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Chinese Prosecutors Charge Final Suspects In $2.3 Bln OneCoin Investigation

The last four suspects in a two year case against alleged pyramid scheme OneCoin have been prosecuted in China’s Hunan Province, government-supported local news source the Justice Network reports Wednesday, May 23.

The Zhuzhou Country Procuratorate of the Hunan Province examined 106 people, publicly prosecuted 98, and recovered around 1.7 bln yuan (around $266 mln) from over 20 provinces across China in the course of the case. Those prosecuted have received up to 10,000  – 5 mln yuan in fines (about $1,500 – $782,000) as well as four years or less of prison time.

In 2016, Chinese authorities had already seized over $30 mln dollars during their investigation of the alleged pyramid scheme.

The Justice Network reports that OneCoin organization – “Weika Coin” in China – whose server is located in Copenhagen, Denmark, worked by “constantly induc[ing] new investors to realize imaginary high profits” by “deceptively advocating” the coins’ worth and “tempting others to invest huge sums of money into its established website.”

The pyramid scheme, or MLM organization, reportedly had 27 fund pool accounts, more than 140 member levels of varying costs, and a total of over 2 mln registered users located in China. In total, the funds involved in the scheme are more than 15 bln yuan (around $2.3 bln), according to the Justice Network.

Last fall, Italy imposed a €2.5 mln fine on OneCoin after the Italian Antitrust and Consumer Protection Authority (AGCM) branded the organization a pyramid or ponzi scheme.

More recently, in January of this year representatives of the Bulgarian law enforcement as well as European Union crime fighting units raided OneCoin’s office in Bulgaria at the behest of a German prosecutors office. While documents and servers were seized from the offices and 50 witnesses questioned, no arrests were made at the time.

Back in 2015, Cointelegraph warned readers to stay away from OneCoin, referring to it as likely to be a scam.

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Crypto Auctions: Where Do Arrested Bitcoins End Up?

From their early days, cryptocurrencies have been associated by many with black markets and illicit activities. Bitcoin’s feature of allowing direct payments to be made from one party to another without the involvement of financial institutions, has been also utilized as a way to avoid institutional controls and settle illegal transactions.

A recent study of University of Technology Sydney (UTS) found that “approximately one-quarter of Bitcoin users and one-half of Bitcoin transactions are associated with illegal activity”

On the other hand, given that there are almost 28.5 mln Bitcoin wallets that hold more than 0.001 BTC and many users own several wallets – with some inactive – the magnitude of this phenomenon is considerably reduced.

Regardless, it is a fact that some illegal activities are done with cryptocurrencies. While it seems quite simple to seize a fiat account or appropriate cash, the nature of cryptocurrencies makes this process much more complicated. Let’s analyze some cases where the government authorities seized cryptocurrency assets due to illegal activities and find out where they end up.

International authorities did not try to underestimate the issue. Europol recently recognized that “three to four bln pounds of criminal money in Europe is being laundered through cryptocurrencies”.

Europol’s Executive Director Rob Wainwright underlined that:

“Proceeds from criminal activity are being converted into Bitcoins, split into smaller amounts and given to people who are seemingly not associated with the criminals but who are acting as ‘money mules’. These money mules then convert the Bitcoins back into hard cash before returning it to the criminals”.

Silk road

In this complicated scenario, international prosecutors reacted by performing some important police operations. One of the most widely known operations was carried out in Oct. 2013 with the closure of Silk Road.

Silk Road was a website that operated as an online black market for selling illegal drugs, and used Bitcoin for settling the deals between site users. After two years of investigation, the US Federal Bureau of Investigation (FBI) arrested the founder and seized over 170,000 Bitcoins, which, at that time, accounted for about 1.5 percent of all the Bitcoins in circulation.

The closure of Silk Road was not the only activity carried out by international authorities to fight against illicit markets around cryptocurrencies. In Nov. 2014, the police of Hesse, Germany, together with Europol and the FBI, operated against illegal online shops Hydra and Silk Road 2.0, which were also engaged in the sale of drugs.

According to law enforcers, these shops were used by approximately 150,000 people, who each month used to buy drugs worth millions of euros using Bitcoins. This operation resulted in the seizure of of 126 Bitcoin from the owners of the websites.

