How the Baltic states became the hub of crypto money laundering and fraud
vsquare.org
vsquare.org
Similar stories played out with companies affiliated with Bitfinex IIRC, where people got arrested and connections to cartels and human trafficking were revealed.
https://www.wsj.com/world/europe/u-k-says-wirecard-executive...
One of the biggest credit card fraud empires on the planet was run by the son of a deputy in the Russian Duma.
$169 million in credit card fraud.
I raise you with the biggest crypto exchange ponzi (so far) being run by the son of two Stanford lawyers and law teachers (dad teaching tax laws and mom teaching ethics, while having none). Well connected people to the US political elite, donating tens of millions to US political candidates.
All the while having one of the most respected publication in the US (maybe not so much respected anymore now) actively participating in the scheme.
Crypto is one of the best methods available to Russia to circumvent sanctions and turn their capabilities to hard currencies. This is true whether we're talking about acquiring money by running frauds internationally, or finding ways to be paid for cybercrimes like ransomware.
Rather bigger amounts of defrauding are possible for Americans who figure out how to directly access the American financial system. That doesn't change the way that it is being used by Russia. And the Russian use case is far more relevant to this story - they are undoubtably involved in a shockingly large fraction of the crypto money launderers that were registered in Estonia.
The situation isn't clear yet, but it looks like the biggest problems with sanctions is that China is an advanced manufacturer that isn't part of NATO. Everyone outside of NATO seems to be calm enough about the war.
They are.
Converting crypto to hard currency outside of Russia without tripping flags is certainly possible, but has all the same problems of using hard currency while under sanctions in the first place.
However before 2022 it was just as much wealthy Russians doing it to put their money beyond the reach of the Russian state.
https://en.wikipedia.org/wiki/Danske_Bank_money_laundering_s...
That's like saying that US-made guns fueling cartel violence is 'America doing something to earn some extra cash, and to hurt Mexico'. It's ridiculous, and not accurate.
It's just economically-rational actors trying to make money, and taking advantage of legislative and enforcement arbitrage. This kind of arbitrage exists any time two different systems interact with eachother. Foreigners, and foreign criminals are not some weird hive mind in cahoots with their state.
Is it? Any evidence for this?
It was my understanding that they use gold: https://www.theguardian.com/world/2018/jan/03/turkey-banker-...
But I know that crypto is somewhat important for North Korea
But ransomware gangs are overwhelmingly Russian, and overwhelmingly use crypto as their payment channel. It is far from the first kind of cybercrime to be overwhelmingly Russian, and disrupting payment channels is a good way to shut it down.
Read https://www.lawfaremedia.org/article/ransomware-problem-bitc... for more on this. From one of the key figures in shutting down the Viagra spam problem. Which was also largely created by Russia.
Would it not be a little bit strange for Russian ransomware to provide an IBAN or a Money Wire to a bank? And Russian ransomware actors are, in contrast to North Korean and as far as I know, not state actors. (Russian Troll factories are not ransom ware)
So, for example, they take some interesting actions to avoid accidentally making the state unhappy. https://krebsonsecurity.com/2021/05/try-this-one-weird-trick... shows an amusing consequence of this.
But they also wind up with the same kinds of relationships with the state that the Wagner group did. And so we get things like https://www.cisa.gov/news-events/cybersecurity-advisories/aa.... Russian military activity comes backed up with Russian cyberattacks that use all the same techniques, and presumably some of the same people, that Russian cybercriminals do.
And these attacks were not necessarily trivial. For example https://www.reuters.com/world/europe/russia-behind-cyberatta... verifies that KA-SAT was taken offline. Starlink was also under constant cyberattack. I strongly suspect that Musk's unwillingness to allow Starlink in areas under Russian control, and unwillingness to allow Starlink to be used in offensive military attacks, are exactly to reduce how much he is a direct target of Russian activity.
Which one is that?
That's not a tabloid, you cannot force text on your audience and have their "what about" heard only by their relatives.
You do not get to dictate the direction of discussion to your peers and having them go along. So what are they distracting it from?
For Wirecard, Russia had a vested interest in influencing payment policies and happenings in the EU to help them with sanctions (probably at both a national level to keep trade moving, and at a personal level given that Russia's political elite bore the brunt of early sanctions). They were probably proactively engaging with him extensively from high levels.
