Bitcoin’s ‘First Felon’ Faces More Legal Trouble

Charlie Shrem went to prison in 2015 after he pleaded guilty to helping people buy drugs online. Now he’s being sued by the Winklevoss twins.

SAN FRANCISCO — Over the last year, Charlie Shrem, a 28-year-old Bitcoin investor, has bought two Maseratis, two powerboats — one of them 32 feet long — and a $2 million house in Florida, along with smaller pieces of real estate.

In the world of cryptocurrencies, where millions can be made and lost in a day, that might not make Mr. Shrem stand out. But unlike most Bitcoin entrepreneurs, in 2016 Mr. Shrem got out of prison, where he spent a year after pleading guilty to illegally helping people turn dollars into Bitcoin to buy drugs online.

Mr. Shrem, who had been the chief executive of Bitinstant, one of the first prominent Bitcoin businesses in the United States, has said in recent interviews that he went to prison with almost no money.

So where did the money for the expensive toys come from? That’s what two former business partners want to know.

Cameron and Tyler Winklevoss, the twins who turned money from a settlement with Facebook’s Mark Zuckerberg into a Bitcoin fortune, said they suspected Mr. Shrem had actually been spending Bitcoin that he owed them since 2012, according to a lawsuit unsealed in federal court on Thursday. The Bitcoin would be worth around $32 million at current prices.

“Either Shrem has been incredibly lucky and successful since leaving prison, or — more likely — he ‘acquired’ his six properties, two Maseratis, two powerboats and other holdings with the appreciated value of the 5,000 Bitcoin he stole from” the Winklevoss twins in 2012, the lawsuit says.

The judge who oversaw Mr. Shrem’s earlier trial has already agreed to freeze some of Mr. Shrem’s financial assets, according to court documents.

The lawsuit could blossom into an even bigger problem for Mr. Shrem because an affidavit filed in court suggests that Mr. Shrem has also not paid the government $950,000 in restitution that he agreed to as part of his 2014 guilty plea.

Mr. Shrem’s lawyer, Brian Klein, said in a statement that the claims by the Winklevoss brothers were baseless. “The lawsuit erroneously alleges that about six years ago Charlie essentially misappropriated thousands of Bitcoins,” he said. “Nothing could be further from the truth. Charlie plans to vigorously defend himself and quickly clear his name.”.

The lawsuit from the twins threatens another reversal of fortune for Mr. Shrem, who went from being one of the earliest Bitcoin millionaires to being called Bitcoin’s “first felon.”

When he was arrested in 2014, Mr. Shrem was accused by federal authorities of using his company, Bitinstant, to knowingly sell Bitcoin to people who wanted it to buy drugs from the online black market, Silk Road.

Since his release in 2016, Mr. Shrem has said in numerous interviews that he recognizes his past mistakes and wants to cut a new and legal path. On the podcast “Love, Sex and Money,” Mr. Shrem said that in the first months out of prison, he worked as a dishwasher and didn’t look at his email.

Over the last year, though, Mr. Shrem, has already gotten involved with a number of troubled projects.

He was among the leaders of two efforts — one a cryptocurrency credit card and the other an initial coin offering — that had to give money back to investors after various partnerships that Mr. Shrem had promised fell through.

But those are likely to be mere headaches compared to what he could face in a confrontation with the Winklevoss twins. Mr. Shrem helped get the brothers interested in Bitcoin in 2012 and became their first adviser in the young industry.

A few months into this partnership, the twins said they realized that Mr. Shrem had not given them all the Bitcoin they were due. The brothers gave Mr. Shrem $250,000 in September 2012, but the lawsuit says that a month later, he only delivered around $189,000 worth of Bitcoin at the going price, which was around $12.50 at the time.

The 5,000 or so missing Bitcoins became a point of tension between the twins and Mr. Shrem. They asked him numerous times for an accounting of the Bitcoins he had purchased and eventually brought in an accountant who documented the missing funds, according to court documents.

“I have been patient and at this point, it’s getting a bit absurd,” Cameron Winklevoss wrote to Mr. Shrem in 2013 in an email quoted in the lawsuit. “I don’t take this lightly.”

The missing Bitcoin, which were worth 98 percent less at the time, appeared to have been forgotten in a broader battle between the brothers and Mr. Shrem over an investment in Bitinstant.

In 2013, Bitinstant fell apart and the twins blocked Mr. Shrem’s efforts to revive the company with new investors because of their concerns about his management style. By the time Mr. Shrem was arrested in 2014, as a result of activities at Bitinstant that took place before the brothers invested, they had cut off contact with him.

The Winklevoss twins’ problems with Mr. Shrem have not held them back. They were briefly each cryptocurrency billionaires last year, and they have built one of the leading cryptocurrency exchanges, Gemini. Despite this year’s big drop in cryptocurrency prices, their holdings are still worth nearly a billion dollars.

Cameron Winklevoss said that he and his brother decided to pursue the missing Bitcoins again after they saw Mr. Shrem’s recent spending patterns.

“When he purchased $4 million in real estate, two Maseratis, and two power boats, we decided it was time to get to the bottom of it,” Mr. Winklevoss told The New York Times.

