China Will Likely Resume Cryptocurrency Trading by Licensing Bitcoin Exchanges

Joseph Young

The Chinese government will likely resume cryptocurrency trading in the upcoming months with necessary Know Your Customer (KYC) and Anti-Money Laundering (AML) systems in place.

Earlier this week, Xinhua, the state-owned news publication of China, revealed that the Chinese government is concerned with criminal activities surrounding cryptocurrencies such as bitcoin. It emphasized that cryptocurrencies have become the “top choice” for underground economies and revealed that the government will take appropriate measures to regulate the market by implementing a licensing program and strict AML systems.

Why the Ban on Chinese Exchanges is Not Beneficial for the Government

Last month, the Chinese government, the People’s Bank of China (PBoC), and local financial regulators imposed a nationwide ban on cryptocurrency exchanges. Consequently, the price of bitcoin fell to $3,000 and the cryptocurrency market endured a major correction.

Since then, the global cryptocurrency exchange market has restructured as the majority of trading volumes from China moved to neighboring markets such as Japan and South Korea. More to that, the Japanese government officially authorized 11 cryptocurrency exchanges in the same month, providing an efficient and well-regulated ecosystem for Chinese traders. As a result, the bitcoin price has recovered and has remained above the $4,000 margin.

But, the Chinese government’s ban on cryptocurrency exchanges also led to the increasing trading volumes of over-the-counter (OTC) markets and peer-to-peer trading platforms such as LocalBitcoins. For the Chinese government, such trend is a major concern in terms of KYC and AML policies because traders are now able to exchange cryptocurrencies and trade the Chinese yuan without the control and the involvement of Chinese authorities.

Previously, when regulated Chinese cryptocurrency trading platforms such as BTCC, OKCoin, and Huobi were around, the overwhelming majority of cryptocurrency trades were overseen by the PBoC through KYC and AML systems adopted by businesses within the Chinese cryptocurrency exchange market. Today, it is not possible for the Chinese government to regulate cryptocurrency trades because they are being processed and settled in markets that are outside the reach of the local authorities.

Licensing Program Similar to That of Japan Likely

Xinhua noted that the government is considering the possibility of licensing and record-keeping cryptocurrency trades, as local sources including CnLedger have shared. CnLedger, a trusted source of cryptocurrency news in China, stated:

“Xinhua News, official press agency of CN: Virtual currencies have become the top choices of underground economies. We shall adopt ‘0-tolerance policies’ towards crimes hidden underneath and take measures such as record-keeping, licensing, AML processes, real-name, limiting large transactions.”

In order for the government to adopt a zero-tolerance policy on cryptocurrency-based criminal activities, it needs to have infrastructures in place that can allow the government to oversee payments and disclose the identities of cryptocurrency users. Without KYC and AML systems, as seen in trading platforms like LocalBitcoins and other OTC markets, it is virtually impossible to execute a zero-tolerance policy on cryptocurrency crimes.

As Xinhua suggested, it is definitely possible that the cryptocurrency exchange ban in China is only temporary until the Chinese government releases a stricter record-keeping, licensing, and AML policies for trading platforms.

Also, as experts and executives at overseas exchange markets such as Hong Kong revealed, the ban on cryptocurrency exchanges have not stopped Chinese investors from buying and investing in cryptocurrencies.

“The ban did not stop them [Chinese investors] from buying cryptocurrencies. In the last few weeks, we have seen a lot of mainland customers opening up accounts at TideBit. They still want to play the game. I see a growing need in that they will come to Hong Kong or Singapore to buy cryptocurrency,” said Terence Tsang, chief operating officer at TideiSun, the parent company of TideBit.


Bitcoin laundering suspect caught in US, Russia extradition spat

The two countries are fighting over where the Russian national should have his day in court.

By  for Zero Day

Alexander Vinnik is a popular man, with both the United States and Russia fighting over which country has the right to charge the suspected Bitcoin laundering mastermind.

