By Gareth Vaughan and Denise McNabb*
New Zealand’s law enforcement authorities are expecting to be contacted by their US counterparts prosecuting a Russian national and a bitcoin exchange accused of operating a multi-billion dollar criminal operation with the assistance of New Zealand registered companies.
At the centre of the case is Russian national Alexander Vinnik. Vinnik was arrested at the behest of the US Justice Department on July 25, 2017 while he was holidaying with his family in Greece. The US Department of Justice charged Vinnik and bitcoin exchange BTC-e in a 21 count indictment with operating an unlicensed money service business, operating an alleged international money laundering scheme and allegedly laundering funds from the hack of Japan-based bitcoin exchange Mt. Gox, alleging BTC-e was operated by Vinnik and received deposits valued at more than US$4 billion. And despite doing substantial business in the US, BTC-e was not registered as a money service business, the US Department of Justice says.
Nineteen months on from his arrest US, Russian and French law enforcement authorities are still fighting through the Greek courts over the extradition of Vinnik, as detailed here by the Organised Crime and Corruption Reporting Project. Vinnik reportedly wants to return to Russia where he has confessed to lesser fraud charges. His lawyer argues if he is sent to France to face charges the French will hand him over to US authorities. Vinnik reportedly went on a hunger strike in November and was hospitalised. And last year Greek authorities reportedly thwarted a plot by an unknown Russian to murder him.
Russia's first extradition request for Vinnik related to petty theft charges to the value of US$11,000. A second set of Russian charges accuses Vinnik of computer fraud that cost Russians US$12.4 million and carries a jail sentence of up to 10 years. Vinnik's fate has reportedly escalated to the Kremlin, with President Vladimir Putin raising the matter directly with Greek Prime Minister Alexis Tsipras amid suspicions this is an attempt to prevent Vinnik falling into US hands. This comes with the Russian cyber-espionage group known as Fancy Bear reportedly among BTC-e's clients. US prosecutors allege Fancy Bear used bitcoin to fund the hacking of the Democratic National Committee, and Special Prosecutor Robert Mueller has targeted 12 Fancy Bear-associated suspects in his investigation into alleged Russian interference in the 2016 US election.
Two NZ companies, a limited partnership & the misuse of NZ internet domain names
Interest.co.nz has learnt that New Zealand law enforcement authorities are anticipating a request for assistance from their US counterparts in the Vinnik and BTC-e case. Interest.co.nz understands concerns centre around two NZ registered companies and one limited partnership. They are FXOpen NZ Ltd, which has been in liquidation since June 17, 2015, FXOpen LP Ltd and XP Solutions Ltd.
Interest.co.nz has also discovered that Vinnik registered a NZ company as long ago as October 2008 with the assistance of local company agents NZ Securities Ltd. The company, in which Vinnik was the sole director and shareholder, was WME Capital Management Ltd. It was removed from the Companies Register in 2012 because the Companies Office believed it had ceased business. Vinnik was reportedly known in the Russian digital currency exchange community as “Sasha WME.”
Additionally Interest.co.nz has come across another NZ registered company that appears to be linked to a UK registered company embroiled in the Vinnik-BTC-e saga. This is Mayzus Investment Company Ltd. Furthermore a series of websites with NZ internet domain names have been involved in the BTC-e operation and shut down.
Shell companies & a US$110m penalty
The full set of US charges against Vinnik have him facing 55 years in jail. They include the operation of an unlicensed money service business, conspiracy to commit money laundering, money laundering, and engaging in unlawful monetary transactions. Vinnik also faces a series of fines valued in the millions of dollars. The US Department of the Treasury's Financial Crimes Enforcement Network has assessed a US$110 million civil penalty against BTC-e for allegedly willfully violating US anti-money laundering laws, with a US$12 million penalty assessed against Vinnik for his role in these.