The brothers hired an investigator, who found that 5,000 Bitcoins were transferred in 2013 through addresses associated with Mr. Shrem and onto the Bitcoin wallet services Xapo and Coinbase, according to the complaint. The investigator traced the money on the blockchain, the public ledger where all Bitcoin transactions are recorded.

Jed S. Rakoff, a judge in the Federal District Court for the Southern District of New York, approved an application the twins made in September to freeze any funds that Mr. Shrem holds with those companies. Judge Rakoff wrote in his order that Mr. Shrem had “evidenced an intent to frustrate the collection efforts of his creditors.”

The court fight could cause problems for Mr. Shrem’s latest venture, a firm called Crypto.IQ. The company, which promises market intelligence to Bitcoin traders, is holding a conference for customers in Las Vegas this month promising “unparalleled insights from a roster of experts at the very epicenter of the crypto universe.”

In an interview with Breaker magazine last month, Mr. Shrem said he was getting used to the ups and downs.

“My personal life goes through bull and bear markets, too,” he said. “So the key is how to deal with it when you’re in the bear markets.”

Security minister reveals knowledge of football money-laundering investigation

Ben Wallace says the sports industry “is as susceptible as anything else” to being used to hide the source of dirty money.

New York Red Bulls made the play-offs by beating Montreal on Saturday evening
‘I know of (a) professional football club or clubs under investigation,’ Mr Wallace said

A professional football club or clubs are being investigated over allegations of money laundering, a minister has said.

Security minister Ben Wallace told the treasury select committee that the sports industry “is as susceptible as anything else” to being used to hide the source of dirty money.

Committee member and Labour MP John Mann asked Mr Wallace: “When it comes to money laundering, how many professional football clubs have been deemed as requiring investigation currently?”
Ben Wallace arrives at Downing Street
The minister said it can take years for money laundering investigations to finish

The minister replied: “I know of (a) professional football club or clubs under investigation.

“I couldn’t reveal how many and what they are, for that is an operational matter.”

When he was pushed to give the number involved, Mr Wallace said: “There are live investigations that go on all the time and to expand any more could threaten investigations.

“The sports industry is as susceptible as anything else to dirty money being invested or their organizations being used as a way to launder money.”

Mr Wallace told the MPs it can take years for investigations into money laundering to be finished.

He said suspicious activity reports, a means of giving information to police about potential criminal activity by customers or clients, should be made “by anyone” and not just banks.

“Not enough” had been reported by the football authorities, Mr Wallace told the committee.

A National Crime Agency spokeswoman said: “We do not routinely confirm or deny the existence of investigations.”

“We have not charged any professional football clubs with money laundering, and there are none currently in the court process.”

https://news.sky.com/story/security-minister-reveals-knowledge-of-football-money-laundering-investigation-11540039

How The Unexplained Wealth Order Combats Money Laundering

The UK is a haven for dirty money; more than £90 billion is estimated to be laundered through the country per year. The size of the UK’s financial and professional services sector, its open economy and the attractiveness of the London property market to overseas investors all make it unusually exposed to international money laundering risks. As part of new measures to tackle asset recovery and money laundering, the UK government introduced Unexplained Wealth Orders (UWOs) in January, which are being hailed as the cure to Britain’s dirty money problem.

What is an Unexplained Wealth Order?

UWOs require the owner of an asset worth more than £50,000 to explain how they were able to afford that asset. Introduced primarily to target Russian and Azerbaijan laundromats, UWOs have wide-ranging applications to all situations where the National Crime Agency (NCA) believes wealth was acquired illicitly, including tax evasion.

The game-changing nature of UWOs lies in the power they give UK law enforcement to prosecute. Formerly, little could be done to act on highly suspicious wealth unless there was a legal conviction in the country of origin. In cases where the origin country is in crisis or the individual holds power within a corrupt government, this is unlikely to be achieved. Where previously law enforcement agencies needed to prove in court that an asset was purchased with laundered funds, UWOs shift the burden of proof away from prosecutors and on to the asset’s owner.

Preventing Financial Crime with Unexplained Wealth Orders

The first successful use of a UWO since its implementation is the recent case of Zamira Hajiyeva, who owns millions of dollars in properties in London through offshore companies. Her husband, Jahangir Hajiyev, was convicted and sentenced to 15 years in prison for fraud and misappropriation of public funds, and authorities were able to identify a clear disparity between his income and the couple’s apparent wealth.

With corruption watchdog Transparency International estimating that £4 billion of UK property has been purchased with the proceeds of crime, it is hoped that this successful implementation of a UWO will herald a clampdown on overseas criminals laundering via the property market.

The success of this UWO has been fundamental in beginning to reduce the appeal of the UK as a destination for illicit income. In June, mortgage brokers were already reporting that Russian purchases of prime real estate in London had slowed as a result of both government pressure and a tightening of anti-money laundering rules.

There are, however, reasons to be wary of perceiving the introduction of UWOs as a cure-all for the UK’s money laundering problems. These court orders are ineffective as soon as a defendant can provide an explanation for the source of their wealth. In the absence of evidence to the contrary, they then win the argument. Legal difficulties and costs are other factors that can lead to delays in the UK’s fight against money laundering, while information obtained via a UWO cannot be used in criminal proceedings against the respondent. For UWOs to have credibility, authorities will need to ensure the first uses of them continue to be successful in order to serve as a useful deterrent going forward.

