Russian citizen Alexander Vinnik ahead of a court hearing in Greece. Photo / Supplied
The $140 million sent to New Zealand by a Russian “computer genius” was global money laundering of criminal profits, according to a High Court judge in the largest police restraint of funds in this country.
The money was transferred into two “eWallet” accounts held with an online payments business in New Zealand, in the names of Alexander Vinnik and a company he controlled, between 2015 and 2017.
Vinnik was also running BTC-e, a cryptocurrency exchange platform, which prosecutors in the United States and France alleged was an unlicensed money transmitting business that laundered US$4 billion ($6.45b) for criminals.
While trading cryptocurrency is entirely legitimate, investigators alleged Vinnik created a customer base for BTC-e that was “heavily reliant on criminals” involved in activity such as computer hacking, ransomware attacks, theft, tax fraud, corruption and drug trafficking.
Vinnik, 37 at the time, was on a family holiday in Greece in July 2017 when he was arrested and extradited to France to stand trial in relation to a widespread cyber-attack.
Described by his legal team as a “computer genius” persecuted because he posed a threat to the international banking system, Vinnik says he was an employee of BTC-e and not the one in charge.
Nearly three years later, police officers from New Zealand’s Asset Recovery Unit - acting on information from the United States - successfully sought interim restraining orders in the High Court over the $140m of Vinnik’s funds held in this country.
That same year, in November 2020, Vinnik was convicted in France of laundering millions of dollars extorted from the infamous “Locky” cyber-attack, which targeted more than 5000 victims around the globe.
He was acquitted of masterminding the ransomware attack itself but sentenced to five years in a French prison. On his release in August 2022, Vinnik was extradited to the United States to face further money laundering charges.
Vinnik’s case came back before the High Court at Auckland this year. The delay, of almost three years, was because of difficulty in serving the relevant paperwork to Vinnik in prison, as well as the Covid-19 pandemic.
He was not represented in court. But Mark Harborow, representing the New Zealand Police, argued that the transfer of BTC-e funds into the New Zealand-based “eWallets” was money laundering of criminal assets, and as such could be restrained under the Criminal Proceeds Recovery Act.
One of the crimes linked to Vinnik included the infamous theft of approximately 647,000 Bitcoins from the Mt Gox digital currency exchange in Japan - worth hundreds of millions of dollars at the time - which were deposited into accounts directly linked to BTC-e.
A lawyer for Mt Gox was in the High Court hearing in February but did not make submissions. Previously, Mt Gox indicated it would seek to recoup some of its losses from the $140m in New Zealand if the funds were eventually forfeited.
That process took another step forward when Justice Christine Gordon released her ruling this month, in which she was satisfied there were reasonable grounds to believe Vinnik had unlawfully benefited from significant criminal activity.
“It appears the funds have been transferred to the New Zealand-held eWallets to distance the eWallet funds from BTC-e and to conceal their illicit source,” Justice Gordon said.
The judge ordered that the $140m should remain in the custody of the Official Assignee. The final step is for the police to seek a forfeiture order of the restrained money.
The Vinnik case is by far the biggest taken under the Criminal Proceeds Recovery Act.
The next largest was $70m frozen in bank accounts linked to a wealthy Chinese-Canadian mogul.
Xiao Hua Gong built a business empire in Toronto, including a hotel chain and television channels, as well as attending fundraisers for Canada’s Prime Minister Justin Trudeau and donating to the governing Liberal Party.
But the entrepreneur, also known as Edward Gong, has now been forced to deny his success and influence was gained from an alleged $202 million pyramid scheme selling medicines in China.
In 2021, Gong agreed to forfeit the $70m to police in a record-breaking deal.
The incredible sum is part of more than $1 billion in alleged criminal wealth that has been restrained since the powerful law targeting organised crime came into effect in 2009.
Previously, the police needed to secure a conviction to strip ill-gotten gains from underworld figures. When the law changed, police no longer needed a conviction. They only had to show that someone profited from criminal offending to the lower standard of proof applied in civil cases — “the balance of probabilities” — rather than surpassing the more difficult “beyond reasonable doubt” threshold for criminal cases.
Asset seizure cases often run parallel to criminal prosecutions. Police apply to a High Court judge, usually without warning so suspected criminals and their associates don’t have time to hide or sell the assets.
Frozen assets are held by the Official Assignee, a government body that administers bankruptcies, until the High Court rules on whether they should be permanently forfeited to the Crown. The process takes two years, on average, but the most complex cases last much longer.
The success of the police in enforcing the law was “impressive”, according to a report published in 2021 by the Financial Action Task Force (FATF), an intergovernmental body based in Paris.
New Zealand was one of only four countries to achieve a “high level of effectiveness” in pursuing criminal proceeds - along with the US, Israel and Honduras - according to the report.
Now, the Government plans to change the Criminal Proceeds Recovery Act to give police even more powers to target gang leaders, or organised crime figures, who have distanced themselves from any criminal activity but allegedly still reap the financial benefits.
Under the proposed change to the current law, the police would be able to ask the High Court to restrain - and later forfeit - the assets of anyone “associated” with an organised criminal group, if their declared income was insufficient to pay for them.
This is designed to target the leaders of gangs and organised criminal groups, who the police allege have structured their affairs to “insulate” themselves from involvement, or even knowledge of, profit-driven crimes committed by their members.
The proposed bill is likely to have its third reading in Parliament next month.
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