Vinnik, a 38-year-old Russian national, is at the heart of the fight as the suspected leader of a Bitcoin laundering scheme.

In July, Vinnik was arrested by US law enforcement for allegedly being involved in BTC-e, a cryptocurrency exchange platform which “washed” funds without taking customer information, allowing for laundering to take place.

According to US prosecutors, Vinnik owned a number of accounts on the platform and used them to launder cash — and may have also been involved in laundering Bitcoin received from the “hack” of now-defunct exchange platform Mt. Gox, as well as Tradehill, another dead exchange.

In total, the Bitcoin laundering scheme is believed to have laundered roughly $4 billion.

Mt. Gox was once a thriving Bitcoin exchange, but after its sudden collapse in 2014, investors lost roughly $375 million. Former CEO Mark Karpeles originally blamed the closure on unknown cyberattackers, but Japanese law enforcement is charging him with embezzlement.

It is believed that Vinnik not only funneled proceeds from Mt. Gox but has also been involved in identity theft and drug trafficking schemes.

US law enforcement wants to charge Vinnik on American soil with operating an unlicensed money service business, conspiracy to commit money laundering, money laundering, and engaging in unlawful monetary transactions.

If convicted, Vinnik could face up to 55 years behind bars.

The Russian national is currently being held in Greece, and a local court in Thessaloniki ruled on Wednesday that the United States is permitted to extradite him to face these charges.

However, the Russian government is not impressed with the Greek court’s decision.

On Friday, the Russian Ministry of Foreign Affairs said in a statement that the verdict was “unjust and a violation of international law.”

The ministry believes that as Vinnik is a Russian national, he should be prosecuted in his home country and this should overrule any other extradition requests. The Russian Prosecutor General’s Office requested an extradition order to Russia, but it appears this request has been ignored by the Greek authorities.

“Based on legal precedent, the Russian request should take priority as Mr. Vinnik is a citizen of Russia,” the ministry said. “The verdict is even more surprising in the context of the atmosphere of friendly relations between Russia and Greece.”

Vinnik has denied the charges but has agreed to be sent back to Russia, according to the Reuters news agency.

However, Vinnik’s legal team have appealed the ruling, and now the Russian national’s case will be considered by the Supreme Civil and Criminal Court of Greece, before being submitted to the Greek Minister of Justice for approval.

“We hope the Greek authorities will consider the Russian Prosecutor General’s Office request, and Russia’s reasoning, and act in strict compliance with international law,” the ministry says.

ZDNet has reached out to the US Department of Justice (DoJ) and Greek Ministry of Foreign Affairs and will update if we hear back.

World’s largest asset manager says digital currencies show how much money laundering is going on

  • BlackRock CEO Larry Fink says activity in digital currencies comes mostly from Asian investors’ speculation and heavy use in money laundering.
  • U.S. authorities cracked down on several dark web marketplaces, which tend to use digital currencies for transactions, and exchanges for their involvement in illegal activities.
  • Fink does see “huge opportunities” in digital currencies but says most of the interest right now comes from speculation.

By: Evelyn Cheng

Larry Fink, the head of the world’s largest money manager, said Tuesday he thinks the rise of digital currencies reflects how much money laundering is going on.

“Most importantly, when I think about most of the cryptocurrencies, it just identifies how much money laundering is being done in the world,” Fink, founder, chairman and CEO of BlackRock, said in a Bloomberg TV interview.

“It’s much more of a speculative platform for Asia and it’s heavily used for money laundering,” Fink said.

 South Korean, Japanese and, until last month, Chinese investors, are major traders of the largest digital currencies by market cap, bitcoin and ethereum.

U.S. authorities have repeatedly shut down online marketplaces in the part of the internet known as the dark web, where illegal goods are sold and money laundering often occurs. Transactions on those websites often occur in bitcoin or other digital currencies in an attempt to preserve anonymity.

