Crypto-corruption

In 2018, a major Russian cryptocurrency exchange lost $450 million in Bitcoin. Now, the exchange's founder is saying he transferred the funds to the FSB.

The BBC Russian Service has released a new report arguing that $450 million in Bitcoin that went missing from the Russian cryptocurrency exchange Wex may have been transferred to wallets owned by Federal Security Service (FSB) employees. After those funds were lost in 2018, an embezzlement case was opened to investigate their disappearance. BBC reporters who examined the documents associated with that case found that the Bitcoin may have been transferred to FSB accounts by Wex founder Alexander Bilyuchenko himself.

The Wex exchange was founded as a successor to BTC-e, which had become the largest Russian-based forum for cryptocurrency transactions since its founding in 2011. U.S. government officials alleged that at least $4 billion were embezzled from BTC-e in the course of its existence. In 2017, a warrant from the United States led to the arrest of Russian citizen Alexander Vinnik during a visit to Greece. Vinnik was thought to have benefited financially from the exchange. Meanwhile, the btc-e.com domain was frozen by the FBI.

Wex promised to return some of the funds its clients had lost in their dealings on BTC-e. The new exchange was founded by Alexander Bilyuchenko, who was Vinnik’s business partner, along with Dmitry Vasilyev, who was among BTC-e’s highest-volume clients. Vasilyev was named Wex’s official owner.

In the summer of 2018, Wex clients’ wallets were suddenly frozen, and funds could only be removed from them at a 90-percent loss. It then came to light that an amount of cryptocurrency worth more than $400 million had disappeared from the exchange. Wex’s Russian clients began submitting complaints to the police en masse, leading Russian law enforcement officials to open an embezzlement investigation. After the summer 2018 scandal, the exchange was sold to the family of Dmitry Khavchenko, a former separatist fighter in the self-declared Donetsk People’s Republic who is reportedly close to the oligarch Konstantin Malofeev.

According to the BBC Russian Service, Bilyuchenko and Vasilyev contacted Malofeev as early as the beginning of 2018, when they were on the hunt for influential patrons for their exchange. At the time, Bilyuchenko and Malofeev agreed to use Wex as a foundation to build “a new exchange that would serve as specialized accounting infrastructure to protect the financial and economic sovereignty of the Russian Federation.”

Bilyuchenko later testified that he was contacted by FSB agents around the same time as his negotiations with the oligarch and was even called in for questioning at the agency’s headquarters in Moscow’s Lubyanka Square. In April of 2018, Bilyuchenko said, an individual named Anton demanded that the cryptocurrency exchange founder hand over a flash drive containing encrypted Wex assets. Anton allegedly said that the cryptocurrency in the exchange would “go to the account of the FSB of Russia.” The BBC described Anton as a former FSB employee; whether he was still working for the agency at the time of his conversation with Bilyuchenko is unclear. In any case, the exchange head said he was placed in a holding cell and kept under guard until he agreed to transfer an amount of cryptocurrency valued at $450 million.

Even then, according to Bilyuchenko’s testimony, the FSB did not stop exerting pressure on the exchange: Agents asked him to turn over Wex’s user database. The BBC Russian Service obtained a recording of a telephone conversation that presumably took place between Bilyuchenko and Malofeev in the summer of 2018. In the recording, someone with a voice identical to Malofeev’s says that Bilyuchenko is suspected of holding back some of the money he promised to transfer. “They’re letting you stay afloat because I’ve been telling them you’re mine and I’m answering for you,” the voice explains, adding that “you’ll have to hand over the database in any case.”

Story by Andrey Zakharov for the BBC Russian Service

Summary by Grigory Levchenko

Translation by Hilah Kohen