The UK and EU Plan to Make Bitcoin Investors Use Their Real Names

By: Rhett Jones

Bitcoin managed to set a new price record on Sunday, briefly hitting $11,826per coin. And governments around the world are taking note of the boom in divergent ways. In the European Union, a new plan is expected to regulate cryptocurrencies under the same anti-money laundering laws as fiat money. It’s expected to take effect sometime next year.

For governments that are suspicious of cryptocurrencies, fears of bubbles, ponzi schemes, and economic destabilization have often been the focus. Countries like South Korea and China have publicly come out against initial coin offerings (ICOs) that work as investment opportunities and have a high potential for fraud. But for the UK and the EU, cryptocurrencies’ potential for enabling money laundering, drug dealing, terrorist funding, and other nefarious activities have lawmakers up in arms. According to The Guardian:

[Britain’s] Treasury plans to regulate bitcoin and other cryptocurrencies to bring them in line with anti-money laundering and counter-terrorism financial legislation. Traders will be forced to disclose their identities, ending the anonymity that has made the currency attractive for drug dealing and other illegal activities.

Under the EU-wide plan, online platforms where bitcoins are traded will be required to carry out due diligence on customers and report suspicious transactions.

Last week, London’s Metropolitan Police publicly warned that drug dealers at all levels were using Bitcoin ATMs to stash their profits out of sight.

 In October, Stephen Barclay, the economic secretary to the Treasury in the UK, responded to a parliamentary inquiry with a written plan that would amend anti-money laundering and counter-terrorism regulations to include cryptocurrencies. “The government supports the intention behind these amendments, he wrote. “We expect these negotiations to conclude at EU level in late 2017 or early 2018.”

How seriously these bodies pursue individual cryptocurrency users remains to be seen. It would certainly cause headaches for Bitcoin and alt-coin users because anonymity is one of the most attractive features of cryptocurrency. But the fact is, with Bitcoin and variations like Monero, if a user wants to be anonymous, there’s little that a government can do to stop them. Regulating exchanges will be easier, but if someone wants to bypass an exchange, they could certainly do so. Still, criminalizing the use of cryptocurrencies without attaching identification would certainly be a deterrent, and individuals who don’t take every step to hide their identity could be targeted.

Last week, White House Press Secretary Sarah Huckabee Sanders said that Tom Bossert and the Homeland Security team was “monitoring” cryptocurrencies. It’s unclear whether the US considers Bitcoin to be a security issue, or if the White House was just improvising an answer to a question it hadn’t really considered.

But not all governments are taking the view that cryptocurrencies are a threat.

For Venezuela, they could be an opportunity to find relief from the economic struggle that was only exacerbated by recent sanctions. According to Reuters, Venezuela’s President Nicolas Maduro announced on Sunday that his government would issue its own digital currency called the “Petro.”

 It’s a fitting name because the Petro will be backed by oil, gas, gold and diamond reserves, Maduro said in a television broadcast. While it makes sense that Venezuela would try a drastic economic measure at a time when its monthly minimum wage has fallen to just $4.30, it’s not yet clear how the Petro would actually work. Bitcoin and its imitators are decentralized currencies that mostly use algorithms and public interest to determine their supply and value. Maduro didn’t offer many specifics, mostly making vague proclamations like saying that this initiative will help Venezuela “advance in issues of monetary sovereignty, to make financial transactions and overcome the financial blockade.”

For cryptocurrency evangelists, decentralized money has always been considered a potential option in countries where the people can’t trust their government to properly manage the economy. One could imagine, in theory, that an anonymous currency could help citizens get around economic sanctions and avoid the rapidly depreciating Venezuelan bolivar. But it appears that the Petro will simply be tied into Venezuela’s central bank, an untried strategy for a major country.

On top of that, The Washington Post reports that a third of Venezuela’s citizens don’t have an internet connection. Throw in the fact that digital currency has a bit of a learning curve, and that there’s no infrastructure set up for taking payments, and the plan seems at least a little bit half-baked. Angel Alvarado, an opposition lawmaker and economist, told Reuters that the move has no credibility. “It’s Maduro being a clown,” he said.