Just this summer, the U.S. Justice Department and Europol announced the closure of AlphaBay and Hansa, the two largest dark web marketplaces at the time. A grand jury in the U.S. District Court for the Northern District of California also charged Russian national Alexander Vinnik and the digital currency exchange he allegedly operated, BTC-e, with money laundering and related crimes.

Fink joins a number of major Wall Street executives who have spoken on digital currencies in the last several weeks.

JPMorgan Chase CEO Jamie Dimon called bitcoin a “fraud” and warned that if digital currencies grow too large, governments will close them down. On the other hand, Morgan Stanley CEO James Gorman said cryptocurrencies are “certainly something more than just a fad” and authorities may actually need to adapt to the growth of the digital currencies.

Goldman Sachs CEO Lloyd Blankfein put a message on Twitter Tuesday, “Still thinking about #Bitcoin. No conclusion – not endorsing/rejecting. Know that folks also were skeptical when paper money displaced gold.”



Nobody does the dark side of the internet better than the Russians. From, once the world’s most popular piracy site, to the campaign to disrupt the U.S. presidential election, Moscow’s hackers have long been world leaders in cybercrime. So it’s no wonder Russian computer geniuses are heavily involved in the internet’s latest craze: virtual currency. And it’s not just attracting cybercriminals—the Kremlin wants to get in on the cryptocurrency revolution by issuing state-backed “bit-ruble.”

Ripple CEO Brad Garlinghouse explains why the world has barely scratched the surface with cryptocurrencies

Brad Garlinghouse is the CEO of Ripple — owner of XRP, the fourth-most-valuable cryptocurrency. That currency is now worth almost $9 billion after starting the year being valued around $250 million. I spoke to Brad last week about the explosion in popularity of cryptocurrencies this year, whether we are in another dot-com era, and what he sees as the long-term role for cryptocurrencies to play in our world.

Here’s an edited version of our conversation from last week (and audio of our discussion is located here on my podcast).

Eric Jackson: You joined Ripple a couple of years ago as COO and are now CEO. What attracted you to the company?

Brad Garlinghouse: It reminds me of the dot-com era in that this is a transformational platform that will affect far more industries than are aware today. Blockchain technologies will change transactions in a broad way.

I had been exposed to bitcoin early. I thought the consumer application of it felt, to me, further away. I thought there would be faster adoption of the blockchain in the enterprise space and with banks.

When you look around Silicon Valley at new companies, there are very few ideas that are going to make a dent in the universe. But when I met with [angle investor] Chris Larsen, his vision was to enable the Internet of Value. There are secondary and tertiary implications of that vision which I think even people at the company aren’t aware of yet.

Jackson: Why did you decide to focus initially on wire transfers at banks?

Garlinghouse: The term “wire transfers” dates back to the 1800s. It’s based on an antiquated system. The friction of moving value remains surprisingly high. XRP is built to solve a payments problem. And we can help make that a much more Internet-ready process.

Jackson: What makes it easier for your customers to do wire transfers with XRP than their old SWIFT process?

Garlinghouse: We are selling these banks a financial process that allows them to transfer money with each other and settle the transaction in a matter of seconds versus days. The cost to do that is dramatically lower. The visibility into the whole process is much higher. I could send you a wire transfer today, but there’s no Fedex tracking number for that transaction. Yet, we expect on-demand alerts and notifications of what’s happening with some process. So we sell our software to banks to do this sending and receiving in real-time at massive scale.

Some in the bitcoin community have always taken an anti-government, anti-fiat, anti-bank approach to their philosophy. Ripple takes the orthogonal side of each of those. I don’t think governments or banks are going away in my lifetime. Most governments are going to continue to have Know Your Customer and Anti-Money Laundering rules. That’s not going away. We also believe there’s a powerful role that digital assets can play but that fiat currencies are going to continue to exist. Because we’ve engaged banks, governments and regulators and educated them on how digital assets can benefit them, we’ve found a receptive audience. We’ve signed up 90 banks now including the Bank of England, the Fed’s Faster Payment system, and many others.