"BTC-e relied on the use of shell companies and affiliate entities that were similarly unregistered with the United States Department of the Treasury's Financial Crimes Enforcement Network and lacked basic anti-money laundering and 'Know your Customer' policies. These entities catered to an online and worldwide customer base, and electronically muled fiat currency in and out of BTC-e. BTC-e's own website stated it was located in Bulgaria, yet simultaneously stated it was subject to the laws of Cyprus. Meanwhile, BTC-e's managing shell company, Canton Business Corporation, was based in the Seychelles but affiliated with a Russian phone number, and its web domains were registered to shell companies in countries including Singapore, the British Virgin Islands, France and New Zealand," the US Department of Justice says.
"BTC-e was an international money laundering scheme that, by virtue of its business model, catered to criminals - and to cyber-criminals in particular. Through Vinnik's efforts, BTC-e emerged as one of the principal means by which cyber criminals around the world laundered the proceeds of their illicit activity. BTC-e facilitated crimes, including computer hacking and ransomware, fraud, identity theft, tax refund fraud schemes, public corruption, and drug trafficking," says the US Department of Justice.
It also alleges BTC-e received "a substantial portion of the criminal proceeds" from CryptoWall, a large ransomware scheme that used fraudulent and phishing emails and allegedly deposited and laundered hundreds of thousands of dollars worth of ransom payments into BTC-e.
"The investigation has revealed that BTC-e received more than US$4 billion worth of bitcoin over the course of its operation," the US Department of Justice says. "BTC-e's business model obscured and anonymized transactions and source of funds."
According to the Organised Crime and Corruption Reporting Project, Vinnik’s Russian defence lawyer Timofey Musatov maintains BTC-e is; "Just a website that allows people to use new technology and digital currency, which only recently became exchangeable for fiat [physical] money... It’s not a financial exchange similar to stock or currency exchanges. It’s simply a platform.”
Musatov also argues the indictment against Vinnik is flawed because it relies in part on statements by two discredited US agents who bought bitcoin on the website and alleged that their backgrounds had not been properly checked. They are former Drug Enforcement Administration agent Carl Mark Force and ex-Secret Service agent Shaun Bridges, who were convicted of funnelling cryptocurrency stolen from the 2013 Silk Road dark web drug-trafficking probe into BTC-e, the Organised Crime and Corruption Reporting Project reports.
London-based Always Efficient LLP, BTC-e’s management company headed by Aleksander Buyanov, denies Vinnik ran or founded BTC-e.
Spotlight on NZ
Overseas media reports have pointed to NZ entities as players in the alleged BTC-e/Vinnik crime wave.
FinanceFeeds, which describes itself as an interactive Fintech, finance and trading industry news source, has reported on the alleged links between the FXOpen group of companies, BTC-e, and NZ. FinanceFeeds says a UK National Anti-Criminal Agency report provided to the Greek courts handling the Vinnik extradition features an analysis of the transactions of Vinnik’s structures between 2014 and 2017. The report not only showed that “transit money” went to companies related to FXOpen, but that in a 2017 transaction XP Solutions received around €26.9 million through a pay provider, Mayzus Financial Services (MFS).
In Athens, Maysus handed over to Greek courts, a report to the National Anti-Criminal Agency of Great Britain, prepared by Mayzus Financial Services after the scandal with BTC-e. This analyzed the transactions of Alexander Vinnik’s structures for 2014-2017. Transit money went to the companies related to FXOpen, it follows from the document: only in 2017 the New Zealand company XP Solutions Ltd, connected with the forex holding, received through MFS about € 26.9 million.
FinanceFeeds notes that it spoke with an FXOpen executive who said the group had worked with BTC-e as a provider of software and services, but was not a part of BTC-e.
CrimeRussia, a project created in 2009 by journalists based in Hong Kong to expose corrupt officials and organised crime representatives linked to crime in Russia, has been investigating BTC-e in depth and XP Solutions appeared on its radar too.
A BTC-e user told CrimeRussia, on condition of anonymity, how he got his money back after the exchange was shut down. Before it was shut down BTC-e had allowed investors to invest funds with a lower commission through a service called XBTCe via a verification option. It needed compliance with anti-money laundering laws and Know Your Customer requirements whereas BTC-e only required an email address. As CrimeRussia pointed out, the two portals were linked because besides the similarity of their names they had identical cryptocurrency rates. After Vinnik’s arrest xBTCe operations also stopped, but the CrimeRussia source paid a standard commission two days after Vinnik’s arrest and managed to transfer the funds to his electronic account.