Seleznev was just a big fish in the general area of "russian fraud and cybercrime abroad." I doubt the state had a personal interest in him like it did with Marsalek. Russia just generally has a policy of allowing Russian nationals to commit cybercrime abroad (as long as it doesn't affect them domestically) probably because it brings in foreign currency, keeps people employed and encourages development of those kinds of skills, and keeps hackers busy so they don't commit domestic cybercrime or do bad things to the government.
That said, Seleznev is directly cited as a factor from Russian media in the arrest of some FSB bigwigs per https://www.buzzfeednews.com/article/kevincollier/report-arr.... To me, if he were personally benefitting from direct help from the FSB like Marsalek this would not be retroactive to begin with, and that it took like 3y to accuse an FSB agent of helping the CIA with him (after the same agent got caught helping catch other hackers) also suggests this was less of a strategic priority and more of a "getting our hackers arrested is bad for business" thing.
I'd love to see all of them break through to the level of my adoptive homeland of Finland, and perhaps even beyond (if we don't find a way to make ourselves more business friendly first, of course!). Tremendous potential in all 3 of these places. I'd love to visit Riga or Tallinn one of these days.
- Estonian
I hope to do whatever part I can to contribute to Estonia’s success.
…not with a crypto startup, though.
20 years ago Russian writer Viktor Pelevin remarked that "we are like a banana republic that has to import its bananas from Finland". But fast forward those 20 years, Finland itself is now a buffer state that buffers a dead end. In many ways, Baltic states and Finland made money trading with Russia, and if Russia stays AFK, their combined economic viability is in doubt.
I'm not sure what is Finland's comparative advantage these days. What are things that are is cheaper to do in Finland (or Latvia) that you cannot do in Hungary, on Cyprus or in Denmark? The logistic leg is surely longer and I'm frankly not sure that you're going to pull it off.
But I feel you're not extending your own question far enough to answer it for yourself. Why do in Finland what is cheaper to do in Cyprus? Why do in Cyprus what is cheaper to do in Laos? Etc, etc. The answer is usually not "The economy is wrong and I am right".
Logistics-wise, it is true that we are farther away from places, but it's also true the price of logistics has fallen over the past 100 years by several orders of magnitude -- and that we have a giant sea on our western flank which makes it even cheaper to move huge amounts of freight. I don't think you can look at the sophistication of modern logistical operations and deem that that is going to be the dealkiller for people. Doubly so when you consider the rising tide of self-driving technologies of all kind -- triply so when you consider Finland is one of the few states in Europe still actively investing in nuclear power. A self guided, nuclear powered cargo fleet is the kind of thing I dream about at night.
But again - that wouldn't be specific to Finland, that would be a boon to any state with a coastline. So I just don't really see it as all that relevant from a comparative advantage viewpoint. There has to be more to the story than the raw logistics of it, much like there has to be more to the story of Python being more popular than x86 these days even though x86 is closer to the metal.
The forestry industry is still a big player, especially with the recent disconnection of Russia from the world economy. Biofuels may play a part in that. But not sure it's a big enough differentiator these days.
The country is well-educated, however it suffers from the same problem as much of Europe: not enough young people to support a growing retired population. That retired population is also more conservative leaning and doesn't want more immigration, yet Finland needs more skilled immigrants. Again, a common European story of an older voting base who want to live off the fruits of other peoples' labour (whether as recipients of government largesse, or as landlords on their property investments) but do their darnedest to make it harder for that labour to make those fruits.
This is like comparing Silicon Valley salaries with Chinese
My point was, Finland is doing several different things, most of which may now be done cheaper elsewhere.
Sure, I don't expect that Finland's economy would just implode. Developed countries don't do that. But it's quite possible it will enter multiple years long economic malaise, even by post-2022 EU accounts. As other countries slowly eat its lunch by developing matching skills while having better logistical disposition to use them.
Wasn't there some trade policy wierdness back in the 90s that made Finland (on paper) one of the world's top banana exporters or something? A short search didn't come up with anything, so I can't tell if I only imagined that back then.
In recent history in the region all important railroads and motorways were always East-West to facilitate quick military transfer while new North-South links are a lot more valuable for the region's economy. If only we manage to keep our tax/business laws stable, have more effective judiciary and work towards common interests instead of being played against eachother by various "powers" we'll have it pretty good.