Jackson: Some libertarian critics have said Ripple/XRP is centralized (vs. decentralized), that transactions can be reversed, and that identity is known (vs. hidden).

Garlinghouse: When I hear those criticisms, I usually think that those people aren’t up to speed on exactly what we’re doing. With respect to centralization, if Ripple (the company) went away tomorrow, the XRP ledger would continue to exist and trade. So it is decentralized. Ripple provides validation on the XRP ledger but we’re not the only one. Participants in that ledger can choose to rely on us as a validator or others. The choice is in their hands.

On the topic of reversing transactions, today banks can always choose to reverse a transaction if the other bank agrees. The transaction will still have happened, but it will get reversed in another transaction.

On identity, banks require identity verification. I and Ripple don’t have visibility on the identity of all transactions happening on the XRP ledger, but we can identify transactions between our banking customers using our technology because they require it. There are some cryptocurrencies out there that provide anonymous transaction between users, but we operate in a sphere of banking, laws and regulation and we abide by those. We think the market opportunity for the non-black or gray market is much greater and in the trillions of dollars. Ripple is going after that opportunity.

Jackson: Tell me about that opportunity. Is it just the wire-transfer opportunity or is this the thin edge of the wedge into other opportunities?

Garlinghouse: Any time you are building a business and you see a transformative opportunity, you get excited about all the adjacent opportunities, but you have to think of insertion points. But you can’t boil the ocean or spread your peanut butter too thin. Today, the world sends $155 trillion across borders. If we solve this payment opportunity, we enable this Internet of Value and should have lots of other opportunities beyond that.

When Amazon started, it just focused on books. They chose a vertical, got really good at it, and expanded to other verticals. We see lots of other compelling verticals to go after in the blockchain space.

Bank liquidity is measured in the trillions of dollars. And using a digital asset to change the nature of how banks can reduce their costs and needs for liquidity is transformational in a multi-trillion dollar way. Our focus in this part of bank payments is like Amazon’s initial focus on books. At some point, as we gain momentum, we will lean into other vertical markets. We think the XRP ledger is so much more performant in throughput, speed of transactions, and cost per transaction.

Jackson: Why is the XRP ledger able to handle scale of transactions so much better than other cryptocurrencies?

Garlinghouse: Bitcoin today takes about 4 hours to complete a transaction. XRP takes 3.7 seconds. Bitcoin can handle 3-4 transactions per second. XRP can handle 1,500 transactions per second. The reason is that they were designed for different use cases. The XRP uses a consensus of validators to confirm a transaction. The bitcoin blockchain uses a proof of work framework and that limits its performance. That positions us well. And the XRP numbers are only improving — and our engineers are working on that while not in a civil war about the future of the currency.

Jackson: I spoke to David Sacks a few weeks ago, and he said he thought the blockchain was going to be adopted more quickly in the developing world than here where the financial system is more built out and mature. Do you see that with the banks you deal with?

Garlinghouse: I would compare this to the telecommunication systems that have developed. We’ve seen many emerging countries leapfrog by going straight to the current technology while I still have dropped calls in Silicon Valley. The same will be true that governments and financial institutions will go directly to where the blockchain technology can take you. In Ripple’s experience, we have seen many emerging countries lean in stronger and earlier.

Jackson: You created XRP because you want to sell your software to the banks, but now many investors are trying to determine how to properly value cryptocurrencies. What do you think is the right way to value a cryptocurrency?

Garlinghouse: I definitely lived through the dot-com bubble. Josh Hannah wrote a post about that bubble and what’s going on with cryptos today. Most people think a future discounted cash flow is the best way to value a company. But digital assets are a commodity trading on supply and demand. There’s fixed supply and increasing demand. I think you’re going to continue to see more demand. In the future, I think you’ll be able to buy bitcoin or XRP in your Schwab account. People are looking at the success Ripple has been having as a company, and I think that’s increased the value of XRP. We want to keep focusing on making XRP a valuable payments tool, and that value will increase accordingly.

