Crypto Cybercrime Espionage Money Laundering

Key Witness in BTC-e Case Leaks Cyprus Court Docs that Reveal the Intelligent Design of the Illicit Offshore Economy

Following the extradition of alleged Russian crypto-money launderer Alexander Vinnik to France on January 23, a key witness in the BTC-e probe has provided Shadow Banker with never-before-seen court documents in a civil case he won, and which reveal millions in illicit funds flowing from Vinnik’s exchange to various offshore entities under opaque ownership.

Sergey Mayzus, a 45-year-old Russian national who was a majority shareholder in two online remitters that enabled fiat deposits from BTC-e customers to the now-defunct crypto exchange, recently provided Shadow Banker with a judgement and a court order filed in Cyprus court in February 2019.

The ill-fated crypto exchange, which was seized by U.S. authorities following Vinnik’s arrest by Greek police in July 2017, was a customer of Mayzus’s payment companies. Mayzus, who now lives in the Czech Republic, owned 100 percent of the eponymously named Mayzus Financial Services, which operated remitter MoneyPolo, and 50 percent of OkPay. All told, the BTC-e operation opened at least eight accounts, both personal and business, with Mayzus’s remitters, he said.

Citing irreparable reputational damage to his name and insufferable regulatory pressure on his businesses – fallout from the BTC-e scandal – Mayzus shut down MFS/MoneyPolo and rebranded OkPay as ‘Weezzo’ in 2018.

The court documents unveiled by Mayzus stem from an October 2017 lawsuit he filed alongside his co-claimants, OkPay, MFS/MoneyPolo, and a related legal entity, that sought €200 million from Vinnik and 16 interlinked offshore companies for fraud, reputational harm, and for violating customer agreements with his companies.

While Mayzus and his co-claimants withdrew their suit against Vinnik in November 2018, litigation against the other 16 legal entities persisted largely under the radar of mainstream crypto media.

The judgment summary found that Mayzus’s remitters processed $10 million in illicit money transfers from a web of Vinnik-linked legal entities to seven offshore companies. Furthermore, the judgment also ruled that ‘fake and dummy invoices’ were submitted by these shell companies to justify the movement of funds – a textbook example of trade-based money laundering. All in, Mayzus said his remitters processed roughly $100 million in transactions for BTC-e customers from 2011 to 2017.

Noting how Mayzus and his related companies were “affected and destroyed both professionally and financially” by the fraudulent activity of BTC-e’s control companies, along with the other ‘dummy company’ defendants, the District Court of Limassol awarded the claimants €38 million last year.

Three Reasons

Mayzus said he withdrew the suit against Vinnik for three reasons. Number one, the businessman said he was facing “continuous pressure” from Vinnik’s Russian lawyer, Timofey Musatov, through the “Russian mass media, where he has personal relations.”

Musatov did not respond to Mayzus’s claims about his influence in Russian media but, over the last two years, Shadow Banker has regularly found that events and narratives attributed to the attorney in outlets like Ria Novosti and Russia Today have been difficult to verify. 

Secondly, Mayzus cited “the inability of Vinnik to not only recover damages but even to pay basic legal expenses” in the event of a verdict favorable to the claimants. “He has no money which can be arrested, and he is in prison,” Mayzus said of the BTC-e suspect.

Thirdly, Mayzus said effectively arguing the case against Vinnik, who is now 40-years old, would have required the public disclosure of various suspicious activity reports (SARs) his remitters filed against BTC-e and related entities over three years. In the U.K., the leaking of SARs, which are confidential reports that can only be shared with Britain’s National Crime Agency – the country’s top law enforcement organization – is a serious ‘offence.’

Thus, had Mayzus submitted, for example, a 2014 SAR on BTC-e his companies filed with the NCA in Cyprus court, he would have exposed himself to criminal prosecution under the ‘tipping off’ statute, which entails “making a disclosure likely to prejudice a money-laundering investigation being undertaken or which may be undertaken by law enforcement authorities.” The penalty for this crime carries a maximum sentence of five years imprisonment, according to British law.