Further, money laundering covers a wide range of criminal activity and consequently can’t be solved by a single approach. Fragmented supervision and anonymous ownership of property in British Overseas Territories and Crown Dependencies are just two areas where Transparency International is still advocating for change to improve the UK’s asset recovery and anti-money laundering regime.

How Can We Continue to Fight Money Laundering?

It is clear that UWOs have the potential to act as powerful tools for law enforcement but are not yet being used frequently enough— more action is required if real change is to come. We need further action from the government to restrict property ownership and levy realistic local taxes.

With UWOs beginning to lead to the identification of criminals, questions will be asked of the financial institutions who facilitated the individual’s money management. To better equip themselves for the fight against money laundering, banks need to overhaul outdated AML systems to suit the complexity of the schemes perpetrated by criminals. They need to combat problems by employing entity resolution and network analysis techniques to understand vast data networks and identify hidden money.

https://www.forbes.com/sites/vishalmarria/2018/10/25/how-the-unexplained-wealth-order-combats-money-laundering/#26a904a54703

How One Stubborn Banker Exposed a $200 Billion Russian Money-Laundering Scandal

TALLINN, Estonia—It took a £1 payment to uncover one of the world’s biggest money-laundering scandals.

Howard Wilkinson, a British trader at a Danish bank’s branch in Estonia, noticed that a London business, which moved more than $1 million through the branch almost daily, had filed a report with the U.K. government claiming it had no income or assets. Downloading the report cost Mr. Wilkinson one pound.

It is a money-laundering scandal on a grand scale, broaching one of the West’s rawest subjects, its tense relationship with Russia. The money involved is equal to more than all the corporate profits in Russia in a year. The scandal has tarred the reputation of Denmark, a country ranked among the world’s most transparent, and wiped out nearly half the stock-market value of the Scandinavian country’s largest bank, which knew about the problems for years before they became public. Its star CEO has resigned.

The revelations have ignited soul-searching in Europe about the cost incurred by some of its banks to survive the global financial crisis, especially how they welcomed flows of thinly monitored money from countries with weak rule of law. Regulators increasingly wonder whether their defenses against criminal money are broken, given how so much moved through the brand-name bank of a Scandinavian nation.

Danske Bank’s Estonia office, a building once used by the Nazi military to produce radios and by the Soviets for tank parts.
Danske Bank’s Estonia office, a building once used by the Nazi military to produce radios and by the Soviets for tank parts. PHOTO: INTS KALNINS/REUTERS

The U.S. Department of Justice has started a criminal investigation into the Danske matter, and the Treasury Department and Securities and Exchange Commission are also investigating. Following Danske’s September release of a report on its internal investigation, shareholders are bracing for the possibility of a huge fine. The bank says it still doesn’t know whose billions moved through the remote branch over nearly a decade.

From his home in the English countryside, Mr. Wilkinson, 47 years old, said that he had no idea of the scale when he first began poking into a few of his bank’s dealings. He described himself as shocked and disillusioned.

“If you wanted to launder money all you need to do is find an obscure branch in a bank with a good name,” he said. “And nobody is going to ask you any questions.”

Pile-up

As the investigations of wrong-doing have piled up, Danske’s stock price has suffered.

A Wall Street Journal review of hundreds of pages of internal bank documents, including memos and client records, along with interviews with dozens of officials and bankers involved with Danske’s Estonian operations reveals how a multibillion-dollar money-laundering pipeline remained open for years, and how a midlevel career banker, fixated on detail, finally brought it down.

“We want to make it absolutely clear that this case in no way reflects the bank we want to be,” Danske said in a written statement after being asked about the Journal’s findings. “We will do everything it takes to ensure that we never find ourselves in the same situation again.”

“Good, Easy Money”

The chief executive of Denmark’s biggest bank thought he was about to die in a plane crash. Peter Straarup’s flight to Copenhagen had lost cabin pressure and was dropping thousands of feet toward the Baltic Sea.

It managed a safe emergency landing, but Mr. Straarup later described the 2006 incident to a friend as a portent of the trouble ahead. He was returning from Helsinki to announce that Danske would take over Finland’s Sampo Bank and absorb its million customers.

The acquisition came with a little-mentioned subsidiary in Estonia headquartered in a six-story former factory with an unhappy history. Hitler’s military produced radios in the building before the Soviets repurposed it for tank components. After communism’s collapse, a new bank, named Eesti Forekspank, took over the building.

During a 2006 visit, Russian Central Bank Deputy Chairman Andrei Kozlov, who was conducting a crackdown on money laundering, complained to Estonian officials that the bank, which had changed hands a couple of times, was servicing customers suspected of financial wrongdoing such as tax evasion or corruption. Three months later, he was gunned down as he left a soccer match. A Russian court ruled it was a contract killing ordered by a businessman displeased with his laundering crackdown.

Two months after that, in November 2006, Danske agreed to buy the bank as part of its deal for Sampo Bank, which owned it. Mr. Wilkinson became an employee weeks later.