I’m voting with my feet and pocketbook on the future increased value of cryptocurrencies. One thing I’d like to point out is that gold is not worth $9 trillion because of its future discounted cash flows. There are some uses for gold, like jewelry, but it’s basically a store of value. I’m not a blanket bull on all digital assets. I don’t know where the price of these digital assets [is] going in the short-term, but over the long arc of time I’m very bullish. I do think a comparison with gold is appropriate on a store of value basis. Gold is worth $9 trillion today. Bitcoin is worth $75 billion.

Jackson: What are the pros and cons of a Ripple IPO?

Garlinghouse: It’s a flattering question to get. I want to make sure we have the right managerial maturity, infrastructure, and ability to forecast properly. We’ve been around for 4.5 years. At some point it will make sense. Just not today.

Jackson: Will you go after Visa?

Garlinghouse: The transformative thing about blockchain technology is that it allows two parties to complete a transaction faster than before. We are able to deliver Visa-like scale today with our technology. We certainly feel that the future is bright for us. It’s hard to predict how Visa will evolve, but they are based on an older paradigm.

Jackson: Is XRP going to be involved in Internet of Things?

Garlinghouse: If you go back to my idea of enabling the Internet of Value, I am very excited about our ability to play in this. There are undoubtedly going to be use cases for microtransactions taking place between devices in the future, and we want to be there.

Jackson: Can you give us an example?

Garlinghouse: Sure. There are going to be a lot of devices that are economic actors. Your self-driving car needs to self-fill itself up at the self-serving gas station. How? Maybe it’s going to be with the Visa network and NFC. But I live south of San Francisco and drive into the city for work. What if there are some days when I’m late for work and am willing to pay 5 cents a car to pass everyone in front of me. What tech is going to let me do that? It won’t happen with today’s antiquated financial rails. This will absolutely be possible in the future with this new technology that we’re working on. Think of the use cases of the internet today versus what we thought was possible 20 years ago. There are so many more things possible than we thought. It’s going to be the same way with all these new digital assets.

Jackson: Back in the dot-com era, there were many companies that flamed out and a few Amazons and Pricelines. Is that going to be the same here in the crypto space?

Garlinghouse: Yes. I think that comparison is 100 percent correct. The reason that some will succeed and others won’t all comes back to utility. You have to solve a real problem to create disproportionate outcomes. There are going to be several situations where it’s winner take all.

It’s very hard to predict what’s going to happen in the next three to five months, but it’s pretty clear that there’s going to be real value created in the next three to five years.

IRS Hunts Bitcoin User Identities With Software In Tax Enforcement Push

Is bitcoin in the IRS cross hairs? Users of bitcoin seem to be. In IRS Notice 2014-21, the IRS announced that bitcoin and other digital currency is actually property for tax purposes, not currency. That in itself has some big tax consequences. For example:

Wages paid to employees using virtual currency are taxable, must be reported on a Form W-2, and are subject to federal income tax withholding and payroll taxes. If you pay someone in property, how do you withhold taxes? You have to send the IRS money from something else. You either pay the employee some cash and some bitcoin and withhold plenty on the cash. Or you sell some of the bitcoin to get dollars to pay the IRS.

Payments using virtual currency made to independent contractors are taxable and payers must issue Form 1099. You can’t enter “1,000 bitcoin” on the 1099. You must value it in dollars as of the time of payment. Valuation swings can be brutal.

Gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in your hands. This can be a huge issue, and is not an easy subject to summarize.

A payment made using virtual currency is subject to Form 1099 reporting just like any other payment made in property. Yes, this bears repeating. How much compliance there is in the real word remains to be seen.

It takes time for people to adapt, and that is one reason compliance may be poor so far. But part of the lack of compliance may also be the nature of digital currency. It is meant to be anonymous, and attracts some users for that reason. They may be less inclined to, for example, start handing out IRS Forms 1099. Recipients of those forms may go somewhere else.