 Speaking of clowns, Mark Zuckerberg’s former rivals the Winklevoss twins recently became Bitcoin billionaires, according to The Telegraph, as their combined $11 million investment in the cryptocurrency in 2013 is now worth 10 digits. The last thing the world needs is more dimwitted billionaires. Maybe making this all illegal isn’t such a bad idea.

Crackdown On Bitcoin In UK Over Money Laundering, Tax Evasion

The Treasury of the UK has announced plans to strongly regulate the transfer of cryptocurrencieswith a view to cracking down on money laundering and tax evasion. The regulations have not been stipulated with specificity, but will certainly include anti-money laundering (AML) and know your customer (KYC) details.

The regulation is intended to take force before the end of 2017, or just at the beginning of 2018. The increased regulations, in line with the directives in the EU, are intended to limit the amount of anonymity possible for cryptocurrency traders. According to John Mann, one of the Treasury committee:

“These new forms of exchange are expanding rapidly and we’ve got to make sure we don’t get left behind – that’s particularly important in terms of money-laundering, terrorism or pure theft. I’m not convinced that the regulatory authorities are keeping up to speed. I would be surprised if the committee doesn’t have an inquiry next year. It would be timely to have a proper look at what this means. It may be that we want to speed up our use of these kinds of thing in this country, but that makes it all the more important that we don’t have a regulatory lag.”

Other regulations

Other regulations have been threatened around the world, as Bitcoin price soars. With adoption exploding, and massive influx of institutional capital via futures and other contracts, Bitcoin is becoming far more of a financial reality that it has ever been before. China, Russia, and other countries have made it clear that the digital currency will be off-limits, while other countries like Switzerland and Malta are seemingly far more open.

ICE Agent: Cryptocurrencies Increasingly Used in Money Laundering

By: Nikhilesh De

Criminal organizations are increasingly using cryptocurrencies to launder money or otherwise pay for illicit activities, according to one U.S. Immigration and Customs Enforcement agent.

Child exploiters, drug smugglers, illegal firearm sellers and intellectual property rights violators are all beginning to use cryptocurrencies for their transactions, said Matthew Allen, ICE’s special agent in charge of Homeland Security Investigations (HSI).

Allen testified to the Senate Judiciary Committee on modernizing anti-money-laundering laws to limit both laundering and terrorist financing on Nov. 28, explaining that virtual currencies are the newest major method for hiding criminal proceeds.

In his testimony, he said:

“HSI agents are increasingly encountering virtual currency, including more recent, anonymity enhancing cryptocurrencies (AECs), in the course of their investigations. AECs are designed to better obfuscate transaction information and are increasingly preferred by [transnational criminal organizations].”

Some exchanges are beginning to design services specifically to thwart tracking by use of mixers that anonymize virtual currency addresses, making it even more difficult to determine which user conducted a particular transaction, Allen said.

Drug arrests

The department has had some success in identifying criminals who use bitcoin, however. Allen pointed to the November 2016 arrest of Utah resident Aaron Shamo, who allegedly ran a Xanax and fentanyl manufacturer group.

Shamo allegedly took his profits in bitcoin, and HSI seized approximately $2.5 million from him at the time.

Another alleged fentanyl vendor, Pennsylvanian Henry Koffie, was arrested this past July and had $154,000 seized. Allen said Koffie sold nearly 8,000 orders of the drug, “most of it paid for with bitcoin.”

https://www.coindesk.com/ice-director-cryptocurrencies-are-increasingly-being-used-in-money-laundering/

JPMorgan busted for money laundering after accusing bitcoin of doing the same

The Swiss subsidiary of US bank JPMorgan Chase has been sanctioned by Switzerland’s financial regulator FINMA for money laundering and “seriously violating supervision laws,” according to the local weekly Handelszeitung.