Bulgarian case

But maybe the most impressive operation rolled out by international authorities has been done on May 19, 2017 by the Bulgarian police with the support of the Southeast European Law Enforcement Center (SELEC). The joint forces stopped an organized criminal group that was recruiting corrupt customs officers in many European countries, with the purpose to infiltrate a virus in the customs’ computerized systems and avoid the payment of taxes.

The offenders choose the Bitcoin as a way of investing the money resulted by their activities, considering them rather difficult to be tracked. As a result of the police investigation, an impressive number of 213,519 Bitcoin has been seized.

Cryptocurrency auctions

The seizing of cryptocurrencies has been increasingly the result of international investigations, with examples of this measure taken in many countries including the US, Germany, Bulgaria and UK. National authorities have started thinking about what to do with the seized coins. The US was one the first countries to approach the issue and started organizing auctions selling the appropriated cryptocurrencies.

The United States Marshals Service (USMS), a federal law enforcement agency within the U.S. Department of Justice, auctioned different lots of Bitcoins catched by different state authorities. One of the most recent sale has been held on Jan. 11, 2018 where the USMS auctioned a total of 3,813 Bitcoin in three different lots respectively of A) 2,500; B) 500; C) 813.

Given the value of the Bitcoin at approximately 11,500 USD the closing day of the auction (Jan. 19), the result granted an amount of around $44 mln in revenue to the state. Similarly, in Germany, the authority of the state of Hesse hope to gain millions from the sale of the 126 seized Bitcoins.

What about Bulgaria? According to calculations, the value of the 213,000 seized Bitcoins would be enough to pay off one-fifth of Bulgaria’s national debt. At present, the proportion would be a little different as the debt of the country is around $16 bln whereas the value of that pot of bitcoins would be around $2 bln.

However today it’s not clear whether or not the authorities really possess these coins. The head of Bulgarian Special Prosecutor’s Office, Ivan Geshev, recently said that the Prosecutor’s Office and the Interior Ministry had not seized Bitcoins.

More auctions to come

The fight against the misuse of funds for financing black markets and illicit activities has to tie up more its activities towards the use of crypto currencies. Given the extreme rapidity through which cryptocurrencies can be moved between wallets, states, and continents, a stronger collaboration between international authorities would also be necessary to conduct special operations.

Seizing and then auctioning cryptocurrencies, in case of a confirmed illicit use, could be both a strong deterrent for criminal users and, in some instances, a good source of income for state revenues.                

Uniformity between the various international authorities on the approach regarding the auctioning procedures could be a desirable development, in order to guarantee a fair and transparent process around the redistribution of the cryptocurrency assets. A rigorous process of identification could also guarantee that the participants are not connected to any illicit activities, and to avoid the process to start over again.

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Bulgarian Police Raids OneCoin Offices, ‘Ponzi Scheme’ Servers Shut Down

OneCoin offices were raided and its servers seized in Sofia, Bulgaria, on Jan. 17 and 18, as yet another step in a series of international raids and court cases against the highly-controversial altcoin. Although the servers were shut down, OneCoin currently remains operational.

The raid took place at the request of the prosecutor’s office in Bielefeld, Germany, and was carried out by representatives of the Bulgarian law enforcement as well as European Union crime fighting units. OneCoin’s founder, Ruja Ignatova, is Bulgarian-born but has German citizenship.

OneCoin, which promotes itself as a “centralized model [that] protects its members’ safety and ensures compliance on AML [anti-money laundering],” does not fit the definition of a cryptocurrency, for it is not decentralized, does not run on open-source software, and does not have a public ledger.

The documents and servers were seized from “One Network Services” EOOD, a Bulgarian company serving as a representative and distributor of OneCoin, as well as 14 other companies. 50 witnesses were questioned during the raid, but no arrests have yet been made.

The company is registered officially in the United Arab Emirates as “OneCoin Ltd.,” but according to the Bulgarian police report, the company operates through

“Hundreds of affiliated companies on 4 continents […] [which] are being investigated in England, Ireland, Italy, the United States, Canada, Ukraine, Lithuania, Latvia, Estonia and many other countries.”