That source’s invoice showed the funds were transferred by XP Solutions. Crime Russia also noted on FXOpen’s website that a dummy example of an invoice (below) was identical to the invoice provided by the source. In both cases, XP Solutions was the recipient of funds.
Beneficial owner of FXOpen NZ 'undetermined'
FXOpen NZ Ltd was incorporated in December 2011 and was also registered on NZ's Financial Service Providers' Register (FSPR) between December 2011 and July 2015. Mark Norrie of Norrie & Daughters was appointed liquidator by a special resolution of shareholder Bassett Trustees 4 Ltd on June 17, 2015. Companies Office records list its directors as Auckland lawyer David Campbell and Malaysian resident Denis Peganov. Campbell is also listed as shareholder of Bassett Trustees 4.
In written responses to questions Norrie says the beneficial owner of FXOpen NZ is "undetermined" despite attempts to identity who it is.
"Indications are they are Russian or Eastern European. Some records have been obtained from Russia," Norrie says.
He says the evidence available shows FXOpen NZ clients invested money with the firm in various accounts in numerous countries and that money was then used in foreign exchange (forex) and derivatives trading operations. Creditors, based in the UK, Latvia and NZ have made claims totalling just under US$1.6 million. Norrie says the creditors are AS IBS Renesource Capital of Latvia, UK-based CFH Clearing Limited, FXOpen NZ shareholder Bassett Trustee 4 Ltd, related party XP Solutions Limited, and director David Campbell's firm Campbell Law.
"Other creditors are suspected to exist, records show other potential financial institutions around the world. However, they have not filed a claim in the liquidation," says Norrie.
He says there are documents linking FXOpen NZ to FXOpen Investments Inc of Panama. The NZ entity is also linked to FXOpen Markets Ltd of Nevis, Australia's FXOpen AU Pty Ltd, FXOpen Ltd (UK), FXOpen Company Russia, and FXOpen LP Ltd, which has the trading name FXOpen Prime. The latter's website lists an Auckland phone number. Interest.co.nz called this number twice, on separate days. Both times the call went to a voicemail. After selecting the option to go through to an operator the line rang for a time before going dead.
Trading while insolvent & phoenix company allegations
Norrie believes FXOpen NZ traded while insolvent.
"It can with reasonable certainty be established that FXOpen NZ Ltd was or became insolvent between 15 January 2015 and 27 January 2015. However it is possible that FXOpen NZ Ltd was insolvent prior to 15 January 2015. No action has been taken yet. Action could only be taken by the liquidator on behalf of creditors of FXOpen NZ Ltd. The usual standards of proof would be required. Consideration of reckless trading, directors' duty of care, voidable transactions or transaction below market value with insiders are under consideration along with other possible avenues for recovery. As usual consideration of costs, the target of the litigation being judgment worthy and the risks of commencing proceedings all need to be considered," says Norrie.
He says a complaint was laid with the NZ Law Society by an FXOpen NZ creditor, whilst the Financial Markets Authority (FMA) and the Ministry of Business, Innovation & Employment (MBIE) have probed, or are probing FXOpen NZ.
"A certificate of solvency was signed by a director of FXOpen NZ Ltd when post liquidation investigations showed that FXOpen NZ was insolvent. A complaint was laid with the NZ Law Society by a creditor. The complaint was not upheld however a subsequent complaint to MBIE was upheld. The final outcome of MBIE’s investigation and what action was taken are not known to me. The FMA investigation was in respect to clients of FXOpen NZ Ltd on behalf of the Central Bank of Hungary and Autorite des Marches Financiers [of Quebec, Canada]," says Norrie.
An MBIE spokeswoman says the Companies Office's Integrity and Enforcement Team received a complaint in relation to FXOpen NZ in December 2015.
"The complaint centred on whether the company was solvent at the time it was placed into liquidation, and whether the directors had formed a 'phoenix' company. Following an investigation, which included interviewing the liquidator and the NZ based director, a report was submitted to the Auckland Crown Solicitor. After taking advice from the Crown Solicitor, the Companies Office determined that a prosecution would not meet the public interest test as outlined in the Solicitor Generals’ guidelines and no further action was taken," the MBIE spokeswoman says.
