitcoin began to gain significant value.

BTC-E announced on its website that they were with regulators by collecting identifying documents from all of its customers. In practice, however, BTC-E did not ask for anything from customers opening accounts.

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