A OneCoin representative faced charges of fraud in Kazakhstan in May 2017, and in India, police had arrested 23 people in connection with OneCoin’s pyramid scheme by July 2017.

More recently, in August 2017, the Italian Antitrust and Consumer Protection Authority (AGCM) branded OneCoin a Ponzi scheme and fined them 2.5 mln euros, the first financial fine on the company.

Cointelegraph has previously denounced OneCoin as a Ponzi scheme, warning readers to stay away from the coin.

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Bitcoin Bursary in Bulgarian University

Bitcoin’s ascension into the mainstream financial world has done wonders for its value, but its spiritual home still resides in the minds of IT aficionados.

Walk into any development studio and you are bound to find IT staff musing over Blockchain, Bitcoin and all things cryptocurrency related.

With that in mind, Varna University of Management in Bulgaria will become one of the first tertiary education institutions to offer bursaries in Bitcoin.

In 2018, ten software engineering students will be awarded scholarships in Bitcoin – to the value of €1000 per semester. The University will also give their candidates the option of taking the scholarship in either euros or Bitcoin.

While the lucky candidates will land themselves a share of the valuable virtual currency, the University is also working on plans to accept Bitcoin as a payment method for tuition fees.

Prospective software engineering students can also look forward to new modules in cryptocurrency and Blockchain technology, as the University looks to pioneer the way forward in education of Blockchain technology.

From humble beginnings

The launch of their Bitcoin bursaries is a product of  the budding community of cryptocurrency enthusiasts at the University. Weekly seminars covering the world of cryptocurrencies led to the idea of Bitcoin bursaries and innovative courses on Blockchain technology.

Speaking to Cointelegraph, VUM digital marketing manager Omer Ilyasli said the student body is at the cutting edge of Blockchain development.

“At our School of Computer Science, we have number of students who are working on Blockchain technology. We have quite a community here and we host seminars from time to time. The decision to offer Bitcoin scholarship came after a “Introduction to Blockchain Technology” seminar.”

The launch of the bursary program is just the tip of the iceberg for the ambitious University. Ilyasli insists that the community could become an educational hub for Blockchain and cryptocurrencies.

“We think pioneers in this field will be hugely rewarded, so we want to be pioneers, both individuals, our organization and our country. That is why we also urged Bulgarian government and local authorities in Varna to turn Varna into a hub. We still did not get an answer from the authorities yet.”

With the prospect of a scholarship in the world’s most valuable cryptocurrency and courses in Blockchain technology, the University hopes to attract some of the brightest young minds around the world.

The Bulgarian university offers full Bachelors and Masters degrees in business, software and hospitality, as well as an MBA programme.

Hopeful students looking to apply for their inaugural Bitcoin scholarships will have to meet normal entrance requirements, according to Ilyasli.

“The selection process will be done by academic commitee and they will select the students considering their interest in the subject and technology, and extra-curricular activities. But, first of all, all candidates should cover minimum entry requirements, such as high school grades and English-proficiency.”

Considering the Bulgarian government’s recent acquisition of Bitcoin through a criminal syndicate bust, the country could well be looking into developing the niche, but fast-growing industry.

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Bulgaria Seizes Enough Bitcoin to Pay Off 1/5 of National Debt

Following an undercover bust of an underground crime network, Bulgaria has seized enough Bitcoin to settle a fifth of its national debt.

According to ZeroHedge, the Bulgarian crime enforcement agency and the Southeast European Law Enforcement Center caught 23 Bulgarian criminals and confiscated a total of 213,519 Bitcoins – roughly valued at $3.5 bln.

The syndicate had hacked Bulgarian customs computers, effectively allowing them to import goods without paying the prescribed duties. With the help of a few corrupt officials the group installed viruses on customs computers in order to allow remote access.

SELC said the group included five Bulgarian customs officials, while others had ties to former  Yugoslavian states.

“The organized criminal group consisted of Bulgarian nationals with connections in the former Yugoslav Republic of Macedonia, Greece, Romania, and Serbia” said SELC.

The most intriguing part of this story is the incredible value of Bitcoin and what the Bulgarian government plans to do with it. SELC confirmed that when they seized the wallets, Bitcoin was valued at $2354. It’s now well past the $16k.