As an aside, it’s important to note that U.S. Financial Crimes Enforcement Director Kenneth Blanco told the audience of the Chicago-Kent Block (Legal) Tech Conference in 2018, that “SAR filings played a critical role” in the BTC-e investigation. In his prepared speech, Blanco also said “it was filings by both banks and other virtual currency exchanges that provided critical leads for law enforcement.” However, it’s unclear if those SARs were filed domestically or abroad. FinCEN declined to clarify this matter.

But Mayzus said, “BTC-e, the operating companies, their beneficiaries (including Mr. Vinnik) were reported to the National Crime Agency by my companies from the very beginning of the relationship (from 2014).” In reality, OkPay began processing transactions for a BTC-e-linked company starting in 2011 – a British Virgin Islands entity called Eurostyle Advisor Ltd.

A web search for Eurostar reveals that a man named Alexander Buyanov, a Moscow DJ who appears on incorporation documents for at least three of the companies named in Mayzus’s lawsuit, is the registrant for the Eurostyle website. Buyanov is also listed as the beneficiary of BTC-e.com, according to confidential documents obtained by this reporter. Mayzus and Russian BBC journalist Andrey Zakharov, who tracked down Buyanov to the nightclub where he worked in 2017, believe the DJ was Vinnik’s strawman.

Also, the address registered to Eurostar in Tortola matches the one used by two BVI entities exposed by the International Consortium of Investigative Journalists’ Panama Papers database. In fact, Panama Papers links, either through corporate officers or addresses listed, are discoverable on three out of the five companies alleged by Mayzus and the Department of Justice to be part of BTC-e’s core shell company network.   

Connections to Public Corruption in Ukraine

The legal entity defendants in Mayzus’s lawsuit also highlight striking connections to financial-crime scandals in Ukraine. Most glaringly, Gem Invest LP, a now-dissolved Scottish limited partnership registered by suspected Vinnik strawman Buyanov in 2016, can be linked to fraud allegations that scandalized both ex-Ukrainian President Petro Poroshenko and the Ukrainian Orthodox Church.

The suspicious links between Gem Invest and these Ukrainian entities are highlighted by the company’s management structure, two Belize-based legal entities registered as Poramto Group Inc. and Admiral Group Corporation.

A screenshot of a cell phone

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Screenshot of Gem Invest LP corporate registration documents, source: Sergey Mayzus.

Poramto and Admiral have also been implicated as conduits for the illegal offshore transfer of millions by President Poroshenko, and in fraudulent humanitarian-aid schemes involving the Ukrainian Orthodox Church Kiev Patriarchate, according to Ukrainian and French media reports. According to filings on Companies House, the U.K.’s online corporate registry, Gem Invest was dissolved in 2017.

However, a Companies House query reveals that thousands of other legal entities share the same Edinburgh address as the one previously used by Gem Invest.

In addition to Gem Invest, Voix Impex LP is another Scottish LP named as a defendant in Mayzus’s suit, with a management structure that is linked to allegations of massive kleptocracy in Ukraine. Granted, Mayzus said that Voix never processed a significant amount of BTC-e funds, but the peripheral link to nine-figure public corruption schemes is still noteworthy.   

Lajos Balog, the former general partner of Voix Impex, and Eva Bodnar, the ex-limited partner, are also listed in the same control roles for yet another, now-defunct Scottish firm, Elizaten Management. This company was the ultimate recipient of potentially illicit funds linked to an elaborate debt-reselling and tax evasion swindle in Ukraine, according to prosecutors there.

This scam allegedly involves several Ukrainian businessmen and the ex-Minister of Revenue and Duties Oleksandr Klymenko, who stands accused by prosecutors of illegally exfiltrating some $800 million of public money out of the country. Klymenko, along with ousted ex-Ukrainian President Viktor Yanukovych and others connected to the latter’s regime, fled to Russia in 2014 following the conclusion of the Euromaiden Revolution.

Both Voix and Elizaten were dissolved in 2018. But these shell company links highlight two important themes in financial crime, and in Russia-Ukrainian relations. Number one, they illustrate the popularity of Scottish LPs in Russian money-laundering conspiracies. For example, a 2017 report by the Organized Crime and Corruption Reporting Project found that 113 Scottish LPs “played critical roles” in the $20-billion ‘Russian Laundromat.’