All of this leaves the IRS wondering how to get a piece of the action. That’s where enforcement comes in. Last year, the IRS started fighting to obtain vast amounts of data on Bitcoin and other digital currency transactions. In late 2016, a federal court authorized the IRS to serve a John Doe Summons on Coinbase, Inc., the digital currency transaction hub. The IRS wants information on the site’s users and their transactions.

Some Coinbase users, led by Mr. Jeffrey K. Berns, moved to intervene in the IRS’s case. They argued that the IRS request was not properly calibrated and threatened their privacy. In turn, the IRS argued that Mr. Berns already identified himself as a Coinbase user, so could not say his privacy was threatened. It is worth remembering that the IRS used a John Doe Summons to get names of Swiss bank account holders from UBS. After that, offshore banking changed forever, with all other Swiss (and other) banks eventually coming clean. The IRS ended up collecting over $10 billion.

The IRS pursued Coinbase in the same way. Small fries may be OK, though. The IRS agreed to limit its request for customer records from Coinbase to accounts with transactions over $20,000. Beyond that, the IRS will clearly do more data mining for digital currency users. Reports about compliance suggest the IRS may need to. Reports underscore IRS claims that only 802 people declared a capital gain or loss related to bitcoin in 2015. With millions of transactions, 802?

This suggests that the bulk—the vast bulk—of bitcoin transaction are simply not reported. With millions of transactions and the meteoric rise of bitcoin from under $100 to over $4,000 in just a few years, the IRS seems to be missing out. That is where IRS tech comes in. Well, private tech then. It has been widely reported that the IRS is using software to find bitcoin users who have failed to report profits. The Daily Beast revealed the Chainalysis contract that is at the root of this new IRS enforcement effort.

If Chainalysis identifies owners of digital wallets, the IRS can take over. Matching up transactions and tax returns is not that hard. Taxpayers who have hidden income could face taxes, and potentially big civil penalties. Some cases could even end up as criminal tax cases. The IRS is generally more forgiving if a taxpayer makes corrective filings before being caught or audited. Those who do not make filings until they are caught could face harsher treatment. Remember, the IRS treats Bitcoin and other digital currencies as property. That means sales could give rise to capital gain or loss, rather than ordinary income. Be careful out there.

Photo: Getty 


Australia proposes stronger money laundering rules, includes bitcoin

SYDNEY (Reuters) – Australia said on Thursday it would strengthen its money laundering laws, including bringing bitcoin providers under the government’s financial intelligence unit, days after a fresh scandal at one of the country’s biggest banks.

The government said a coming bill would be the first stage of reforms to strengthen the country’s Anti-Money Laundering And Counter Terrorism Financing Act.

“The threat of serious financial crime is constantly evolving, as new technologies emerge and criminals seek to nefariously exploit them. These measures ensure there is nowhere for criminals to hide,” Minister of Justice Michael Keenan said, without specifying when the legislation would be introduced.

The bill will also aim to bolster the investigative and enforcement powers of the financial intelligence agency AUSTRAC.

The announcement comes just days after the agency accused the Commonwealth Bank of Australia (CBA.AX) of “serious and systemic” breaches of money laundering laws.

But the move is more than two years after global watchdog Financial Action Task Force (FATF) found significant deficiencies in Australia’s anti-money laundering framework.

The next and more challenging phase of legislative reforms in Australia will be to extend the rules to lawyers, accountants, real estate agents and dealers in high-value goods.

Under Australian regulations, one can pay millions in cash for precious stones or a prime property without having to identify themselves or the source of their funds.

Australia had agreed in 2003 to extend strict controls to these sectors, but has yet to act on those promises.

“Stopping the movement of money to criminals and terrorists is a vital part of our national security defenses and we expect regulated businesses in Australia to comply with our comprehensive regime,” Keenan said.

The digital currency exchange sector, which includes bitcoin, will be regulated for the first time, Keenan added.

The Australian Digital Currency & Commerce Association welcomed the reform, saying it will increase safeguards and provide regulatory certainty to digital currency businesses.