Nordic is very different from Northern.
CIA indeed defines Northern Europe as you describe, including Denmark, plus Iceland. [1] However the United Nations has a different definition, which also includes the Baltics, UK, and Ireland. [2]
[1] https://en.wikipedia.org/wiki/Northern_Europe#CIA_World_Fact...
[2] https://en.wikipedia.org/wiki/Northern_Europe#UN_geoscheme_c...
In the UN geoscheme, Baltic countries are part of Northern Europe. According to EuroVoc, Baltic countries are part of Northern Europe.
As a founder, I am much happier in Estonia. Life is much simpler when you don’t have to jump through twenty hoops because of some stupid political decision for every action you take as a small business. While I can’t speak for all of the Baltics, Estonia truly has a lot of potential in that regard. Hell, the „IRS“ here has a support chat! Unthinkable in Germany.
Sure, a lot of things need work and are still developing, especially in rural areas, and of course no country comes without issues, but Tallinn isn’t far off German cities in many areas. In some, it’s even outright better. Free public transport anyone? Being able to pay by card everywhere? Self-checkout in supermarkets? Not a thing in Germany.
There is the same issue in France. I'm pretty sure it's viewed by big companies that own the government as a feature to impede concurence (however small) to arise.
Let's look at some data. Estonia ranks extremely high in math, science, and reading tests given to 15 year olds as shown by the international PISA tests. [1] In fact only a handful of Asian countries rank higher. The results are basically the same as the highest ranking state in the US - Massachusetts.
> huge corruption
Estonia ranks #14 in the Corruption Perceptions Index, which is really good. [2] Also, having lived in Estonia most of my life I have never encountered a situation that involves a bribe, whether explicit or implied.
> most young people left for greener pastures
Young people want to see the world. I personally spent years living in other countries, and a lot of my friends as well. However most of us ended up returning in our 30s. Turns out Estonia is pretty great.
--
[1] https://en.wikipedia.org/wiki/Programme_for_International_St...
[2] https://en.wikipedia.org/wiki/Corruption_Perceptions_Index#2...
The problem is not corruption, the problem is this self-loathing victim mindset. I am also from there and I am sick of it. If you don't like it, go away somewhere where the are no problems and no corruption.
https://en.wikipedia.org/wiki/Danske_Bank_money_laundering_s...
Btw I think those bank laundering events you mention date to before the war.
If they selling to CN/IN intermediaries and getting dollars that's not directly gettin dollars from RU anyway.
These jurisdictions really just keep adding layers of obligatory professionals and it neither changes the reputation of the jurisdiction or helps a fundamentally flawed problem of trying to whitelist transactions accurately
I’m still of the predilection that states should just give up on trying to police money flows
It doesn't work in the US, Caymans, Estonia, anywhere!
Domestic gangs would always pass KYC, and foreign terrorism just simply isnt that expensive to always worry about funding them. Terrorism doesn't happen because nobody’s interested in flying planes into buildings. You don't need to encumber the GDP by 1% trying to prevent financing that, ostensibly.
It depends. I used to live in Belgium and now in Luxembourg and both countries have been removed from an international gray list of countries refusing to share banking information (they do share now).
Old article from 2009:
https://www.politico.eu/article/luxembourg-and-belgium-remov...
There was a time where people would literally come to Luxembourg with duffelbags full of bank notes and nobody would ask anything.
But these times are definitely gone.
> I’m still of the predilection that states should just give up on trying to police money flows
Having been directly hit by this and KYC/AML making my life miserable I fully agree with that.
Some people have their entire bank account frozen, sometimes for months, because they make one wire transfer of a few thousands EUR to another country: happened to someone I know (who's an AML specialist, which is ironic) for buying a watch in Dubai and happened to someone else I know for... Paying for his wedding (which was taking place in another country than the one he was living in). His wedding nearly got cancelled due to zealots at the bank convinced they found an international drugs trafficker or something...
The worst of the worst is that everybody at the bank is convinced they're some super important person, part of a global elite secret service or something, where nobody can talk. Worse than the mafia. And that they'll lose their job or go to jail if they ever mention to the client why their account is getting frozen.
It's all pathetic really.
Seriously, it should not be legal to freeze people's assets without giving them the same right to defend themselves - which includes seeing and challenging the evidence against them - that they'd get in a criminal trial. What happened to innocent until proven guilty?