Additionally, investigative news outlet Bellingcat found that corporate services firm LAS International, which incorporated core BTC-e shell companies Always Efficient LLP and Gem Invest, and which is linked to the exchange’s managing structure, Canton Business Corporation – via the dummy company’s Seychelles address – was one of the “most prolific presenters of SLPs” between 2015 and 2017. At least 85.9 percent of the SLPs LAS created “are controlled by companies in secrecy jurisdictions,” according to Bellingcat.

LAS International’s headquarters, 5 Percy Street, London, W1T 1DG, source: detectives.org.

Bellingcat also found that Poramto Group, which co-managed BTC-e’s Gem Invest, was another “commonly used General Partner by LAS SLPs.” Bellingcat further found that 10 of the 103 trade intermediaries registered by LAS and a related entity “have appeared in Ukrainian criminal court documents as conduits for illegal shipments to Russian-controlled Eastern Ukraine, or as components of trade misinvoicing.”

The LAS-Ukraine link highlights the second important takeaway from this shell company analysis: the enduring overlap between BTC-e and Ukraine (the exchange website was first registered there by accused pro-Russian separatist Dmitry “The Serene” Svetleishiy). Shadow Banker probed BTC-e’s potential ties to Russian-orchestrated separatist activity in Ukraine in several stories published last year. In the wake of the Crimean conflict, there has been rampant speculation in Russia and in the West about Russian clandestine designs over the BTC-e.

The Intelligent Design of the Illicit Offshore Economy?

But the broader issue raised by the fixture of offshore and secrecy-friendly incorporation regimes in BTC-e’s legal-entity network is that prevailing alarmism over crypto as a money-laundering attack vector is misplaced. Instead, BTC-e epitomizes how laundromats of consequence, that is to say, professional conspiracies that legitimize billions in illicit-value transfer, cannot operate without a vast network of corporate enablers and secrecy-friendly jurisdictions that protect the anonymity of ultimate beneficial owners (UBOs).

The management and control structures used to mask the identity of BTC-e’s UBOs are thus emblematic of an intelligently designed infrastructure and criminal services economy that shields bad actors from discovery as a general course of business. Beyond Ukrainian kleptocracy, the legal entity network exposed by Mayzus’s lawsuit establishes tantalizing first-and-second-degree links to virtually every Eurasian laundromat that has been splashed across the pages of financial media.

Danske Bank, the Deutsche Bank mirror trading scandal, Moldovan state graft, The Russian Laundromat, Azerbaijani kleptocracy, the Hermitage Capital fraud and murder of Sergei Magnitsky, and the wank-fest Mueller Probe – all of these investigations are linkable to BTC-e via offshore control structures, LAS International, and the nominees appointed by LAS to direct the crypto exchange’s dummy companies.

According to Graham Barrow, the director of the UK-based Dark Money Files, a consultancy that works with financial institutions to investigate and educate the public about financial crime, LAS is one of four major corporate services firms in the UK, which appear to specialize in legal entity formations of dubious purpose.

Shadow Banker asked Barrow if LAS meets the criteria set forth by international bank watchdog, the Financial Action Task Force, for being a professional money laundering organization. “It has created so many entities that have been alleged to be involved in criminal activity, that it’s difficult to avoid that conclusion,” he said.

Shadow Banker also directed Barrow to several nominees named in the registration documents of shell companies allegedly conceived by Vinnik. Names like Sandra Gina Esparon and Evaline Sophie Joubert, both of who previously directed Always Efficient, along with Rymvias Giedra Amanda and Tamara Jacqueline Jean, who directed the control structure of Gem Invest, also surface in the International Consortium of Investigative Journalists’ offshore leaks database, Ukrainian mafia exposés, and in company registration records alongside the likes of prolific criminal-services infrastructure providers like New Zealander Ian Taylor.

But “these are proxies, not the real people behind it,” said Barrow. “These are names I see all the time.” Barrow said that in these types of probes, investigators can dig up until a certain and inevitable point where they reach a dead end. The real masterminds typically remain comfortably insulated from discovery, protected by limitless human and legal entity buffers.

So is this criminal services economy really as decentralized and opportunistic as it might appear on the surface, given the diaspora of secrecy havens all over the world? Or is there a centralized command and control and intelligent design underlying the whole racket?

