A crackdown by Lithuania’s banking regulator has left Crypto.com customers fearing for the safety of their account balances.
Earlier this month, the Bank of Lithuania ordered local payment processor Transactive Systems UAB to cease providing services to existing clients “whose activities are related to virtual currencies (including operators of virtual currency exchanges, operators of depository virtual currency wallets, exchange of virtual assets, loans with virtual assets).”
The Bank of Lithuania issued its order after having inspected Transactive that “identified significant violations and shortcomings of the Law on the Prevention of Money Laundering and Terrorist Financing.” The order was issued based on “the scale and significance of the identified violations” and will remain in place until the bank gives a permanent decision at some future date.
Transactive posted an ‘update’ that acknowledged the disruption in service “for some customers” but assured them that “funds held in your account opened with us are safe. The funds safeguarded as required by the law and are not affected in any way.”
Among Transactive’s digital asset customers was Singapore-based Crypto.com, which responded to the loss of service by informing its customers that Euro deposits and withdrawals had been “temporarily disabled.” Crypto.com stated that it was “in the process of migrating our EUR Fiat Wallet to a new provider and estimate this transition will be complete in approximately 72 hours.”
More than a week after this announcement, many Crypto.com customers are still waiting for the exchange to complete this ‘transition.’ Angry customers took to social media to vent, noting that Crypto.com was attempting to paint this hiccup as a planned event despite the company having said nothing about it until the day after customers publicly complained about their inability to conduct Euro-based transactions with the exchange. (U.K. customers reported similar issues with GBP transactions.)
Worse, not all Crypto.com customers appear to have received the exchange’s email announcing this service disruption. This led some of them to continue depositing Euros to Transactive because the exchange didn’t immediately update the instructions on its app. Despite ‘funds are safe’ assurances, many Crypto.com customers are still waiting to hear how they’ll be reunited with funds deposited after Transactive’s crypto freeze-out that never showed as deposits on Crypto.com.
That wayward email wasn’t the only laggard update. While Crypto.com’s status page now states “All Systems Operational,” it stated the same on January 23, despite its ‘Past Incidents’ entry for January 22 indicating that the disruption in Euro transactions remained an “Unresolved incident.”
There is the possibility that the customer funds Transactive was handling for Crypto.com are indeed ‘safe’ but only because they’ve been seized by Lithuanian authorities. If so, while Crypto.com would be able to keep its ‘all is well’ façade going by fulfilling some customers’ smaller withdrawal requests, processing withdrawals for all affected customers would require either (a) a major infusion of cash to tide them over until Lithuania released the seized funds, or (b) dipping into other customer deposits à la FTX to maintain the illusion of solvency to fend off a bank run.
Malta money muddle
As detailed by Twitter user known as Cryptadamus, Crypto.com was able to restart some Euro transactions by instructing customers to send money to a Malta-based company called Foris DAX MT Limited. The name is similar to the Foris DAX Asia, the company cited as recipient when Transactive was still handling deposits.
But it seems many traditional banks aren’t eager to conduct business with Malta-based financial institutions, resulting in a flurry of reports of Crypto.com customers’ transactions being canceled when they tried depositing to Foris DAX MT.
Crypto.com is also using OpenPayd, a processor with offices in Malta, London, and Istanbul. OpenPayd’s website proudly cites the Bitfinex exchange as one of its more prominent customers, offering a ‘case study’ of how OpenPayd helped Bitfinex accelerate transactions by providing it with ‘virtual IBANs’ [international bank account numbers that facilitate cross-border transactions] that connect to the Single European Payment Area (SEPA) payment rails for Euro-denominated deposits and withdrawals.
For the uninitiated, Bitfinex is owned by iFinex, the same parent company of the Tether (USDT) stablecoin. Both Bitfinex and Tether are inextricably linked to highly suspect activities, making OpenPayd’s use of Bitfinex as a business relationship worth promoting highly suspect.
Binance withdrawal issues linked?
The Lithuanian crackdown may help explain the Binance exchange’s well-publicized issues with Euro- and GBP-based withdrawals last week. While Binance has suffered a record-high outflow since November, multiple Binance customers in Europe reported the sudden unexplained absence of a ‘withdraw’ button on both the Binance website and app last week.