The sanctions are reportedly related to breaches of due diligence in connection with money laundering standards. That literally means the Wall Street banking giant assisted in money laundering.

The ruling was reportedly issued on June 30, but the regulator did not make it known as JPMorgan has been actively trying to prevent the publication. The Federal Administrative Court has since dismissed an appeal by the bank.

It is two months since JPMorgan CEO Jamie Dimon slammed bitcoin, the world’s leading cryptocurrency, labeling it a fraud. According to Dimon, bitcoin could be useful “if you were a drug dealer or a murderer.”

Dimon also compared bitcoin to the 17th-century Dutch tulip mania bubble. At the time, the CEO predicted the eventual demise of the digital currency and pledged to fire any trader trading bitcoin for being stupid.

“A fiat currency is when a government says this is your legal tender, you have to give it and accept it, and of course the central bank can misuse it and inflate it. But what is the use case for bitcoin? You’re in Venezuela, North Korea, you’re a criminal. Great product!” he said during a news conference in Washington.

 

Banks are staying away from bitcoin ‘bubble’ due to money laundering, Credit Suisse CEO says

  • Banks are reluctant to get involved with bitcoin due to fears of a bubble and illicit activity associated with it, Tidjane Thiam said Thursday
  • The banking executive’s comments came as the digital currency surpassed $7,000 for the first time
  • ING CFO Koos Timmermans also weighed in on cryptocurrencies, saying that the bank is not recommending clients to invest in digital assets

Banks have “little or no appetite” to get involved with bitcoin and cryptocurrencies due to fears of a bubble and illicit activity associated with it, the chief executive of Credit Suisse said Thursday.

“I think most banks in the current state of regulation have little or no appetite to get involved in a currency which has such anti-money laundering challenges,” Tidjane Thiam said at a news conference, according to Reuters.

The banking executive’s comments came as the digital currency surpassed $7,000 for the first time.

 Thiam added that investors were only buying into the digital asset “to make money,” and described it as “the very definition of speculation and the very definition of a bubble.”

The chief financial officer of ING also weighed in on cryptocurrency worries Thursday, saying that, although digital assets are an effective means of exchange, the bank was not advising clients to in invest in them.

“Well, we are quite careful on this part, so if you ask, ‘Are we advising our clients to invest in this?’ the answer is no,” Koos Timmermans told CNBC Thursday.

“We see the superiority of cryptocurrencies in terms of a means of exchange, so that part is fine. But if you then say, ‘Can you easily attach future value to it?’ — and that’s one of the main functions of currency — that is rather difficult because you still don’t know how much the supply of this currency is connected to the demand, we don’t know what the interest rates are.”

But analysts believe that more institutional investors will begin to get involved with cryptocurrencies, after CME Group said it would introduce bitcoin futures contracts.

“Futures from an incumbent exchange bring bitcoin and cryptocurrencies into the regulatory fold,” Charles Hayter, CEO of cryptocurrency comparison website Crypto Compare, told CNBC in an email Thursday.

“This allows more complex financial products to be created and will eventually open the doors to institutional money.”

Bitcoin Scam Ends in Jail as Immigrant’s American Dream Fades

By: Erik Larson

A Florida software engineer who came to the U.S. from Ukraine as a teenager seeking the American dream was sentenced to 16 months in prison for his role in building an illegal bitcoin exchange — one that allegedly laundered money for a global hacking ring.

Yuri Lebedev, 39, was the technology guru behind Coin.mx, which tricked banks into processing bitcoin transactions by disguising them as restaurant-delivery charges and online purchases of collectible items. Lebedev was convicted in March of conspiracy and fraud following a monthlong trial in Manhattan.

U.S. District Judge Alison J. Nathan on Friday said Lebedev had abused his “impressive technology skills” to trick financial institutions, making them “unwilling participants in the scheme.”

 

Coin.mx was allegedly set up for use by a group of hackers who targeted financial and publishing firms including JPMorgan Chase & Co. and Dow Jones & Co. in a series of attacks in 2014. Lebedev wasn’t accused of money laundering or involved in the hacking, but his role in operating the exchange was critical, prosecutors said.

