The long running saga of the Mt Gox collapse has taken another turn with BTC-e operator Alexander Vinnik pleading guilty to charges of money-laundering. Vinnik was facing a slew of charges for his alleged involvement in laundering bitcoin through BTC-e between 2011 and 2017 as well as links to the infamous Mt Gox hack in 2014.
From 2011 to 2017 Vinnik operated BTC-e, a cryptocurrency exchange linked with nefarious actors over allegations of widespread money-laundering.
In 2014, 850,000 bitcoin were drained from Mt Gox (currently worth just over AUD$81 billion in today's market). Interestingly, due to the transparent nature of blockchain technology, authorities and on chain sleuths could trace the bitcoin through addresses, some of which match those belonging to other hacks.
These soon became linked to the name "Alexander Vinnik", who was arrested in Greece at the request of US authorities in 2017. Vinnik faced a long extradition process, with Russia, US and French authorities vying for the ability to prosecute the 'criminal mastermind'.
Eventually, France secured the extradition and Vinnik was charged in connection with the Mt Gox Hack, following which some of the missing bitcoins were found. French prosecutors fined Vinnik USD$121,000 and sentenced him to 5 years in prison. Vinnik was eventually sent back to Greece before being extradited to the US.
While creditors did receive a boost in 2021, being able to claim up to 90% of their stolen bitcoin, Vinnik's criminal prosecution was still on foot. In their announcement, the Department of Justice (DOJ) cited breaches of US law by Vinnik resulting in USD$121 million in losses.
BTC-e was one of the primary ways by which cyber criminals around the world transferred, laundered, and stored the criminal proceeds of their illegal activities. BTC-e received criminal proceeds of numerous computer intrusions and hacking incidents, ransomware attacks, identity theft schemes, corrupt public officials, and narcotics distribution rings.
Reports by blockchain analytic firms like Chainalysis have repeatedly undercut assertions of rampant money laundering using cryptocurrency. Indeed, blockchain’s very transparency has been the undoing of criminal efforts to launder proceeds of crime using cryptocurrency. The blockchain has armed authorities and on chain sleuths with the evidence to investigate and trace illicit transaction flows in ways not possible in the traditional banking sector.
With regulators around the world imposing broader AML/CTF laws on Virtual Asset Service Providers or VASPs, the noose is tightening on those who use of cryptocurrency to disguise criminal activity.
By Michael Bacina, Steven Pettigrove and Luke Misthos