Binance responded with its standard playbook of flat-out denying the existence of any problems. But the Lithuanian crackdown came just days after a global law enforcement effort to bring down the Bitzlato exchange. While a relatively small player, Bitzlato was notorious for its dealings with Russia’s Hydra ‘darknet’ market and its largely criminal customer base.
The U.S. Department of Justice (DOJ) singled out Binance as Bitzlato’s top receiving counterparty. Reuters subsequently reported that Binance processed over 200,000 transactions for Bitzlato customers involving nearly $346 million worth of BTC.
The last few years have seen a steady drumbeat of these types of revelations about Binance’s disregard for legal compliance. If Binance was doing business with Transactive, the Bitzlato episode might simply have been the final straw for Lithuania. And it leaves Binance increasingly dependent on the types of payment processors that other banks don’t want to touch with 10-foot poles.
The Circle of ‘crypto’ life
Getting back to Crypto.com, at the same time it was rejigging its European financial dealings, the exchange also appears to have made changes to its American banking connections. In June 2021, Crypto.com announced a deal with Circle, developer of the USDC stablecoin, by which exchange users would wire fiat currency to Circle and would be credited with USDC on Crypto.com.
In November 2021, Crypto.com announced an ‘integration’ with Silvergate Bank, the crypto-friendly U.S. bank that formerly counted Binance and FTX/Alameda Research among its clients. The integration offered Crypto.com’s institutional clients the use of Silvergate’s controversial Silvergate Exchange Network (SEN) for real-time, 24/7 U.S. dollar transfers to and from Crypto.com.
But Crypto.com’s retail clients were also instructed to make US$ deposits via Silvergate with the beneficiary identified as Circle Internet Financial Inc. This is akin to the gambit that Sam Bankman-Fried ran with Silvergate, instructing FTX customers to wire money to the bank citing Alameda as the beneficiary. (Alameda was supposed to forward the cash to FTX, but SBF merely credited the sums to FTX accounts without accepting the cash to support these ‘deposits.’)
Now, Crypto.com’s Silvergate deposits list the recipient as CRO DAX Limited, a Caymans-based company. Who will it be tomorrow? Our money’s on CRO MAGS Limited because we want to see how angry the New York hardcore legends get when someone usurps their identity for improper purposes.
With the heat rising on Crypto.com’s hop-skip-and-a-jump international banking relationships, more questions will arise regarding the propriety of Crypto.com effectively using proxies to access the U.S. banking system without adequate know your customer/anti-money laundering scrutiny.
Recall that in 2021 Silvergate CEO Alan Lane memorably described the BTC-collateralized US$ loans the bank offered via SEN as “a non-disapproved product.” In other words, regulatory boundaries were viewed as inconveniences, nothing more. Given that Lane is already under fire with U.S. legislators for failing to report suspicious transactions related to FTX/Alameda, any crypto firm dealing with Silvergate’s SEN better have its house in order.
I’ll take self-serving dealings for $3 million, Alex
Following some failed ventures that resulted in others holding the bag, Crypto.com founder Alex Marszalek incorporated Fortis Ltd in Hong Kong in 2016 and launched the Monaco digital asset exchange, which in 2018 was rebranded as Crypto.com.
Crypto.com started down the road to infamy following its ill-advised deal to spend $700 million for the naming rights to the Staples Center, home to the L.A. Lakers, then spending another $100 million or so on a series of TV spots, including the infamous’ fortune favors the brave’ ad starring Matt Damon.
Following those heady expenditures, the onset of ‘crypto winter’ forced Crypto.com to lay off hundreds of staff. Evidently, Marszalek forgot that ‘number go up’ was a marketing slogan, not a guarantee of future performance on which one based long-term plans.
While Crypto.com has yet to be exposed for FTX-level chicanery, Marszalek was the subject of a highly unflattering CNBC profile in December. The article recounted Marszalek’s pre-crypto business dealings, including a 50% stake in a Hong Kong-based tech manufacturing firm called Starline that went bankrupt in 2009.
In the two years preceding Starline’s collapse, Marszalek and his business partner received nearly $3 million in payments from the company. A judge later referred to this as “a concerted effort to strip the cash from Starline.” The same judge found Marszalek’s justifications for certain transactions “inherently incredible.”
Some Crypto.com customers are expressing similar observations regarding the exchange’s explanations of its current problems.
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