Investigations

Germany Shuts Down Hydra Market, Seizes Servers and Bitcoin

05/04/2022 by Idelto Editor

Law enforcement agencies in Germany have targeted Hydra, a leading darknet market (DNM). As part of an operation conducted with U.S. support, the German police were able to establish control over the servers of the Russian-language platform in the country and take down its website.

Investigators Hit Hydra in Germany, Confiscate Millions in Crypto

Hydra Market, one of the largest marketplaces on the darknet, has been shut down by German authorities which seized its server infrastructure. According to an announcement by the Federal Criminal Police Office (BKA), law enforcement agents also confiscated bitcoin worth around €23 million ($25 million). The following message appeared on Hydra’s website on Tuesday:

BKA carried out the raid together with the Central Office for Combating Cybercrime (ZIT) at the Public Prosecutor’s Office in Frankfurt which is leading the investigation against Hydra’s unidentified operators and administrators. They are wanted for running illegal online platforms facilitating the trade of drugs and money laundering.

The German police noted that Hydra had been active since at least 2015 before the seizures which came after extensive investigations by the BKA and ZIT. They started in August last year and were conducted with the participation of several U.S. agencies.

The darknet marketplace, which was accessible via the Tor network, was targeting Russian speakers. It had around 17 million customers and over 19,000 registered sellers, the press release detailed. Besides banned substances, these also offered stolen data, forged documents and digital services.

Hydra became a major darknet market after overtaking another Russian platform, DNM Ramp. According to the data compiled by the blockchain forensics company Chainalysis, the region of Eastern Europe sends more digital currency to darknet marketplaces than any other region.

Washington has been alleging Moscow’s involvement with malicious cyber actors like DNMs, ransomware groups and other crypto-related crime. In September, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned the Russia-based crypto broker Suex which is believed to have received more than $20 million from darknet markets like Hydra.

German law enforcement officials think that Hydra was likely the darknet market with the highest turnover globally. BKA and ZIT have estimated that its sales reached at least €1.23 billion in 2020 alone. They also noted that the investigations were hampered by the platform’s own ‘Bitcoin Bank Mixer’ service.

Do you think other darknet markets will be targeted after Hydra? Let us know in the comments section below.

Moscow Confirms Arrest of Russian Crypto Entrepreneur in Amsterdam, Report Mentions FBI

06/11/2021 by Idelto Editor

Authorities in the Netherlands have arrested a Russian national with a cryptocurrency business, the Foreign Ministry in Moscow has confirmed. The man involved in the establishment of two crypto exchange platforms was apprehended earlier this month, reportedly on a request from U.S. law enforcement.

Russian Founder of Cryptocurrency Exchangers Detained in Holland

Denis Dubnikov, co-founder of cryptocurrency exchange platforms Coyote Crypto and Eggchange, has been arrested in Amsterdam, on Nov. 1. A report by crypto news outlet Forklog quoted the spokesperson of the Ministry of Foreign Affairs of Russia, Maria Zakharova, who confirmed the news which spread on social media.

The Russian citizen was initially held and placed in an isolation ward at the airport in Mexico City. He was then boarded on a flight to the Netherlands where he was eventually arrested by Dutch authorities, allegedly on a request submitted by the U.S. Federal Bureau of Investigation (FBI), the publication detailed.

According to a Facebook post published on Nov. 4 by Sergei Mendeleev, CEO of the defi banking platform Indefibank, the United States seeks the extradition of Dubnikov in relation to a cryptocurrency theft dating from 2018. Part of the digital money is believed to have passed through wallets operated by his crypto exchange business.

“So, a few days ago there was an extraordinary situation with the citizen of the Russian Federation Dubnikov Denis Mikhailovich. For a completely indistinct reason, he was detained at the airport in Mexico upon arrival and… was suddenly deported (precisely deported!) to Amsterdam…,” Mendeleev explained, asking how is it possible for this to happen to Russian citizens.

“Friends, I think there is a reason to ask the Russian Foreign Ministry for a reaction, maybe Maria Zakharova will give her weighty comment?” Mendeleev noted. In response to his call on social media, Zakharova confirmed the information about Dubnikov’s detention and added:

Russian diplomats in the Netherlands provide assistance to a detained Russian citizen, [they] are in contact with local law enforcement agencies on the issue of observing his rights.

Dubnikov Arrested Amid Anti-Money Laundering Investigations Against His Crypto Business

The news of Denis Dubnikov’s arrest comes after a Bloomberg report revealed this week that his Eggchange is the target of anti-money laundering investigations in Europe and the U.S. This case follows the blacklisting of another Russia-based crypto business on similar allegations. In September, the U.S. Treasury Department adopted sanctions against the Czech-registered OTC crypto broker Suex which operates out of offices in Moscow and Saint Petersburg.

