Special counsel Robert Mueller’s indictment of 12 Russian intelligence officials may be the most vivid illustration yet of how cryptocurrencies can be used for alleged criminal purposes.
The indictment includes charges of money laundering through the use of Bitcoin, the leading virtual currency, to mask the illegal activities of officers in the GRU, a Russian military intelligence agency.
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Though cryptocurrencies have been tied to illicit activity in the past, the prominent mention of Bitcoin throughout the indictment could increase scrutiny of the new financial sector, which is already viewed skeptically by many regulators.
“Bitcoin faces the same challenges of perception that the early internet did,” said Jerry Brito, executive director of the virtual currency policy and advocacy nonprofit Coin Center. “Good guys can use it and bad guys can use it.”
Mueller’s indictment charges that the Russians conspired to launder the equivalent of more than $95,000 to “facilitate the purchase of infrastructure used in their hacking activity" during the 2016 presidential election. They used a "web of transactions structured to capitalize on the perceived anonymity of cryptocurrencies such as Bitcoin,” it said.
The spies engaged in a practice called mining — using a computer to help process Bitcoin and record transactions — to help fund their equipment purchases, Mueller’s team alleged. They also used dummy accounts and one or more third-party exchanges to try to conceal who they were and what they were doing.
Though Bitcoin is pseudonymous — meaning it masks user identities with lengthy alphanumeric keys in its public ledger, called a blockchain — advocates and law enforcement officials say that public record makes it easier to track than its reputation suggests.
Still, earlier this year the Treasury Department expressed concern that a number of companies involved in virtual currencies, particularly those located outside the U.S., aren’t following basic anti-money laundering standards.
“There are significant challenges to investigating foreign virtual currency businesses, because most jurisdictions do not regulate and supervise virtual currency businesses,” a Treasury official wrote to Sen. Ron Wyden (D-Ore.) following an inquiry into how the department was regulating cryptocurrencies.
Russia in particular seems fond of using the technology to evade the U.S.’ influence over the financial system. According to published reports, Russian President Vladimir Putin spoke about the potential for digital currencies to sidestep "limitations" on international finance during his annual nationally televised listening session.
A Russian exchange, BTC-e, was shut down last summer by Treasury’s anti-money laundering wing, the Financial Crimes Enforcement Network, for “willfully violating” the law. One of BTC-e’s operators, Alexander Vinnik, a Russian, was arrested in Greece; the FBI was one of the agencies coordinating with FinCEN on the operation.
According to The Associated Press, Vinnik was extradited to France, where he was also charged Friday with money laundering and other crimes related to the exchange.
And last year Russia sent an officer from its other primary intelligence service, FSB, to lead a delegation to an international standards conference focused on blockchain software.
The measures would either mandate a report for a comprehensive approach or create an interagency task force to combat the illegal use of digital assets. But they wouldn’t significantly alter the legal treatment of those currencies — a major fear of the industry and its advocates.
Brito, of Coin Center, acknowledged the image problem of Bitcoin and other digital assets, but he said he didn’t think law enforcement would call for a change in their legal treatment.