Photo: Jason Lee

Bitcoin splits, but clone off to slow start

(Reuters) – Bitcoin’s underlying software code was split on Tuesday, generating a new clone called “Bitcoin Cash,” but the new virtual currency got off to a slow start due to lackluster support for its network.

The initiative was headed by a small group of mostly China-based bitcoin miners – programmers who essentially operate the bitcoin network – who were not happy with scheduled improvements to the currency’s technology meant to increase its capacity to process transactions.

These miners, who get paid in the currency for contributing computing power to the bitcoin network, initiated what is known as a “fork” on Tuesday, where the underlying blockchain splits into two potential paths, creating a new digital currency.

The blockchain is a shared online ledger of all bitcoin transactions and has spawned a range of financial and business applications.

Bitcoin’s split has created a new competitor to the original digital currency, which remains the oldest and most valuable in circulation.

Yet only a small fraction of bitcoin miners have been contributing their computing power to the new blockchain, and it took nearly six hours for the first batch of Bitcoin Cash coins to be mined this afternoon, according to Blockdozer Explorer, a firm providing data on digital currencies.

“It’s been a slow start for Bitcoin Cash,” said Iqbal Gandham, managing director at trading platform eToro. “The delay … could be a result of a lack of miner support for the new cryptocurrency.”

Bitcoin Cash on Tuesday traded on certain exchanges at a median price of $146.37, according to, while bitcoin was at $2,729 BTC=BTSP on the BitStamp platform, down 4.6 percent from Monday.

After the split, Bitcoin Cash has all the history from bitcoin’s blockchain, creating the same number of tokens, plus the new currency created. People who held bitcoins before the split now have access to an equal amount of Bitcoin Cash for free, which they will then be able to trade for fiat currencies – legal tender such as euros and dollars – or other digital tokens.

The creation of new tokens may speed up as less computing power will be required to mine new blocks, said Jeff Garzik, co-founder of blockchain startup, in an email.

Ryan Taylor, chief executive of Dash Core, a firm that manages the development of the Dash digital currency, said Bitcoin Cash may yet be short-lived.

“Bitcoin Cash has not solved scaling,” Dash said. “It has merely kicked the can down the road with slightly larger blocks, but still lacks a credible technology to scale to massively larger numbers of users.”

Photo: Reuters 

FinCEN Fines BTC-e Virtual Currency Exchange $110 Million for Facilitating Ransomware, Dark Net Drug Sales

WASHINGTON—The Financial Crimes Enforcement Network (FinCEN), working in coordination with the U.S. Attorney’s Office for the Northern District of California, assessed a $110,003,314 civil money penalty today against BTC-e a/k/a Canton Business Corporation (BTC-e) for willfully violating U.S. anti-money laundering (AML) laws. Russian national Alexander Vinnik, one of the operators of BTC-e, was arrested in Greece this week, and FinCEN assessed a $12 million penalty against him for his role in the violations.

BTC-e is an internet-based, foreign-located money transmitter that exchanges fiat currency as well as the convertible virtual currencies Bitcoin, Litecoin, Namecoin, Novacoin, Peercoin, Ethereum, and Dash. It is one of the largest virtual currency exchanges by volume in the world. BTC-e facilitated transactions involving ransomware, computer hacking, identity theft, tax refund fraud schemes, public corruption, and drug trafficking.

“We will hold accountable foreign-located money transmitters, including virtual currency exchangers, that do business in the United States when they willfully violate U.S. anti-money laundering laws,” said Jamal El-Hindi, Acting Director for FinCEN. “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. Treasury’s FinCEN team and our law enforcement partners will work with foreign counterparts across the globe to appropriately oversee virtual currency exchangers and administrators who attempt to subvert U.S. law and avoid complying with U.S. AML safeguards.”

FinCEN acted in coordination with law enforcement’s seizure of BTC-e and Vinnik’s arrest. The Internal Revenue Service-Criminal Investigation Division, Federal Bureau of Investigation, United States Secret Service, and Homeland Security Investigations conducted the criminal investigation.

