RegulationMarch 10, 2020

Chinese Nationals Charged with Laundering More Than $100 Million in Cryptocurrency

North Korean co-conspirators allegedly hacked virtual exchange, stole $230 million in virtual currency.

Reported by Michael Katz

Two Chinese nationals were charged by the US Justice Department with laundering more than $100 million worth of cryptocurrency that was part of more than $230 million hacked from a virtual currency exchange by North Korean co-conspirators.

According to an indictment unsealed in the US District Court for the District of Columbia, Tian Yinyin and Li Jiadong were charged with money laundering conspiracy and operating an unlicensed money transmitting business.

“The hacking of virtual currency exchanges and related money laundering for the benefit of North Korean actors poses a grave threat to the security and integrity of the global financial system,” US Attorney Timothy Shea said in a statement.

Nearly $101 million was laundered through hundreds of automated cryptocurrency transactions in order to prevent law enforcement from tracing the funds.

According to the legal complaint against Yinyin and Jiadong, in 2018, an employee of the exchange communicated with a “potential client” via email. While communicating with the potential client, the employee unwittingly downloaded malware that attacked the exchange. The malware provided remote access to the exchange and unauthorized access to private keys controlling wallets to seven virtual currencies.

Yinyin and Jiadong engaged in nearly $101 million in virtual currency transactions, which primarily consisted of their exchange of virtual currency traceable to the hack of the exchange, the complaint said. The two allegedly converted the virtual currency into fiat currency and transferred it to customers for a fee. The funds were laundered through hundreds of automated cryptocurrency transactions aimed at preventing law enforcement from tracing the funds.

The North Korean co-conspirators circumvented multiple virtual currency exchanges’ controls by submitting doctored photographs and falsified identification documentation, according to the complaint. A portion of the laundered funds was used to pay for infrastructure used in North Korean hacking campaigns against the financial industry.

“North Korea continues to attack the growing worldwide ecosystem of virtual currency as a means to bypass the sanctions imposed on it by the United States and the United Nations Security Council,” IRS-Criminal Investigation (IRS-CI) Chief Don Fort said.

The complaint also alleges that the North Korean co-conspirators are tied to the theft of approximately $48.5 million worth of virtual currency from a South Korea-based virtual currency exchange in November. As with the prior theft, they allegedly laundered the stolen funds through hundreds of automated transactions and submitted doctored photographs and falsified identification documentation.

The civil forfeiture complaint specifically names 113 virtual currency accounts and addresses that were used by the two defendants and unnamed co-conspirators to launder the funds. The forfeiture complaint seeks to recover the funds, a portion of which has already been seized.

The US Department of the Treasury’s Office of Foreign Assets Control also imposed sanctions on Yinyin and Jiadong for “having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, a malicious cyber-enabled activity.”