An FMA spokesman would only say; "When, and if a fellow IOSCO [International Organization of Securities Commissions] member seeks information from the FMA under the IOSCO Memorandum of Understanding, the process is confidential, and so the FMA cannot provide any further comment."
The alleged phoenix company is in fact a limited partnership, FXOpen LP Ltd. Incorporated in February 2015, its sole director is lawyer Lewis Bunge of Hopetoun Legal Ltd. Companies Office records also list Bunge as shareholder of FXOpen LP's shareholder, Middleton 1 Ltd.
Finally there's XP Solutions Ltd. A broker transfer form interest.co.nz has seen says it's for transferring funds from the eWallet held with XP Solutions for the purpose of derivatives trading with FXOpen Markets Ltd. XP Solutions was registered as a company in April 2012. Bunge is its sole director and is also listed as shareholder of XP Solutions' shareholder, Given Trustees Ltd.
Contacted by phone for comment Bunge said; "I'm not really interested in answering any questions. I'm not really interested, thanks for the call," before hanging up.
XP Solutions has been registered on the FSPR since May 2012. Individuals and companies in the business of providing a financial service are required to be registered on the FSPR.
Norrie says Campbell and Peganov both became directors of XP Solutions at a time when he believes they both should have been aware, or were aware, that FXOpen NZ was insolvent.
"XP Solutions has claimed as a creditor in the liquidation for losses it claims were incurred in E-Wallet Account Services under an assignment agreement with FXOpen NZ Ltd. The claim has not been admitted is subject to further investigation. Bunge is now the current director of XP Solutions," says Norrie.
In written responses to questions Campbell says Norrie was asked for his opinion of FXOpen NZ's position before a decision was made to put the company into liquidation following the Swiss currency crisis in 2015, when the Swiss National Bank shocked currency markets by scrapping the franc’s peg to the euro.
"This [trading while insolvent] was not the advice given at that time by Mr Norrie the liquidator," Campbell says.
"The liquidation is in its fourth year and although questions have been frequently asked as to where the funds are that have been forwarded to the liquidator and how much of the funds are left and what the costs have been for the liquidation, no answers have been forthcoming. Mr Norrie has confirmed on at least two occasions that I am aware of that in his opinion the main and only substantial creditor concerned, I believe one of three, has no valid claim after a forensic assessment of their claim was conducted by external consultants. I am unaware of any further action taken to date in respect of the liquidation of the company," says Campbell.
When asked who the beneficial owners of FXOpen NZ , FXOpen LP, and XP Solutions are, Campbell says they are "private companies." Asked whether FXOpen LP is a phoenix company, Campbell says it's not.
"The liquidator in his six monthly reports published on the Companies Office website appears to have just cut and pasted information from one report to the other without any disclosure or clarification. In the past the liquidator has been asked that these reports reflect the facts. But to date nothing has been changed," Campbell says.
'Complied with all its legal obligations'
In terms of interest from the NZ Law Society, MBIE and the FMA in FXOpen NZ, Campbell says the company has complied with all of its legal obligations.
"However, I am surprised that the liquidator gave out what is clearly confidential information in respect of the Law Society."
"But, for what is now a necessary clarification, one of the three largest Auckland law firms representing the main creditor, I am assuming as a legal strategy to pressure some form of settlement, lodged a complaint to the Law Society which then thoroughly investigated the complaint laid and dismissed it. The law firm representing the main creditor was given the right to appeal this decision which they did not exercise. This was reported to the liquidator," says Campbell.
"A short time later it would appear that the same parties then approached the Companies Office. The Companies Office also undertook an investigation into the complaint laid and the matter again was dismissed. Once again this was reported to the liquidator who has not seen fit to update his six monthly reports to reflect this outcome. I am unaware of the FMA being involved in this particular matter."
Any Vinnik sightings?
Asked whether he has come across Vinnik during the liquidation Norrie says not to date, although there's more work to come.