Among other violations, BTC-e failed to obtain required information from customers beyond a username, a password, and an e-mail address. Instead of acting to prevent money laundering, BTC-e and its operators embraced the pervasive criminal activity conducted at the exchange. Users openly and explicitly discussed criminal activity on BTC-e’s user chat. BTC-e’s customer service representatives offered advice on how to process and access money obtained from illegal drug sales on dark net markets like Silk Road, Hansa Market, and AlphaBay.

BTC-e also processed transactions involving funds stolen between 2011 and 2014 from one of the world’s largest bitcoin exchanges, Mt. Gox. BTC-e processed over 300,000 bitcoin in transactions traceable to the theft. FinCEN has also identified at least $3 million of facilitated transactions tied to ransomware attacks such as “Cryptolocker” and “Locky.” Further, BTC-e shared customers and conducted transactions with the now-defunct money laundering website Liberty Reserve. FinCEN previously issued a finding under Section 311 of the USA PATRIOT Act that identified Liberty Reserve as a financial institution of primary money laundering concern.

BTC-e has conducted over $296 million in transactions of bitcoin alone and tens of thousands of transactions in other convertible virtual currencies. The transactions included funds sent from customers located within the United States to recipients who were also located within the United States. BTC-e also concealed its geographic location and its ownership. Regardless of its ownership or location, the company was required to comply with U.S. AML laws and regulations as a foreign-located MSB including AML program, MSB registration, suspicious activity reporting, and recordkeeping requirements. This is the second supervisory enforcement action FinCEN has taken against a business that operates as an exchanger of virtual currency, and the first it has taken against a foreign-located MSB doing business in the United States.



Criminal mastermind’ of $4bn bitcoin laundering scheme arrested

The Russian “internationally sought ‘mastermind’ of a crime organisation” accused of laundering more than $4bn in bitcoin, including funds obtained from the hack of failed bitcoin exchange Mt Gox, has been arrested in Greece.

A US jury indicted Alexander Vinnik on Wednesday after his arrest in a small beachside village in northern Greece on Tuesday, following an investigation led by the US justice department along with several other federal agencies and task forces.

Vinnik was described by the justice department as the operator of BTC-e, an exchange used to trade the digital currency bitcoin since 2011, which was allegedly used to launder more than $4bn for people involved in crimes ranging from computer hacking to drug trafficking.

US authorities also linked him to the failure of Mt Gox, the Japan-based bitcoin exchange that collapsed in 2014 after being hacked. Vinnik “obtained” funds from the hack of Mt Gox and laundered them through BTC-e and Tradehill, another San Francisco-based exchange he owned, they said in the statement.

“Just as new computer technologies continue to change the way we engage each other and experience the world, so too will criminals subvert these new technologies to serve their own nefarious purposes,” said Brian Stretch, US attorney for the Northern District of California.

Vinnik’s arrest is the latest in a series of US operations against Russian cybercriminals in Europe, including the taking down of two of the biggest dark web marketplaces for drugs, guns and other illicit items, AlphaBay and Hansa, last week.

The prosecutions also coincide with intensified scrutiny of Russian hackers after US intelligence officials determined that Russia interfered in the 2016 US presidential election using cyber-warfare methods to help Donald Trump, something Moscow denies.

During his time in the digital currency market, US authorities allege Vinnik facilitated crimes including hacking, fraud, identity theft, tax refund fraud, public corruption and drug trafficking. Greek police described Vinnik as a “an internationally sought ‘mastermind’ of a crime organisation”.

BTC-e, which has been out of service for more than a day, attributed this to “unplanned maintenance”. In a tweet on Wednesday after the arrest of Vinnik, BTC-e said it would restore service in the next five to 10 days.

The exchange is one of the oldest virtual currency platforms. It allows users to trade bitcoin pseudonymously against a variety of fiat and virtual currencies, and is known in cryptocurrency markets as having relaxed standards for checking users’ identity, and for not collaborating with law enforcement.