Lebedev, wearing a black suit, stood before sentencing to say he regretted getting involved with Coin.mx. All he wanted to do, he said, was create “cutting edge technology” and build something “that would make me exceptional.”

“I got carried away,” Lebedev said, adding he realizes now “there are no shortcuts.”

Less Time

Nathan gave Lebedev considerably less time than the maximum of 10 years recommended by U.S. sentencing guidelines, finding he was neither a leader nor a mastermind, and noting he had no criminal history.

“He did what he was told to do,” Nathan said.

The man giving the orders was Coin.mx’s operator, Anthony Murgio, who was sentenced to 5 1/2 years in June. He pleaded guilty in January and said he ran Coin.mx for the hacking scheme’s main Israeli architect, Gery Shalon, the self-described founder of a criminal enterprise that stunned Wall Street.

Prosecutors said the unregistered exchange sold bitcoins that were used in illegal online transactions and as payment in ransomware attacks. Lebedev’s role was to set up an array of servers that Coin.mx used to process its transactions, a critical element of the scheme that required constant attention to avoid detection by the banks, the U.S. said.

To help dodge regulators, Lebedev also conspired with his boss to bribe a New Jersey pastor to let them take over a credit union that was run out of a church, and use it to help legitimize the exchange’s operations. The scam eventually ruined the business, which is liquidating.

Better Life

It’s all a far cry from Lebedev’s goal of creating a better life for himself in the U.S., according to court papers. Born in Russia and raised in Ukraine, he was abandoned by his alcoholic father when he was 8 and raised by his scientist mother. After winning awards in biology, math and physics, he was selected to move to the U.S. as an exchange student at age 16.

“America has been given a genius from the Ukraine,” his math teacher said at the time, according to defense filings.

“Yuri, with his mother’s support, made the brave decision to move to the United States — without having a single relative or acquaintance in America — in order to improve his life,” his lawyer said.

Lebedev moved in with a host family in Georgia, according to court papers. After high school he double-majored in physics and computer science at Valdosta State University, and obtained post-graduate degrees including a Masters of Science and Physics from Florida State University, court papers show. He met his wife at college. They have three children.

Complex Web

Lebedev’s attorney, Eric Creizman, cited the wide-ranging nature of the scheme to portray his client as a husband and doting father who got caught up in something too big for him to recognize. In court papers, he described Lebedev as an “unlikely criminal defendant.”

But prosecutors used the idyllic life Lebedev had built against him in seeking a tough sentence, saying he wasn’t like criminals who needed money or had other such motivation to break the law.

“He basically could have ridden out the script for his life,” Assistant U.S. Attorney Won S. Shin said at the sentencing. People in Lebedev’s position “are even more culpable.”

Family and friends sent letters to the court supporting Lebedev, all of which described him as a man devoted to hard work and to his children. His host family said Lebedev tutored their child in math, while a college pal relayed how Lebedev washed dishes to avoid using a credit card for living expenses.

Shalon’s global network allegedly stole information on more than 100 million customers of banks and publishing firms and generated hundreds of millions of dollars in illicit proceeds from pump-and-dump stock scams and online gambling.

Murgio operated the exchange with Lebedev from about 2013 to 2015 through a front company, the Collectables Club Private Member Association, which lists Murgio’s West Palm Beach address, court papers show. At Murgio’s sentencing hearing, he wept and said he’d “screwed up badly.”

The case is U.S. v. Murgio, 15-cr-00769, U.S. District Court, Southern District of New York (Manhattan).

 

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

http://www.zdnet.com/article/bitcoin-launderer-suspect-caught-in-us-russia-extradition-spat/

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.”

 

BITCOIN AND BLOCKCHAIN: A RUSSIAN MONEY LAUNDERING BONANZA?

Nobody does the dark side of the internet better than the Russians. From AllOfMP3.com, 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.”