"We have a number of ongoing lines of investigation but Mr Vinnik’s name has not been identified. As to scanning in remaining records and searching those records that will depend on how the current investigations proceed. We are still receiving records from various entities outside of NZ as we investigate various matters including the trading of FXOpen, tracing assets and the actions of the directors. Historically a reasonable amount of focus was on the investigations by various agencies into FXOpen, its clients and directors which naturally fed into the liquidator's duties," Norrie says.
Meanwhile Interest.co.nz asked Campbell about the allegation that XP Solutions received €26.9 million via Mayzus Financial Services that was associated with BTC-e and Vinnik.
"As you would be aware the actions of Mr Vinnik have impacted on a number of companies worldwide. XP Solutions has complied with all of the relevant New Zealand legislation and the prescribed procedures under that legislation but is prohibited by that legislation, as far as we are aware, of actually disclosing anything further," Campbell, who appears to be referring to the Anti-Money Laundering and Countering the Financing of Terrorism Act (AML/CFT Act), says.
Asked whether FXOpen NZ had, and XP Solutions has, any anti-money laundering processes in place, Campbell says there was an anti-money laundering policy, but "I would refer you to the Department of Internal Affairs, their AML publications and the territorial scope and jurisdiction of the AML legislation."
As previously reported by interest.co.nz the AML/CFT Act has no explicit territorial clause in it, meaning the Act doesn't tell you what its territorial scope is. There are brief guidelines on the territorial scope, which say; "An entity incorporated or formed in New Zealand, which carries on financial activities wholly outside New Zealand, will not be a 'reporting entity' under the AML/CFT Act."
Below: Denis Peganov.
NZ internet domain names abused with investor group claiming more than US$8m is missing
Around the time of Vinnik’s arrest US law enforcement authorities, including the Department of Justice, Federal Bureau of Investigation and Secret Service, announced they had seized the BTC-e.com domain. Less than two weeks later crypto currency traders were told operations had resumed under the NZ domain of BTC-e.nz with a new owner, Singapore-registered World Exchange Ltd. A short time later the exchange’s name was changed to wex.nz and variations thereof until NZ’s Domain Name Commission blocked all of them in November last year after discovering they were registered with fake details. By then wex.nz was in a sorry state and traders are now claiming they can’t get their money out.
Interest.co.nz contacted a "Wex-scam" website that says; "We are a group of the WEX.NZ exchange clients who lost money when it blocked the withdrawal of our funds. We consider its actions fraudulent. We are not going to just wait and hope that somebody will give us a chance to recover our money."
Interest.co.nz was told the Wex scam group represents more than 450 users whose access to their assets, worth more than US$8 million, has been blocked. The users have contacted Russian police and NZ police, with the latter saying; "It appears you reside out of NZ. Your report needs to be made to your local jurisdiction or law enforcement agency. They in turn can contact the NZ Police if we can be of assistance."
'Operated by scammers'
In November Netsafe published a statement saying it had received numerous reports about the cryptocurrency exchange Wex.nz.
"From the reports we’ve received, it’s our understanding that the trading platform has been operated by scammers, and people are now unable to withdraw currency that has been deposited."
"Cryptocurrency has been around for some time, but has become much better known by the general public in the past year. Due to growing popularity, there has been a surge in currencies being created and a lot more people purchasing. Cryptocurrencies can be complicated and are often lightly regulated. Genuine crypto-currency trading exchanges generally do not have terms that restrict withdrawals in this way," Netsafe said.
Its advice for people believing they've been scammed by Wex.nz is; "Unfortunately it appears that you may have engaged with a ‘trading platform’ that is operated by scammers. With these types of ‘investment scams’ it is virtually impossible to get your money back. We have found that there are numerous reviews online of this supposed ‘exchange’ where people have not been able to withdraw the money they’ve deposited."
"Genuine crypto-currency trading exchanges generally do not have terms that restrict withdrawals in this way."
The Netsafe move came after the Domain Name Commission suspended the following domain names wex.nz, wexbet.nz, wexcash.nz, wexcoin.nz, wxcash.nz and wxcoin.nz.
"Wex.nz and the associated domain names above, were displaying a cryptocurrency website. The names were suspended following the Domain Name Commission’s enquiries in to the accuracy of the registration details for each of these domains. The Commission initiated an investigation following complaints made to it."