Think of the experiences you described in your comments. They almost always happen when you make/receive money from certain jurisdictions (third-world, not necessarily a money laundering location). The West, in the last few years, has become less competitive. This switched the money flow which was predominantly from third-world to west. Most of the money laundering happened in the Western countries in the past. (think dictators moving their monies to European capitals to buy real-estate).
Now that the flow has flipped in favor of the third-world, the West has decided to "stop" the flow. The lower taxation rate in these countries makes this worse. The exception is the US. They weren't a favored location before but they figured they could pick up where Europe left off. And FATCA made it easier for them.
Strange as it may seem, the US is now one of the best countries for money laundering, particularly a few states that are very business-friendly, like Delaware.
It's been a long time, but remember thinking how well done it was. TLDR was (as previous poster mentioned) that Delaware corps were best for anonymity.
Money laundering cannot possibly be stamped out. The best you can do is try and limit giant one-time affairs through a bank, but laundering money is extraordinarily easy, with crypto or not.
If entity A can set up hundreds of fake twitch accounts, all of which tip entity B from A's pool of illegal money, then B can claim that it's revenue is entirely above board, it just came from Twitch tips.
That's by design. Sanctions put pressure to the country as a whole. Once people start getting angry they will question their leadership and maybe demand for changes.
Sure, sanctions can also target specific individuals, like the russian elite, olygarchs, but that alone doesn't change the status quo.
Economic sanctions are not great, but they're meant to be an alternative to war. When you really need a country to change course, anything you can do is going to involve hurting regular citizens there, it's just about finding the least bad option.
That's what the US has always been doing.
Been a while since I've heard this kind of BS. The "design" does not work.
I see it as a loss-loss situation: Either nobody cares and autocracies get a free pass to do what they want in the global stage, or countries can react and restrain relations with governments based on some (sometimes subjective and biased, sure) criteria.
GDP size: $105 trillion
Percentage of the world GDP linked to criminal activities: 3% to 5% of the GDP (CIA official factbook).
We're talking $3 to $5 TRILLION linked to criminal activities.
Cryptocurrencies do not even register.
Highly convenient scapegoat though.
Crime, money laundering, fraud, ponzi, etc. all existed long before Satoshi created Bitcoin.
Back to the $3 to $5 trillion linked to crime: KYC/AML brings back about $12 billion per year.
A rounding error.
https://go.chainalysis.com/2023-crypto-crime-report-demo.htm...
> For example, illegal transactions, scams and gambling together make up less than 3% of volume.
Either way this 0.12%-3% range doesn't begin to approach the ~6%-12% estimated illegal volume for USD.[2]
[1]: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3942181
[2]: https://www.investopedia.com/articles/markets/032916/how-big...
The long tail of activities includes things like DAOs (remember Constitution DAO?), prediction markets, internet infrastructure (VPNs, Arweave, ENS), synthetic assets, and more.
1. Trading which is actually part of the laundering/tumbling process, to disguise the path of coins from initial shady transactions.
2. "Wash trading" (yet another cleaning-related term) where a self-trade is disguised as a real one in order to manipulate the market.
Here is what an Argentinian has to say on HackerNews
Most of criminals prefer real estate and cash over cryptocurrencies. London and Dubai are the best.
Here is a documentary on Londongrad
https://youtu.be/GAOJCcwxDug?si=M0Lnso1rjmdckoDH
You can even find a map that shows different parts of London where East European and related criminals have set up their homes
This is largely because of the Russia-Ukraine war/escalation in 2022.
Before that, Russia was a major FDI player in the Baltic states, but after 2022 Russian citizens were largely cut off.
https://en.wikipedia.org/wiki/Ruja_Ignatova
Edit: Bc it got downvoted first. I saw a documentary about her and she had tremendously good contacts to Dubai and it was hinted she lives there now. The Wiki page claims that she is rumoured to have been killed.
I don't agree though, businesses and who profits from them should be transparent.
Hopefully they’ll one day scam the wrong sheik and get thrown in jail with no exit visas in sight.
It’s one thing to run your crypto empire in a place like the Bahamas where you expect to be able to simply buy the government (like FTX openly bragged about). It’s another to run it in an authoritarian country where the money you’re stealing might belong to the billionaires who own the whole place and hand out death sentences to critics.
