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Stolen Mt.Gox funds allegedly laundered through $4 billion bitcoin scheme

Bitcoin on computer
Peter Verreussel / 123rf
A 37-year-old Russian man has been arrested and charged with owning and operating bitcoin exchange site BTC-e, a service authorities describe as being part of a multi-billion-dollar money-laundering scheme. The indictment alleges that the theft of bitcoins from many other trading platforms, including in the infamous Mt.Gox theft, were funneled through BTC-e to help obfuscate where the money came from.

BTC-e has been operating since 2011, and over time has evolved into one of the largest bitcoin trading platforms in the world. However, U.S. authorities believe much of that money was stolen and that BTC-e is implicated in a number of related crimes, including fraud, computer hacking, identity theft, tax-refund fraud, public corruption, and drug trafficking.

The alleged owner of the site, Alexander Vinnik, was arrested on July 25 in Greece. He is alleged to have received funds directly via the theft of bitcoins from the Mt.Gox exchange prior to its closure in 2014. Some of the funds were even said to have been funneled back through Mt.Gox, using the exchange to launder its own stolen coins.

As large as the Mt.Gox hack was though, it made up just a fraction of the coins that were ultimately moved through BTC-e over its lifetime. The authorities claim as much as $4 billion worth of the cryptocurrency was exchanged on the platform, though the indictment doesn’t make clear if that is based on the bitcoin’s current value, which is near historic highs, or its value at the time of transfer.

Another charge that U.S. authorities have levied against Vinnik and his company is that the firm was not registered as a financial services business with the U.S. Department of Treasury, and did not institute an anti-money laundering process. Both are required by federal law, adding to the extensive list of charges now levied against Vinnik. If convicted of all crimes and given anything close to maximum sentencing, he stands to spend much of the rest of his life in jail.

Although the company was not located within the United States, the government’s position is that because it did business with entities within the U.S., it must still abide by federal legislation.

It’s important to highlight that as with most bitcoin exchanges, there were likely to be many legitimate, non-criminal users of BTC-e, though due to the anonymous nature of the service, distinguishing its lawful activities from any unlawful activities will likely prove difficult.

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