An Oxford graduate who had traveled the Nordics, he initially went to work at a bank in Finland, where former colleagues remembered him as a skilled but argumentative trader who once started a yearlong gripe over a monthly charge on his checking account.

Estonia offered a faster pace than Finland. The markets department Mr. Wilkinson led, with nine employees on the corner of the fourth floor, traded millions of dollars daily in currency and bonds, called “flow business.” In the years after the financial crisis, some European banks were in fragile shape—Danske had state help—but its Estonia branch was reporting strong results for such a small country.

The Englishman felt at home in the open-plan office with its international mix of youthful new hires and experienced bankers. He didn’t entirely understand its business model, though. Ninety percent of Danske’s Estonia profits, an internal memo would later explain, came from a department on the third floor, which served a lucrative customer type Mr. Wilkinson had never dealt with before, termed nonresident depositors.

Those customers didn’t live in Estonia, and their companies did little business there. Most were Russian, and their reasons for banking in tiny Estonia weren’t always evident. Many of the nonresident depositors yanked incoming money out of their accounts within days of its arrival, sometimes hours.

Little Place, Big Money

More than €500 billion in cross-border payments entered tiny Estonia between 2008 and 2017, with a similar amount exiting. The country’s GDP for the same period was only €184.9 billion.

Mr. Wilkinson managed market transactions related to those customers, mostly currency trades and buying and selling treasuries. “Good, easy money,” he called it. Returns on equity approached 400%, a bank memo said.

His first hint of unease came five years into the job, as his colleagues rushed to take their summer 2012 holidays. A young junior account manager asked for help wrapping up paperwork on a British client.

The client—listed in the U.K. as Lantana Trade LLP—was registered next door to a suburban London hardware store, according to documents. They show it had moved $480 million through the Estonian branch in about five months.

When Mr. Wilkinson downloaded the business’s records, what he saw made no sense. “Net Assets,” said a filing it made to Companies House, the British registrar that collects company data: “0.00.”

A simple clerical error, Mr. Wilkinson said a bank compliance officer reassured him weeks later, adding that Danske had asked Lantana to submit a new, correct version to Companies House. He forgot about it.

A year later, in September 2013, a senior bank official said Lantana was no longer a client, Mr. Wilkinson said. He added that another official told him that one of Lantana’s owners was a relative of Vladimir Putin, which was denied by a spokesman for the Russian president. Lantana couldn’t be reached.

“It sat in the back of my head that there was something that wasn’t quite right,” Mr. Wilkinson said.

“The Alpha Male”

Danske’s excellent returns from Estonia were helping power the rise of a tall and elegant gray-haired banker several rungs above Mr. Wilkinson, who championed the Estonian branch’s business before the board of directors.

Thomas Borgen, then in charge of international banking for Danske, impressed other executives with his ramrod posture and soothing intonation, colleagues recalled. “He’s extremely charismatic…unquestionably the alpha male in the room,” said an adviser to a board member.

The Estonian branch’s profits were a point of pride during a European business slump. “This was his baby,” the adviser said.

In 2010, Mr. Straarup, Danske’s CEO, grew concerned about the high level of Russian transactions going through the branch. Barron’s magazine had contacted the bank about the possible involvement of its Estonian branch in a North Korean arms-smuggling case in Thailand, although the ensuing article didn’t identify the bank.

Months later, Mr. Straarup asked Mr. Borgen: Was he comfortable with the exposure to nonresident clients? Mr. Borgen, according to a person who attended the meeting, said he hadn’t come across any cause for concern. Mr. Straarup declined through a spokesman to comment, and Mr. Borgen didn’t respond to requests for comment.

Thomas Borgen, center, stepped down as CEO of Danske Bank after its investigation of a money-laundering scandal at its branch in Estonia.
Thomas Borgen, center, stepped down as CEO of Danske Bank after its investigation of a money-laundering scandal at its branch in Estonia. PHOTO: MADS CLAUS RASMUSSEN/SCANPIX/AGENCE FRANCE-PRESSE/GETTY IMAGES

Russia’s central bank, which maintained a measure of independence in a country sliding into autocracy, kept a blacklist of hundreds of thousands of individuals barred from Russia’s banking sector on suspicion of financial crimes. Many of those people were popping up as clients of the Danske branch next door in Estonia, the Russian central bank complained to Estonia’s banking supervisor, the Financial Supervision Authority.

Estonia’s FSA had just two employees to conduct money-laundering reviews, one of them part-time. It took six months to assess a single bank’s practices, and larger banks than the local Danske branch had priority. Estonia’s maximum fine for money laundering was €32,000—a few hours’ worth of profits at the branch.

In addition, European Union directives discouraged Estonian inspectors from entering the bank building without permission from their Danish regulatory counterparts. Denmark’s FSA oversaw the business because Danske had made it a branch rather than a subsidiary.

The Estonian regulators, despite their limited jurisdiction and resources, raised red flags, mailing about six letters to Denmark’s FSA between 2007 and 2014. The complaints became caustic as years went by.

One Estonian FSA letter “is brutal…close to the worst I have ever read…and I have read some harsh letters,” a Danske compliance officer emailed a colleague.

