The current crypto trading environment is often compared to the “Wild, Wild West” conditions of the retail forex industry in the nineties. Regulatory oversight was nowhere to be seen, and fraud ran rampant, especially when dealing with overseas forex brokers. In the crypto-verse, however, unregulated exchanges have lost billions of dollars to professional hacking groups, the likes of which had never been experienced during those early days in the retail foreign exchange trading arena.
The United Nations has an ongoing investigation of these massive cyber attacks on the crypto exchange network, but the focus of these actions had been over state-sponsored activities initiated by the Republic of North Korea. The BBC has just released an investigative report of its own into the corrupt practices happening in Russia. The story highlights “Wild West” conditions that may be a great deal wilder than previously thought. The report earmarks Russia’s Federal Security Service (FSB) as having been linked to $450 million in bitcoin that vanished from the beleaguered crypto exchange World Exchange Services (WEX).
In late 2018, WEX was shuttered under suspicious circumstances that involved rumors and accusations of massive money laundering and the disappearance of millions upon millions of Bitcoin and other crypto assets. Price Waterhouse Coopers (PwC) had released a report earlier in the year that alleged the WEX exchange had been the conduit for laundering over $4 billion in ransomware payments collected in cryptos since 2014. PwC had been following the activities of “Blue Athena”, and soon found that WEX was assisting the criminal activities of this “bad actor” by laundering 95% of its funds.
The storyline actually goes back to 2011. WEX was known at that time as BTC-e, one of the world’s largest cryptocurrency exchanges. According to Decrypt:
It’s thought to have handled more than $9 billion in Bitcoin transactions since its inception in 2011. It was linked to the infamous Mt. Gox hack, as well as Fancy Bear, the Russian cyber espionage group thought to be behind the hacking of US Democratic Party candidates’ email accounts in the run-up to the 2016 Presidential Election.
In 2017, the FBI helped to shut down BTC-e, accused at the time of money laundering $4 billion in illicit funds. In July of 2017, Alexander Vinnik was arrested in Greece, but his partner, Alexei Bilyuchenko, fled to Russia, rebranded their effort as WEX, and promised to return all missing funds to its customers. The story gets a bit murky at this point, as “he said, they said” statements began to fill in the gaps. The BBC, however, did obtain written transcripts and audio recordings that were made public and that pertained to the Russian criminal investigation into the illicit activities of the WEX exchange.
The BBC reports:
In his statements, Bilyuchenko said he was forced to hand over information about customers’ digital wallets to unnamed FSB officials, shortly before the exchange ceased operations. This data would have enabled them to seize Bitcoin and other cryptocurrencies worth approximately $450 million at the time. Bilyuchenko said, in the recordings, that he was told the money would go to the FSB ‘Russia fund.’
The BBC also points to a Russian billionaire, Konstantin Malofeev, as the mastermind behind the entire scheme to pressure WEX executives to hand over the “keys”, which enabled the compromise to proceed. Malofeev is a pro-Kremlin Russian billionaire, who is currently under U.S. sanctions.
The last piece in the puzzle, provided by the BBC, appears to be a connection with pro-Russia rebels fighting in the Ukraine: “Russian publication RBC magazine alleged that Malofeev was behind the sale of WEX, in late 2018, to his associate Dmitry Khavchenko, a Ukrainian entrepreneur and pro-Russia fighter in Eastern Ukraine known as “Sailor.”
As for what happened or happens next is up for speculation. The story stops at this point, but if you had lost funds through an association with WEX/BTC-e, then your chances of recovery are somewhere between less and none, especially since a state-run security agency seems to be complicit in the entire affair. Such is the “Wild West” these days in Russia and in Eastern Ukraine.