Dubnikov is not the first Russian crypto entrepreneur detained on a U.S. warrant. In the summer of 2017, the Russian IT specialist Alexander Vinnik was arrested in the Greek city of Thessaloniki, where he arrived on a vacation with his family. American prosecutors claim Vinnik, an alleged operator of the infamous BTC-e exchange, has laundered up to $9 billion through the now-defunct coin trading platform. He has since been extradited to France and sentenced to five years in prison for money laundering. In May, the French judiciary rejected a request for his extradition to Russia where he would also face charges.

The sanctioned crypto broker Suex is believed to have laundered digital money related to what was once the largest cryptocurrency exchange on the Russian and regional market. In August, Polish authorities detained Dmitry Vasiliev, former chief executive of BTC-e’s successor, Wex, at the airport in Warsaw. Vasiliev is wanted in Kazakhstan where he is accused of fraud related to the platform and is awaiting a decision on his possible extradition. Poland officially confirmed his arrest in September.

Do you expect other arrests of Russian nationals on crypto-related allegations? Tell us in the comments section below.

Russian Government to Track Crypto Transactions With Help From Anti-Drug Organization

04/11/2021 by Idelto Editor

Russian institutions have responded to a call from а public movement for joint efforts to identify cryptocurrency transfers related to drug trade. The anti-drug organization, Stopnarkotik, recently asked the interior ministry and the central bank to investigate alleged connections between U.S.-sanctioned crypto exchange Suex and a darknet market operating in the region.

Russian Authorities Respond to Stopnarkotik’s Request for Action Against Drug Trade

The Ministry of Internal Affairs of the Russian Federation (MVD) and Bank of Russia have agreed to cooperate with the All-Russian Public Movement Stopnarkotik on identifying financial flows involving cryptocurrencies obtained as a result of drug sales. The Russian online news portal Lenta.ru reported on the agreement, quoting a letter from a high-ranking MVD official.

The letter signed by Major General Andrei Yanishevsky, head of the Drug Control Department at the Interior Ministry, has been issued after a working meeting with representatives of the anti-drug organization. It comes in response to Stopnarkotik’s call for the two institutions to carry out an investigation focused on Suex, a Russia-based OTC crypto broker, and its links to other companies and banks.

In September, the U.S. Treasury Department blacklisted the Czech-registered entity Suex OTC s.r.o. which operates out of physical offices in Moscow and Saint Petersburg. The crypto platform is suspected of processing hundreds of millions of dollars in coin transactions related to scams, ransomware attacks, darknet markets, and the infamous Russian BTC-e exchange.

Since launching in 2018, Suex is believed to have received over $481 million in BTC alone. Close to $13 million came from ransomware operators such as Ryuk, Conti, and Maze, over $24 million was sent by crypto scams like Finiko, $20 million came from mixers, and another $20 million from darknet markets such as the Russia-targeting Hydra, blockchain forensics firm Chainalysis detailed in a report.

In its request to the Russian authorities, following the announcement of the U.S. sanctions, Stopnarkotik noted that Suex had been “involved in money laundering for the largest drug-selling platform.” The organization pointed out that the market’s drug trafficking in the Russian Federation amounts to an estimated $1.5 billion a year or more.

It also mentioned the name of one of Suex’s co-founders and highlighted its alleged connections with other crypto companies and financial institutions such as Exmo, a major digital asset exchange in Eastern Europe, financial services company Qiwi, a leading payment provider in Russia and the CIS countries, as well as the Ukraine-based Concord Bank.

Stopnarkotik asked Bank of Russia to provide its assessment on the matter, check if the operations of Suex and other entities are being conducted in accordance with the law in Russia, and consider blocking Russian payments to a Ukrainian organization.

“We received a response from the Ministry of Internal Affairs and the Central Bank. We also had a personal meeting with the Ministry of Internal Affairs so that they had an understanding of how we receive information, including about money laundering,” the movement’s chairman, Sergei Polozov, has been quoted as saying. He added that the Russian Interior Ministry is ready to accept Stopnarkotik’s data and work together with the organization.

Do you expect the cooperation between Stopnarkotik and Russian government institutions to develop further? Tell us in the comments section below.

2 Turkish Crypto Exchanges Investigated for Fraud After Central Bank Bans Cryptocurrency Use for Payments

25/04/2021 by Idelto Editor

Two Turkish cryptocurrency exchanges are being investigated by the authorities in Turkey after they abruptly halted trading. The authorities have blocked access to the bank accounts of the second exchange and detained four people so far. Sixty-two people have been detained in connection with the first exchange whose CEO has fled the country.

Second Turkish Crypto Exchange Being Investigated

Following the alleged exit scam pulled by cryptocurrency exchange Thodex, another crypto trading platform is being investigated by Turkish authorities, the state-run Anadolu news agency said Friday. Vebitcoin, a Turkey-based crypto trading platform, became the second crypto exchange to face troubles within about a week after the country’s central bank banned crypto use for payments.