Denmark’s FSA says it raised the Estonian regulators’ concerns with Danske Bank and was assured that the bank regularly sent people to check the branch and they found no problems.

Danske, meanwhile, was hoping to open a U.S. branch. In late 2012, Denmark’s FSA issued a statement of support to the Federal Reserve saying that Danske followed correct anti-money-laundering procedures.

Danske’s anti-money-laundering chief later emailed colleagues about issues at the Estonian branch, saying: “The Danish FSA has helped the Bank in a critical situation. They are now very worried that any situation may arise.”

Danske and the Federal Reserve declined to comment when asked about the exchange.

In 2013, Mr. Borgen, the charismatic chief of international banking, became Danske’s CEO. “People were in awe of” Mr. Borgen, a person close to the board said. “He was producing these enormous returns.”

At a meeting that year of the European Banking Authority, with top officials from across the Continent present, a shouting match erupted, said people familiar with the session. The Estonians yelled across the room that criminal Russian money was washing through their country, and Denmark, a founding member of NATO, was doing little to stop it.

“In simple terms, we were quite pissed off,” said Raul Malmstein, then-chairman of Estonia’s FSA. “They were not doing anything.”

Former Danske employee Howard Wilkinson.
Former Danske employee Howard Wilkinson. PHOTO: CHRISTOPHER NUNN FOR THE WALL STREET JOURNAL

Mr. Wilkinson’s daughters had finished opening their presents on Christmas 2013 when, in the holiday calm, a thought buried deeply away came to mind. Had Lantana—the London business that moved millions through the Estonian bank while listing its assets as zero—properly amended its filing to U.K. authorities, as he’d been told 18 months before?

The day after Christmas, Mr. Wilkinson spent another pound to download Lantana’s amended filing. On the third page, Lantana said that as of as of May 31, 2012, its bank accounts held £15,689, equal to about $20,500. Bank records showed it had close to $1 million on deposit with Danske that day.

Lantana had replaced one lie with another. Worse, some of Mr. Wilkinson’s colleagues probably knew, he guessed. “At that point there’s a problem, and the question is how big is the problem,” he said.

The next morning, before dawn, Mr. Wilkinson emailed four Danske officials in Copenhagen, with the subject “Whistleblowing disclosure — knowingly dealing with criminals in Estonia branch.”

“Dear Sirs,” he wrote. “The bank may itself have committed a criminal offence…. There has been a near total process failure.”

Mr. Wilkinson imagined Danske’s executives would investigate his allegations, make changes, and they’d all share a pleasant handshake.

Two days later, a bank executive dashed off a terse response on his phone to Wilkinson: “Thanks for drawing our attention to this. It must be investigated asap.”

“regards”

“We’re Not the Police.”

Danske’s executive board met during the first week of 2014, now with Mr. Borgen as CEO. The Christmas whistleblower email was discussed, but board members weren’t provided a copy and it didn’t cause much alarm, according to two people familiar with the meeting.

The board had other incoming items to deal with. JPMorgan Chase & Co. had ceased clearing dollars for the Estonian branch over money-laundering concerns at nonresident accounts. Also, with the financial crisis fading, European banks had less appetite for taking on legally risky clients to obtain deposits. The Estonian branch had proposed a freeze on some new clients deemed too risky, according to a Danske PowerPoint document.

Mr. Borgen offered an alternative plan, said people close to the board: Sell the branch.

Two days after that board meeting, Danske senior management received another email from Mr. Wilkinson. He had checked three more clients. All three had filed false assets and income reports to the British authorities, he wrote.

In Estonia, the Englishman’s campaign infuriated co-workers: “We’re not the police,” a branch executive snapped in one heated meeting, Mr. Wilkinson recalled.

One day around February 2014, Estonian government inspectors barged into the building, without permission from Copenhagen, and pulled thousands of documents. They sent Danske Bank a scathing, 340-page report listing lengthy violations.

The report was in Estonian. It wasn’t translated into English or Danish for another three years.

Danske management did order an internal audit team to do some digging, around the same time. Mr. Wilkinson found the team members motivated and intelligent. They interviewed him at length by phone.

A report the audit team prepared was damning. A summary of it said the Estonian branch wasn’t able to identify the true source of funds—a basic banking requirement—and “therefore acts against [anti-money-laundering] legislatory principles.”

The draft report said the branch’s head of international banking, who helped oversee nonresident accounts, had told the auditors his employees weren’t recording the true owners of the companies because, in the report’s language, “it could cause problems for clients if Russian authorities request information.” The banker couldn’t be reached for comment.

In March 2014, Mr. Wilkinson checked what 12 additional Danske clients had reported to British authorities. Each moved millions but reported scant income or assets. Mr. Wilkinson made a total of four complaints. He didn’t find a single Danske client that correctly reported its income to the government where it was registered.

It took a phone call to break Mr. Wilkinson’s zeal.

Howard Wilkinson at his home in England
Howard Wilkinson at his home in England PHOTO: CHRISTOPHER NUNN FOR THE WALL STREET JOURNAL

The internal audit team’s draft report, the product of a two-month investigation, was being watered down under pressure, an auditor called to tell him. The bank’s auditing chief wouldn’t give Mr. Wilkinson a copy.