It's creating a paper trail for the prosecution when the feds decide they want to take someone down.
It's not money laundering per se that the feds have an interest in prosecuting. They have an interest in prosecuting sanctions evasion, tax evasion, black mail, drug smuggling, etc. It's the source of dirty money that they want to stop, not the dirty money itself.
What happens is they think someone is smuggling drugs. They see they have money, the money looks suspicious, they get a warrant from the bank, they give them all their AML/KYC forms, and the feds go and track down the real source, and find out that the forms were full of lies and now they can get the drug dealer on bank fraud charges -- which means they don't need to connect them to drugs or murders or anything else, even if that's the real reason they're interested in them.
AML/KYC stuff only prevents crime in that it forces criminals to commit other, easier to prosecute crimes to cover up their original crimes.
1) Non-criminals also lie on the forms. Mainly because it's sometimes their only way to open a bank account (if they are deemed risky by an AML department), even if they have a legal source of income. This renders people who would otherwise not be criminals into criminals. Just recently, I came across a Tweet[0] from someone who will have to face this dilemma sooner or later.
2) It's a loophole for prosecution, as you admit yourself. It's meant to circumvent well established legal principles. For example, in AML cases, the burden of proof is reversed ("guilty until proven innocent"). It's used as a tool to punish people for crimes when the evidence is not sufficient. Is this really something we want?
[0] https://twitter.com/mikeinspace/status/1708719585556344993
When you face a tricky situation with trade-offs, you have to find a smart and/or complicated solution. It's not usually productive to say "just throw away the solution we have" even if that can be an emotionally satisfying answer.
1) Give up on on their legally acquired BTC, potentially worth millions of dollar.
2) Be honest on the form and pray that they don't get flagged.
3) Lie on the form.
There's basically no legal option for cashing out their BTC. A lot of early BTC adopters face this issue, as not everyone had the foresight to keep a paper trail for their 50$ "funny internet money" purchase at Starbucks.
Disclaimer: IANAL and this is not legal advice.
[0] https://en.wikipedia.org/wiki/Financial_Action_Task_Force
You got lucky and/or maybe forgot that you supplied that information when you signed up. Sometimes it can just take the form of asking for occupation and income. It's possible that they didn't ask further proof if they determined that your transactions were not unusual given your declared occupation and income.
[0] https://coinbase.com/legal/user_agreement/united_states "Verifying your identity by submitting the following information: [...] Source of Funds"
avoiding banks is not a crime.
Absolute nonsense. There was a time when like half of all Russian mafia lived in London fully in the open, and they only vacated the place when they started being kicked out through visa cancellations, not fraud charges.
This change changes really nothing in the fact that first world country governments don't want to prosecute those guys.
At most, they don't give a fuck, at worst, they are actively conniving.
And it's not that they are hard to prosecute at all. Anybody who can read some Russian can get a completely damning charge sheet with a few minutes googling on most of them, let alone British MI-6 analysts.
The crazy theory that you can somehow increase prosecution chances with "Al Capon charge" makes little sense if criminals whose offences are provable in 5 minutes without that are walking around. like nothing.
There are many accounts in the press of banks employees saying they send hundreds of suspicious activity reports for absolutely clear cut cases without any reaction. And they can't do anything on their own, as their paperwork is completely impeccable from the reporting standpoint.
Thinking rationally, it makes sense that a mafioso who is going to launder few billion $, will ensure that his paperwork looks more full, and accurate than that of a legit company. Few percents of such sums will hire legions of top lawyers to do the reporting.
- They do not address the underlying crime: prevent the crime in the first place, instead of moving funds
- The focus is on compliance, not on the crime prevention: make sure banks checks all the boxes on the form, so that no one will get a jail card
Furthermore AML tends to mix sanctions (we don’t like China) with organised crime (drugs). The political sanctions themselves are not always direct result of a crime.
What could be done to improve the situation
- Making all company shareholder data public (was in the EU, but then a crook who worked for Russian oligarchs got this overturned https://www.investigate-europe.eu/posts/luxembourg-businessm... )
- Make real estate agents criminally responsible for selling real estate for criminals
- Focus on the largest asset flows (Danske Bank, London real estate) instead of setting up paper compliance procedures for consumers
- Transparent funding flows (public blockchain)