“As well, found in the Bitcoin wallets of the main suspects was a total of 213,519 Bitcoins. As reference, the value of one Bitcoin is over $2354. The offenders choose Bitcoin’s way of investing/saving the money because it’s rather difficult to be tracked and followed.”

According to National Debt Clock, Bulgaria’s national debt is in the region of $16 bln – so they could take a big bite out of that if they use their new Bitcoin fortune.

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Bulgarian Banks Block Accounts of Crypto Exchanges

Yesterday afternoon several major banks in Bulgaria terminated accounts held by the country’s cryptocurrency exchanges. The banks are also blocking transfers to and from international Bitcoin exchanges. The country’s affected exchanges have temporarily suspended their services.

Crypto exchanges that offer crypto to fiat transactions very much rely on traditional fiat banking. But the anonymous nature of cryptocurrency means that it is riskier to transact in, given that transactions are difficult to reverse.

This week in Bulgaria major banks decided to do away with this risk by force. The swift move to block accounts held by Bulgarian crypto exchanges was evidently a coordinated decision made by Bulgaria’s top banks.

The move was unrelated to any explicit government decision or regulation. Participating banks appear to be trying to mitigate risk by not transacting in Bitcoin or other cryptocurrencies.

Who exactly is involved?

According to a post from the administrator of the Bulgarian Bitcoin forum, the banks closed the accounts of all companies whose activities are related to the purchase or sale of Bitcoin. In addition to Fibank, affected companies mentioned the United Bulgarian Bank (UBB) as one of the banks blocking accounts.

In a post in the same thread of the Bitcoin forum, the alleged managing director of an affected company, Neven Dilkov, wrote that though the UBB also blocked their accounts, not all banks in the country are taking this harsh stance:

“I spoke with Societe Generale and Piraeus separately [and] both banks do not have a problem with companies working with cryptocurrencies.”

Crypt exchanges affected by this week’s crackdown include Cix.bg, Crypto.bg, and Cryptobank.bg. According to their site, the latter is still open for trading but is accepting funds only via ePay.

Plus, in addition to Bitcoin, the exchange as has temporarily suspended trading in Ether due to overloads on the network caused by CryptoKitties.

Bulgarians looking to purchase Bitcoin for fiat can still do so via Coinbase and LocalBitcoins.

Separately, Bulgaria and Bitcoin recently made headlines because of a government raid made back in May. With the recent spike in Bitcoin’s price, the 200,000 Bitcoins seized in May in a series of raids made by Bulgarian law enforcement are now worth over $3 bln.

This sum is a six-fold increase from the time of the raids when the entire seizure was worth just $500 mln. It remains unclear what the Bulgarian government is planning to do with the seized funds.

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The Bulgarian Government Is Sitting on $3 Billion in Bitcoin

A crackdown on organized crime by Bulgarian law enforcement in May resulted in the seizure of more than 200,000 bitcoins – an amount worth more than $3 billion at today’s prices.

According to a press release dated May 19 from the Southeast European Law Enforcement Center (SELEC), a regional organization comprised of 12 member states including Bulgaria, a total of 213,519 bitcoins were seized that month. Twenty-three Bulgarian nationals were arrested during the operation, and officials said at the time that the arrests and subsequent asset seizures followed an investigation into an alleged customs fraud scam.

As of press time, the amount seized is worth approximately $3.3 billion, at a price of roughly $15,600, according to CoinDesk’s Bitcoin Price Index (BPI).

Authorities commented at the time:

“The offenders choose the bitcoin way of investing/saving the money, because it is rather difficult to be tracked and followed.”

They further alleged that those involved developed a virus which was used to hack into Bulgarian Customs computers, allowing the perpetrators to skip paying fees when transporting goods into the country. The virus was uploaded to government machines by bribed agents, according to the release. operation.

In all, the alleged perpetrators avoided paying some 10 million leva (Bulgaria’s national currency), worth roughly $6 million.

What remains unclear at this time is what the Bulgarian government is doing with the seized bitcoins.

According to a report from Bivol.bg, the Bulgarian government declined to release further details, citing an ongoing criminal investigation.

Notable in the release is a notation that, at the time it was published, a single bitcoin was worth $2,354. The release stated that the total seized value was $500 million – less than one-sixth of its current value today.

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