The report would permanently remain a draft. If it was made final, Denmark’s banking supervisor would have access to it.

In April 2014, a colleague told Mr. Wilkinson that Estonian branch management had been listening to recordings of his calls with auditors. He felt spooked—and infuriated.

He resigned. “After over seven years with the bank, I’ve decided it’s time to do something else,” he emailed management.

Seconds later, Mr. Wilkinson sent an email he had pre-written to Danske’s chief risk officer: If Danske didn’t report the false accounts to Estonian police, then he would.

Three hours later, the officer responded: “I can assure you that the issues you have raised are receiving a huge amount of attention both locally and in Copenhagen.”

Estonia at the time was ranked as the second-best country on earth in combating money laundering, by a standard called the Basel AML index, while corruption watchdog Transparency International rated Denmark the world’s most transparent country that year. What was unusual, Mr. Wilkinson concluded, wasn’t that a name-brand branch had turned a blind eye to its customers, but that it got caught.

At the end of April 2014, he cleaned out his desk. Danske Bank’s top legal officer hired a consulting firm to investigate allegations of misconduct at the Estonian branch. The hiring decision was overturned by two executive-board members.

In June, the board of directors met. Mr. Borgen had told colleagues two banks were considering buying Danske’s Baltic portfolio, including the Estonian branch. Let the business carry on a bit longer, he said.

“CEO found it unwise to speed up an exit strategy as this might significantly impact any sales price,” the minutes of the meeting say.

Board members swallowed their misgivings, according to people familiar with the session. “Nobody ever disagrees with Thomas,” said one. “He was regarded as the most successful CEO Danske Bank had ever had…. He had steered the bank through a very difficult time.”

“My Own Small Bit”

Danske didn’t find a buyer for the Baltic business. The nonresident business at the Estonian branch carried on for another year. Then, in 2015, Bank of America Corp. and Deutsche Bank AG , the last two correspondent banks still processing U.S. dollar transactions for the Estonian branch, both said they would stop dealing with the branch’s clients on money-laundering concerns. Late that year, Danske pulled the plug on its nonresident business and shut thousands of accounts.

In early 2017, Danish newspaper Berlingske published reports describing Danske Estonia money-laundering schemes. In September of that year, Danske opened an internal investigation.

Mr. Borgen dismissed notions he would have to resign, people close to the board recalled. He told an investor as recently as June there was nearly zero chance Danske would have to pay a significant fine. He expected to stay on after the investigation, people close to the board recalled.

The Danske Bank building in Copenhagen
The Danske Bank building in Copenhagen PHOTO: MADS CLAUS RASMUSSEN/EPA-EFE/REX/SHUTTERSTOCK

As Danske’s investigators, based partly on Mr. Wilkinson’s tips, combed through stacks of transaction records, the scale of the money flows remained a mystery. After a year of work, the investigators had managed to review less than half of the branch’s 15,000 clients.

“The vast majority of these customers have been deemed suspicious,” Danske said in the September report of its internal investigation.

The investigators determined that the branch had handled €200 billion, equal to $233 billion, in largely suspicious transactions. They were unable to figure out who owned the lucrative nonresident companies that banked there. Those clients’ money has long since vanished into a labyrinth of offshore companies around the globe.

The internal investigation mostly exonerated top management, including Mr. Borgen. It accused dozens of low-level employees of wrongdoing.

Mr. Borgen said he would resign as CEO nonetheless. “Danske Bank has failed to live up to its responsibility,” he said. “I deeply regret this.”

Mr. Wilkinson was following events from the kitchen table of his countryside home. Even he was flabbergasted by the scale. “Surreal,” he says.

If he filed any whistleblowing claims to the SEC, there is the possibility under U.S. law he could collect a portion of any fine against the bank. His lawyer declined to comment on whether he has spoken with U.S. or European law enforcement, citing Estonian bank-secrecy laws.

These days, the Englishman looks after his daughters. Sometimes in the evenings, he occupies his mind with a Bletchley Park cipher puzzle book, named after the team of World War II codebreakers that cracked Germany’s secret Enigma encryption.

“I’ve done my own small bit,” he said.

https://www.wsj.com/articles/how-one-stubborn-banker-exposed-a-200-billion-russian-money-laundering-scandal-1540307327

How Binance is Legitimizing the Crypto Market by Eliminating Money Laundering

Binance, the world’s largest crypto exchange, has voluntarily engaged in an initiative to eliminate money laundering on its platform.

For years, despite the inherent lack of privacy measures on major public blockchain networks like Bitcoin and Ethereum that discourage the settlement of illicit transactions, a widely pushed narrative against crypto has been the suspected usage of digital assets by criminals.

Eliminating Easily Refutable Claims

Bitcoin, Ethereum, Ripple, Bitcoin Cash, EOS, and many other major cryptocurrencies are not anonymous by nature. With Know Your Customer (KYC) and Anti-Money Laundering (AML) systems integrated by cryptocurrency exchanges, it is extremely difficult for criminals to utilize digital assets to settle the transfer of illegal proceeds.

Authorities and government agencies across the globe are well aware of the non-anonymous characteristic of blockchains, which could have motivated governments like the US, Japan, and South Korea to legitimate and recognize the cryptocurrency market.