Vebitcoin posted a notice on its website on Friday stating: “Due to the recent developments in the crypto money industry, there was a much higher density in our operations than expected. We would like to state with regret that this situation has led us to a very difficult process in the financial field.” The statement continues:

We decided to cease our activities in order to fulfill all regulations and claims.

Turkey’s Financial Crimes Investigation Board (MASAK) has blocked the onshore bank accounts of Vebitcoin and begun an investigation into the platform. So far, four people have been detained as part of an investigation, a local prosecutor said on Saturday.

Mehmet Nadir Yagci, a prosecutor in the southwestern city of Mugla, said in a statement:

Four administrators and personnel of the company were detained on Saturday on allegations of fraud.

This followed the authorities detaining 62 people in connection with crypto exchange Thodex whose CEO has fled the country after halting trading on his platform. Customers have filed complaints against the company as $2 billion of their funds are inaccessible.

Both Thodex and Vebitcoin halted trading about a week after the Turkish central bank banned the use of cryptocurrencies, including bitcoin, a means of payment in the country. “Crypto assets cannot be used directly or indirectly for payments … No service can be provided for direct or indirect use of crypto assets in payments,” the official notice by the central bank reads.

What do you think about Turkish crypto exchanges being accused of fraud after the central bank banned the use of cryptocurrencies for payments? Let us know in the comments section below.

6 Bankers Accused of Earning €30M in Bonuses From German Fraud, Tax Lawyer Out on €4M Bail

22/01/2020 by Idelto Editor

6 Bankers Accused of Earning €30M in Bonuses From Fraud Scheme in Germany, Tax Lawyer Out on €4M Bail

Former bank employees have received bonuses worth millions of euros in an illegal trading scheme that also involved a tax lawyer, prosecutors in Frankfurt revealed this week. The case is part of multiple investigations carried out across Germany, the hardest hit country in a notorious tax fraud scandal known as the Cum-ex Files.

Also read: European Banks Struggle With Low Interest Rates and Strict Regulations

Frankfurt Fraud Costs Germany €389 Million

The six bankers got 29.5 million euros (close to $33 million) in bonuses from the alleged fraud, German prosecutors said this past Monday. The staggering numbers, mentioned in the charges filed earlier this month against the bankers and the lawyer, were made public in an announcement by the Frankfurt Prosecutor’s Office which was quoted by Reuters.

The prosecutors did not reveal the entities that employed the accused but according to sources quoted in the report, the individuals worked for Maple Bank. The Frankfurt-based financial institution collapsed in 2016 as a result of its involvement in cum-ex trades which were conducted between 2006 and 2009 and cost the state €389 million in lost taxes (more than $421M).

Two of the bankers have been in custody since their detention in December 2019 following the investigation carried out by German authorities. The tax lawyer, Ulf Johannemann, who is a former partner at the law firm Freshfields, was arrested the previous month. He has been released on a 4 million euro bail, the news agency detailed.

The case in Frankfurt, the Eurozone’s financial capital, is just one of a series of investigations in the Federal Republic into the large-scale tax scam. Participants in the fraud generated multiple tax reclaims from phantom dividends from mostly German companies. Officials insist that the scheme required intensive cooperation between big financial institutions, investors and legal experts to achieve its goals.

The Cum-Ex Files

The tax fraud in Frankfurt and other similar cases involving cum-ex deals were discovered by news organizations and tax authorities a decade later, sparking a heated debate in German society that led to the launch of a parliamentary inquiry. The government in Berlin has estimated that its losses amount to 5 billion euros but the damage may be even bigger.

Although Germany is the hardest hit country, a number of other EU member states like France, Italy, Denmark, and Belgium have been affected by the massive fraud as well. It has been estimated that a network of bankers, brokers, asset managers, consultants, investors, and lawyers managed to extract public funds worth an estimated €55 billion (over $60 billion), exploiting a legal loophole in tax laws and in particular the German tax code.

The cum-ex scheme involves the lending and trading of shares with (cum in Latin) and without (ex) dividend rights between multiple parties around the “record date,” an established quarterly date when companies determine who owns their stock and who is eligible to receive dividend. The numerous transactions make it hard for tax authorities to know who the current owner is. The rapid exchanging of shares, sold with-dividend just before record date but delivered without dividend right after, is aimed at allowing two parties to simultaneously claim ownership of the same stock, each of whom was entitled to a tax rebate and claimed refunds on taxes that had been paid only once.

It was possible to implement the scheme partially because of the way the German tax system functions. The capital gains tax is automatically deducted from all dividend payments but dividends are taxed differently depending on the status of the receiving party. While private individuals owe 25% capital gains tax on their dividends, dividend income for corporate entities such as investment companies is added to all other income and charged with 15% corporation tax on the total annual profit. Thus, institutional investors could reclaim the capital gains tax that has already been deducted.

What’s your opinion about the cum-ex fraudulent trading scheme in Europe? Share your thoughts on the scandal in the comments section below.

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