Offshore Trusts Helped Alleged Fraudster Steal Bitcoins, US Lawsuit Claims

By Daniel Bethencourrt

An early Bitcoin investor accused of defrauding a deceased business partner funneled ownership of more than one million coins of the cryptocurrency through a web of offshore trusts, eventually amassing a sum worth several billion dollars, according to a federal lawsuit.

The 38-page civil complaint filed in Florida last month against Craig Steven Wright, an Australian computer expert who attended cryptocurrency industry conferences and once claimed to have invented Bitcoin, highlights the role offshore jurisdictions now play in hiding suspiciously acquired digital coins in addition to traditional, government-issued banknotes.

Attorneys for Wright’s business partner, Dave Kleiman, a former Army technician who died of illness in 2013, estimate the pair began mining bitcoins together in 2009, shortly after the cryptocurrency’s introduction. Wright later claimed they kept the coins in digital wallets controlled by a U.K. trust, where they planned to hold them “until all regulatory issues [were] resolved.”

But a few months after Kleiman’s death, Wright allegedly used an Australian court judgment to seize “intellectual property” from his partner’s shell company in Florida, W&K Info Defense Research, as late payment for consulting and other services he said he had provided the firm.

Wright allegedly bolstered his claim by backdating documents and forging signatures, and successfully argued that the “intellectual property” he sought from W&K included “software and code used in the creation of a Bitcoin system.”

He eventually came to a business arrangement with “J Wilson”—a purportedly authorized officer of the Florida-based company who, according to the U.S. lawsuit filed last month, otherwise had no previous connection to the firm.

Judgment and arrangement in hand, Wright then transferred ownership of W&K’s assets to the Wright Family Trust, where their ownership was again “broken up and transferred” to a web of other companies, including Coin Exchange, Strasan, Denariuz and Cloudcroft, a software development firm.

The ownership-transfer scheme allowed Wright to relocate and assert control over a fortune of bitcoins without actually having to transfer them to other digital wallets.

“There’s very little that actually moves,” Andrew Sommer, an attorney for Wright, told Australian tax investigators in February 2014. “It just depends at which point who is entitled to how much of the interest in the Bitcoin sitting in the Seychelles.”

A Singaporean trust also controlled some of the bitcoins, Sommer said.

The use of offshore trusts to open digital wallets and hold bitcoins would have been unusual for its time, according to a South Asia-based compliance officer for a cryptocurrency firm.

“It was an odd, forward-looking thing to come up with,” the compliance officer said. “I don’t think there are many people who do what Craig Wright did … the whole idea that he has trusts owning Bitcoin—it doesn’t add up to me in some way.”

Hotwire Preemptive Intelligence, another firm to which W&K’s assets shifted, was originally set up to raise funds for the creation of a Bitcoin-based bank in Australia, but fell into receivership, according to a liquidation report later made public by the advisory firm McGrathNicol.

Wright later told Australian tax regulators that he only intended to use the companies to allocate resources to those and other business and research projects.

Finally, in March 2014, almost one year after Kleiman’s death, control of W&K Info Defense Research transferred to a new owner, Uyen Nguyen, who authorized herself and “Dr. Coin-Exch Pty Ltd.”—a firm owned by Craig Wright—to direct W&K’s operations, according to the complaint.

W&K formally dissolved in 2016.

Jim Angleton, president of financial services firm Aegis FS in Miami, told ACAMS that amid the publicity of the case, several of his clients have inquired about transferring ownership of their undeclared financial assets away from Caribbean-based legal entities.

“This lawsuit is sobering,” Angleton said. “They’re starting to say, ‘I’m not the only one who thought of this.’ … Many of them are under the deep understanding that Bitcoin is unregulated.”

The offshore system is not the sole domain of individual cryptocurrency investors.

Many firms with large quantities of bitcoins—30,000 or more—keep those digital assets offshore out of fear of failing to comply with evolving U.S. regulations, Angleton said.

The web-driven nature of cryptocurrencies may make operating and relocating offshore relatively easy for U.S. exchanges, but international borders do not shield those firms from U.S. jurisdiction.

The U.S. Treasury Department’s Financial Crimes Enforcement Network clarified in 2013 that offshore cryptocurrency exchanges must register as U.S. money services businesses if their business is “wholly or in substantial part within the United States.”

A U.S. official told lawmakers in February that FinCEN and the Internal Revenue Service have examined roughly 30 percent of the 100 or so cryptocurrency firms that have registered as U.S. money services businesses.

In July, the bureau imposed a record $110-million penalty against BTC-e, claiming the Bulgaria-based cryptocurrency exchange took steps to conceal its U.S. operations while processing a total of $9 billion for global customers, including $300 million for clients in the United States.

Dozens of U.S. firms that deal in cryptocurrencies have moved their operations and staff to Panama, St. Kitts & Nevis and elsewhere in the past two months, creating an industry “brain drain,” Adella Toulon-Foerster, a partner with Cogent Law Group in Washington, D.C., said.

Topics : Anti-money laundering
Source: U.S.: Department of Treasury , U.S.: Department of Justice
Document Date: March 22, 2018