This week, Binance has started to cooperate with Chainalysis, a leading blockchain analysis company that evaluates suspicious transactions and addresses, to improve its AML system and to further legitimize the cryptocurrency sector.

binance cryptocurrency exchange

“Cryptocurrency businesses of all sizes face the same core challenge: earning the trust of regulators, financial institutions and users. We expect many to follow Binance’s lead to build world-class AML compliance programs to satisfy regulators globally and build trust with major financial institutions,” said Jonathan Levin, co-founder and COO of Chainalysis.

In 2018, some of the world’s most influential banks were cracked down for money laundering. Danske Bank laundered $243 billion from criminal groups, and as CCN reported on October 20, Nordea Bank, the largest financial group in the Nordic countries, is said to have taken several illicit payments from banks in the Baltic region.

With the institutional market of cryptocurrencies growing exponentially, the tightening of AML systems employed by public exchanges is expected to solidify cryptocurrencies as a recognized asset class and the digital asset market as a well-regulated sector.

Wei Zhao, the CFO at Binance, said that maintaining the firm’s vision of increasing the freedom of money globally, the exchange will continue to adhere to regulatory mandates in the countries it operates in.

“By working with Chainalysis, we are able to continue building a foundational compliance program that enables the next phase of our growth. Our vision is to provide the infrastructure for a blockchain ecosystem and increase the freedom of money globally, while adhering to regulatory mandates in the countries we serve.”

Importance of Compliance

The cryptocurrency sector is entering a new phase of development and growth, as Zhou explained.

During the 2017 bull market in which the valuation of the cryptocurrency market surged to $800 billion, the asset class obtained significant mainstream awareness in both countries that support crypto and regions that have established impractical regulatory frameworks to prevent local blockchain markets to flourish.

In a period in which governments are introducing increasing efforts to embrace crypto and blockchain businesses as a part of the fourth industrial revolution, voluntary initiatives by companies like Binance to legitimize the industry will ease the process of governments in regulating and acknowledging the global market.

https://www.ccn.com/how-binance-is-legitimizing-the-crypto-market-by-eliminating-money-laundering/

Dark Web Dealer ‘OxyMonster’ Forfeits $700,000 in Crypto with 20-Year Prison Term

US District Judge Robert Scola has imposed a 20-year prison sentence on 36 year-old Gal Vallerius also known as “Oxymonster” on the dark web drug hub Dream Market.

In June, CCN reported that the French-Israeli citizen was apprehended by police at Atlanta airport in 2017 while attending the World Beard and Moustache Championship in Austin Texas. He will now start his prison term in Southern Florida after being convicted of money laundering and narcotics trafficking.

Huge Crypto Seizure

In his plea agreement, Vallerius admitted to selling drugs like oxycodone, heroin, cocaine, fentanyl and Ritalin in exchange for cryptocurrencies including bitcoin and bitcoin cash on the dark web. More than 100 BTC and 121.95 BCH – equivalent to over $700,000 – seized from him as proceeds of illicit activity will now be forfeited to the government.

For many, the big question following the forfeiture is: “What becomes of this huge amount of crypto in the hands of the U.S. government?”

A development of this nature is not new. In 2015, after Silk Road creator, Ross Ulbricht was given a life sentence, the government took possession of 144,336 BTC found on his laptop. At a time when the price of one bitcoin was just over $300, the government realized a total of over $48 million selling to multiple auctions. Some later criticized the government’s hasty sale which prevented it from earning far more.

With his plea agreement, sources say Vallerius would have to “provide all necessary passwords” to enable the government gain access. It remains uncertain if the government will take similar action to that taken of Silk Road, or delay auctions till prices show upward movement. The rarity of this situation makes it hard for analysts to predict what decision the government will make.

Earlier this week, Irish native Gary Davis pleaded guilty to conspiring to sell drugs on the Silk Road under the alias Libertas. In 2017, the District Court in California also seized over $8 million worth of cryptocurrency from Alexandre Cazes who committed suicide in Thailand after being accused of running a dark web market AlphaBay. With more cases related to crime which might ultimately lead to similar forfeitures, the U.S. government might just be dealing with crypto auctions more regularly.

Some have however suggested that at a time when the U. S. Justice Department is investigating the possible manipulation of cryptocurrency prices, crypto acquired through the legal system is somewhat unlikely to last in the custody of government for long.

https://www.ccn.com/dark-web-dealer-oxymonster-forfeits-700000-in-crypto-with-20-year-prison-term/

Bitcoin Hedge Fund and CEO Slapped With $2.5 Million Penalty for Ponzi Scheme

A New York federal court has ordered cryptocurrency hedge fund Gelfman Blueprint, Inc. (GBI) and its CEO Nicholas Gelfman to pay over $2.5 million for operating a fraudulent Ponzi scheme, according to an official announcement published Oct. 18.

GBI is a New York-based corporation and denominated Bitcoin (BTC) hedge fund incorporated in 2014. As stated on the company’s website, by 2015 it had 85 customers and 2,367 BTC under management.