"The individual who registered the domain names was not able to verify their contact details - and having valid contact details is a prerequisite for any .nz domain name holder," the Domain Name Commission says.
As evidence that BTC-e was behind wex.nz, the wex.scam group pointed interest.co.nz to this webpage (below).
And this tweet.
#bitcoinwisdom Please add wex.nz to your charts! For example you can replace btc-e with us. Someone help us reach those guys! ;)— WEX Official (@WEXnz) October 3, 2017
There's also a lengthy video interview here with Dmitry Vasiliev, who is described as the founder of Wex which is the successor to BTC-e. In it Vasiliev says a connection can be traced between Vinnik and FXOpen.
A spokeswoman for Domain Name Commissioner Brent Carey says the Commission has not had any further involvement with the cancelled domain names since November. And nor has the Domain Name Commission been made aware of any further issues relating to these domain names. The Domain Name Commission is a registered NZ non-profit organisation and wholly owned subsidiary of InternetNZ. It provides self-regulatory oversight of the .nz domain name space.
The Mayzus connection
UK-registered, Cyprus-headquartered forex broker and payment provider, Mayzus Financial Services provided payment services for BTC-e through its MoneyPolo registered brand. It was owned by Russian, Sergey Mayzus, who is sometimes referred to by his full name, Maizus Sergey (or Sergei) Viktorovich.
After BTC-e shut down Mayzus gave information to the British Anti-Criminal Agency about transactions it brokered for Vinnik, including the alleged XP Solutions transaction through NZ.
Mayzus also set up a NZ business, albeit a short-lived one. Incorporated in September 2013, in January 2014, Mayzus announced it had also received NZ registration as a financial service provider for a new forex trading business, Mayzus Investment Company Ltd. Christchurch lawyer Peter Wyllie, who is now Hong Kong-based, incorporated Mayzus and informed the IRD of its voluntary deregistration on December 12, 2014. It was struck off on January 28, 2015. Wyllie was its director and Christiana Constantinou, of Cyprus, its shareholder. Constantinou was a director of Mayzus Holdings in Cyprus, along with Sergey Mayzus and others.
Wyllie says he became involved with Mayzus via a referral through a Cyprus law firm. There were concerns after the first annual review that weren't able to be satisfied, Wyllie says, so the company was wound up and removed from the Companies Register.
NZ the easiest country in the world in which to set up a company
Revelations that a major international crime wave allegedly involving Vinnik and GTC-e has used NZ companies is just the latest chapter in the long running exploitation of NZ's soft touch company registration system. For the past decade the World Bank has ranked NZ the number one country in the world for the ease of starting a business. It costs $10, plus GST, to reserve a company name and $105, plus GST, to apply to incorporate a company. Whilst this is great for genuine businesspeople, it also comes in handy for those with nefarious intentions.
"For starting a business, for example, New Zealand has the smallest number of procedures required (1) and the shortest time to fulfill them (0.5 days)," the World Bank says.
Anyone can apply to register a company, so long as the requirements of the relevant legislation are satisfied and the relevant fees paid, MBIE, which oversees the Companies Office, says. Companies Registrar Ross Van der Schyff may require information to be provided by registration agents, or any other applicant, in support of a registration application. But provided the relevant requirements are met there is no power to refuse to accept applications from particular agents to register a company, MBIE has told interest.co.nz.
The FSPR has been a long running problem. In March 2017 the FMA told interest.co.nz it had received enquiries about companies registered on the FSPR from 83 countries, and 340 misconduct reports from overseas about companies registered on the FSPR. Later in 2017 the FMA began publishing warnings about dodgy NZ registered entities in Chinese, Malay and Arabic. The Government, led by MBIE, has made several attempts to clean up the FSPR. You can see more on this here.
Meanwhile, MBIE aims to reach final policy decisions this year on increasing the transparency of the beneficial ownership of NZ companies and limited partnerships.
*This article was first published in our email for paying subscribers on Wednesday. See here for more details and how to subscribe.
*Denise McNabb is a New Zealand freelance journalist. She can be reached here.