This $4 billion Bitcoin laundering scheme reads like a gripping detective story
A Russian man was indicted by a U.S. jury on Wednesday on charges of laundering more than $4 billion through a Bitcoin exchange, Reuters reported.
Alexander Vinnik, 38, and likely operator of popular Bitcoin exchange BTC-e, was arrested in northern Greece on Tuesday, according to the report.
The U.S. Justice Department thinks he used the exchange to launder money for criminals, and ties him to the demise of another popular Bitcoin exchange, Mt. Gox, which was shut down in February 2014 after 850,000 of its bitcoin—then worth about $450 million—went missing.
It is unclear from the report whether Vinnik actually stole from Mt. Gox, whose founder Mark Karpeles is currently on trial in Japan for embezzlement and data manipulation, or whether he'd received those bitcoins from a third party and then used them in a money-laundering scheme. It's also unclear where the $4 billion figure comes from. Bitcoin has been very volatile in the past couple of years; for example, the 850,000 bitcoin stolen from Mt. Gox (though 200,000 of those were later recovered) are worth about $2.2 billion at today's prices.
The BTC-e exchange, which was one of the few major exchanges that required almost no personal info from its users, was shut down on Tuesday for "unplanned maintenance" and is still defunct at the time of this writing. Vinnik's exact role at BTC-e, as well as names of other possible co-conspirators, are unknown; the exchange's owners and operators were never publicly revealed. Another exchange through which Vinnik allegedly laundered money, Tradehill, was shut down in 2013.
The indictment against Vinnik describes BTC-e as a "criminal business venture" and claims the exchange was used to launder money tied to hacking, ransomware, fraud, drug trafficking, and identity theft, among other crimes. Interestingly enough, BTC-e was apparently used by two corrupt U.S. federal agents, which used BTC-e "to launder their criminal proceeds" to the tune of several hundred thousand dollars each.
CoinDesk points to a report by Bitcoin forensics company WizSec, released Thursday, that pinpointed Vinnik as the "chief suspect for involvement in the Mt. Gox theft," claiming he controlled the keys to Bitcoin wallets to which the stolen bitcoins were sent. The report claims some 300,000 of the bitcoins stolen from Mt. Gox ended up on BTC-e, with the rest deposited to other exchanges—including Mt. Gox itself. Furthermore, the report ties Vinnik to thefts of bitcoin from other exchanges, including Bitcoinica and Bitfloor.
While probably not definitive in the eyes of the law, WizSec's findings are fascinating, as they were assembled by following the trail of money on Bitcoin's blockchain. The blockchain is a public ledger which makes every single transaction transparent but does not necessarily tie any of them to a real-world identity. You can follow the trail of stolen Bitcoins allegedly tied to Vinnik yourself on an interactive chart on WizSec's website.
WizSec claims it managed to identify Vinnik through an online identity with the moniker WME (which is also mentioned in the U.S. Dept. of Justice's indictment against Vinnik), which was linked to both the Mt. Gox and the coins stolen from Bitcoinica. Vinnik apparently used the WME identity to complain about being scammed out of $100,000 worth of Bitcoin on Bitcoin's official forums in 2012.
While many ends in this story are still loose—WizSec promised to post more of its findings soon—it's an interesting view in one of the largest Bitcoin thefts ever. It's also a reminder that Bitcoin's blockchain never forgets. When there's an in and an out, you can follow the trail of money that will eventually lead you to an actual person.
Topics Bitcoin
Stan is a Senior Editor at Mashable, where he has worked since 2007. He's got more battery-powered gadgets and band t-shirts than you. He writes about the next groundbreaking thing. Typically, this is a phone, a coin, or a car. His ultimate goal is to know something about everything.