The order is the continuation of the initial anti-fraud enforcement action filed by the U.S. Commodity Futures Trading Commission (CFTC) against GBI in September 2017. The CFTC charged GBI for allegedly running a Ponzi scheme from 2014 to 2016, telling investors that it had developed a computer algorithm called “Jigsaw” which allowed for substantial returns through a commodity fund. In reality, the entire scheme was a fraud.

Per the announcement, GBI and Gelfman fraudulently solicited over $600,000 from at least 80 customers. Moreover, Gelfman set up a fake computer “hack” to conceal the scheme’s trading losses. It eventually resulted in the loss of almost all customer funds.

The current order charges GBI and Gelfman to pay over $2.5 million in civil monetary penalties and restitution. GBI and Gelfman are ordered to pay $554,734.48 and $492,064.53 in restitution to customers and $1,854,000 and $177,501 in civil monetary penalties, respectively.

James McDonald, the CFTC’s Director of Enforcement, said that “this case marks yet another victory for the Commission in the virtual currency enforcement arena. As this string of cases shows, the CFTC is determined to identify bad actors in these virtual currency markets and hold them accountable.”

Last month, the CFTC filed a suit with the U.S. District Court for the Northern District of Texas against two defendants for the allegedly fraudulent solicitation of BTC. Per the suit, defendants Morgan Hunt and Kim Hecroft were running two fraudulent businesses and misleading the public to invest in leveraged or margined foreign currency contracts, such as forex, binary options, and diamonds.

https://cointelegraph.com/news/bitcoin-hedge-fund-and-ceo-slapped-with-25-million-penalty-for-ponzi-scheme

Stolen UI Employee Data Used To Commit Money Laundering

By: Hillary Ojeda

A woman pleaded guilty to money laundering charges involving more than $200,000 after she submitted false tax returns using University of Iowa employees’ data, on Oct. 11 in Davenport.

Nadine Nzuega Robinson entered into a plea agreement at the United States District Court for the Southern District of Iowa.

She waived her right to a jury trial and the district court will decide the verdict on or at the date of sentencing, scheduled for Feb. 22, 2019, according to court documents.

Starting in 2013, or earlier, Robinson and her partner Patrick Koloko opened a check cashing business in a suburb of Atlanta, Georgia. Located in Doralville, the name of the business was Azalea USA, LLC and Robinson was identified as the CEO and 85 percent owner, according to court documents.

Robinson agreed with Koloko and others to carry out illegal financial transactions to make a profit and hide unlawful wire and mail fraud.

Then, in early 2015, Robinson created checking accounts at Bank of America in Georgia under the name of Azalea.

Court documents say in late February and early March of 2015, false tax returns for tax year 2014 were being submitted electronically to the Internal Revenue Service using the names, addresses, occupations and social security numbers of University of Iowa employees.

The court documents did not detail how that data was acquired by Robinson or others.

Following an investigation, it was found that the suspects committed wire fraud and mail fraud, according to court documents. The stolen identities were used to apply for state and federal income tax returns. The fraudsters also provided debit card account numbers for the IRS to authorize payment of the returns to be distributed onto the debit cards.

The IRS processed the fraudulent returns leading  to U.S. government money being transferred electronically onto those debit cards.

The debit cards were then used to buy hundreds of money orders that were converted to cash in the Atlanta, Georgia area. False payee names were used and the cash was distributed to Robinson and other criminal companions.

Court documents say hundreds of money orders obtained through similar means continued to be deposited by Robinson into the Azalea accounts.

Robinson deposited money orders totaling $215,464 from fraudulent tax returns using University of Iowa employees data, according to Azalea-Bank of America accounts records from March and April of 2015.

If convicted, Robinson faces a maximum sentence of 20 years in prison and a maximum fine of $500,000.

Court documents show Robinson was originally arrested on Oct. 12 last year in Atlanta, Georgia, before a court order moved her case to the United States District Court Southern District of Iowa in Davenport.

https://www.press-citizen.com/story/news/2018/10/17/stolen-ui-employee-data-used-commit-money-laundering/1663905002/

Mexico Arrests Businessman Wanted in US for Money Laundering

Source: Associated Press, Fox News

MONTERREY, Mexico –  Authorities in the northern Mexico say they’ve arrested a businessman accused in the U.S. of helping a former governor launder money.

Nuevo Leon state security spokesman Aldo Fasci Zuazua says state police investigators arrested Fernando Cano Martinez in the wealthy Monterrey suburb of San Pedro Garza Garcia on Thursday. He says Cano attempted to flee, but was apprehended after a short chase.

Read the entire article by clicking on the link.

http://www.foxnews.com/world/2017/02/09/mexico-arrests-businessman-wanted-in-us-for-money-laundering.html

PayPal Says Anti-Money Laundering Program Subpoenaed by DOJ

PayPal Holdings Inc.’s anti-money laundering program received subpoenas for information from the U.S. Department of Justice, the company said Wednesday in a filing.

PayPal shares dipped as much as 2.8 percent in extended trading after closing at $40.88.

“We are cooperating with the DOJ in providing information in response to the subpoenas,” the company said. “We are unable to predict the outcome of the government’s investigation.”

https://www.bloomberg.com/news/articles/2017-02-08/paypal-says-anti-money-laundering-program-subpoenaed-by-doj

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