One former Internal Revenue Service money-laundering investigator, who requested anonymity, posited that if such a command and control exists, it would have to be orchestrated by the Wolfsberg Group, a supranational “association of thirteen global banks which aims to develop frameworks and guidance for the management of financial crime risks,” according to their website.

“There is a ‘for public consumption’ Wolfsberg Group, and then there is reality. The biggest banks in the world need this business to stay alive. They’re otherwise not sustainable,” said the ex-IRS Criminal Investigations Division agent. In fact, a 2019 Bank of International Settlements research paper found that nearly 20 percent of dollar-funding to global banks, presumably via bond purchases, comes from the Cayman Islands.

While the providers of this greenback liquidity stream are generally hedge funds and other sophisticated asset managers that domicile their master-feeder-fund subsidiaries in the Caymans for tax efficiency, it is an open secret that these alternative investors, with an emphasis on hedgies, have significantly less rigorous anti-money-laundering controls than depository institutions and money transmitters.

So, to the ex-lawman’s point, where are the hedge funds and private equity firms getting their dollars, and as the holders of so much systemically significant institutional debt, how much political will are they able to exert over global regulatory regimes?

Motivations

Back to BTC-e. By unveiling these court documents, Mayzus hopes to challenge the narrative of an October 2019 report from Global Witness, a London-based, anti-corruption watchdog and non-profit, that he says is inaccurate, unfair, and even libelous.

Citing compliance violations, license revocations, and outright bans of Mayzus’s businesses, the report is critical of the businessman and questions if he was really as blind to BTC-e’s alleged financial malfeasance as he claims. 

And according to a January 24 demand letter sent by Mayzus’s law firm, Cyprus-based A.G. Paphitis & Co., to the Global Witness report authors, Louis Goddard and Dominic Kavakeb, and obtained exclusively by Shadow Banker, “the tone and content” of the exposé is penned in a way that suggests Mayzus and his companies are behind BTC-e.

This is a totally wrong and scandalous accusation for our Client who is for the past 3 years being struggling to prove his innocence through all possible legal means. It is unfortunate that the content of your articles will inevitably circulate rumors against our Client, again, which in a way they point him out as an allegedly indecent businessman, involved with and benefited by the BTC-e,” reads the letter.

The letter instructs the Global Witness authors to remove all defamatory statements from the article, made by the non-profit or third parties. Mayzys is threatening “all available legal remedies, including seeking monetary damages,” writes his attorney, if Global Witness fails to comply.

Goddard and Global Witness declined to comment on Mayzus’s lawsuit.

Post-Extradition

Upon arriving in Paris in January, Vinnik was indicted on charges of extortion by organized gang, aggravated laundering, criminal association, and computer hacking in an organized gang, according to French media reports.

Specifically, prosecutors in Paris are accusing of Vinnik of defrauding some 100 French citizens in a global ransomware scheme that netted him and his alleged associates some €130 million from 2016 through 2018, according to media reports. The charges thus suggest Vinnik could have been participating in cybercrime while jailed in Greece.

Mayzus, meanwhile, appears to be pursuing a media offensive, recently leaking a series of private text conversations between him and Dmitry Vasiliev, a Belarusian national and former operator of the World Exchange Services (WEX), a Singapore-based crypto exchange reassembled from the ruins of BTC-e, to Russian crypto media

Vasiliev did not respond to this reporter’s request for comment. Nor did his ex-wife. but in a series of text and WhatsApp message threads leaked by Mayzus, a user that Mayzus identified as the former WEX operator said that BTC-e administrator Alexey Biluchenko used Vasiliev to make a series of payments to Vinnik’s lawyer, Musatov, and his partners, in the wake of the BTC-e suspect’s arrest.

Allegedly, Vinnik’s business partner paid Musatov $1.5 million for the jailed suspect’s defense. This thread also states that Biluchenko also paid the lawyer $2.5-million in rubles for the “lifelong legal support for WEX,” along with $5 million worth of WEX code – a voucher like mechanism purchased with cash that allows users to redeem cryptocurrency deposits of equal value.

Musatov denied these allegations and said Mayzus “cannot be trusted.” “You’re relying on useless sources spreading false information.”

Vinnik’s lawyer said he is currently in Paris organizing his client’s defense. “It’s premature to comment on anything now,” he added.


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