On Monday, July 17, U.S. Attorney for the Eastern District of Virginia Jessica D. Aber filed a motion in federal court to unseal seizure warrants for three bank accounts held at the New York-based Mitsubishi UFJ Trust and Banking Corporation (MUFJ) in the name of the Deltec Bank & Trust in the Bahamas.
The seizure warrants sought a maximum of just under $105 million from the three accounts. The first two warrants—executed on June 13 and June 15—resulted in the seizure of around $39.4 million. The third warrant was executed on June 29 and resulted in the seizure of another $5.5 million, bringing the total seized to nearly $45 million.
According to a U.S. Secret Service special agent’s affidavit in support of one of the seizure warrants, it “appears” that Deltec “misrepresented the purpose and use” of its MUFJ accounts. MUFJ said it was told the accounts were ‘custody accounts,’ i.e. all the transactions were “for the benefit of Deltec.” In reality, the accounts were opened with MUFJ by Deltec on behalf of unspecified corporate clients.
The agent details how dozens of different shell companies received wire fraud proceeds obtained from over 150 victims. The funds were then transferred to and through the Deltec accounts, with the transfers structured “in such a way as to avoid scrutiny that typically applies to international wire transfers.”
The affidavit goes on to say that “it appears that in addition to the money laundering transactions discussed above, Deltec has also allowed the account to be used by other third parties, in activity that would not reasonably be anticipated in a custody account and that has allowed individuals to avoid the scrutiny and vetting that international transactions might otherwise receive.”
In a statement sent to CoinGeek, Deltec clarified that the seizure warrant relates to misconduct by two individual criminal defendants, not misconduct by Deltec Bank. It says:
“Deltec Bank is just one of many financial institutions that have been affected by this criminal fraud scheme, which was carried out by two individual defendants who are not affiliated with Deltec Bank. Deltec Bank is proactively cooperating with the authorities in this matter. All actions taken by the bank are in line with applicable policies and regulatory requirements. At no time has Deltec Bank misrepresented the purpose of its accounts. Deltec Bank has no reason to believe it is a subject or target any investigation.”
Hey, big spender…
The Deltec account was linked to what the affidavit called a ‘cryptocurrency investment wire fraud scheme.’ This type of fraud is known as ‘pig butchering’ in China, based on the perpetrators’ slow development of trust with the victims before leading them to financial slaughter.
The perpetrators made contact with their victims, who didn’t know the perpetrators, by ruses such as purportedly accidental texts (it’s unclear if the victims were targeted). The perpetrators did their best to turn this ‘meet cute’ moment into a burgeoning digital relationship that the perpetrators would insist be moved to the Telegram messaging app.
The victims were then hyped on crypto’s potential, directed to spoofed versions of legitimate trading platforms and urged to make ‘investments.’ These early investments would return ‘significant profits,’ after which the victims were encouraged to invest even more money, then the funds were stolen and the victims left wondering what happened.
The feds began looking at the scheme in September 2022 and an undercover agent posing as an unsuspecting mark made contact with one of the perps. The agent was directed to a spoofed version of the Singapore International Monetary Exchange (SIMEX). Other victims were directed to sites posing as the Australian Securities Exchange (ASX).
One of the fraud victims reported wiring around $2 million in cash from their bank account to some legitimate digital asset exchanges. This cash was used to buy actual digital assets, most of which were then forwarded for ‘investment’ in three “fraudulent cryptocurrency trading platforms,” leading to the loss of around $1.7 million.
Another victim claimed to have lost a staggering $14.5 million they’d ‘invested’ between May 2022 and March 2023. However, law enforcement were only able to identify $8 million in actual losses, of which $5.7 million was originally wired to accounts on the Coinbase (NASDAQ: COIN) and Gemini exchanges then converted into crypto and forwarded to the bogus platforms.
Some of the U.S. financial institutions that provided feeder accounts to the shell companies don’t come off well in terms of due diligence. For instance, while some of the shell companies had their accounts restricted or closed due to fraud, on some occasions the fraudsters were able to open new accounts the very next day under only slightly different names (i.e. Sea Dragon Trading v. Sea Dragon Remodel).
Lie down with dogs…
Deltec opened its MUFJ ‘custody’ account in September 2021, but the transaction patterns led MUFJ to alert the feds in April 2023 that Deltec appeared to be using the account as a correspondent account, i.e. as a conduit for other customers’ international transfers.
MUFJ told the feds the transfers were suspicious due to (a) the unknown source of the funds and (b) the lack of a clear economic business purpose by Axis Digital Limited and GTAL, two of the shell companies receiving the fraudulent proceeds and funneling them through Deltec’s account.
The Secret Service agent describes Deltec in the affidavit as “an overseas bank known not to be cooperative with foreign law enforcement requests.” Deltec has worked hard to earn that reputation, counting among its biggest clients such crypto scoundrels as Sam Bankman-Fried (SBF) and the Tether gang.
Last November, the bankruptcy filing of SBF’s FTX exchange and its affiliated market-maker Alameda Research reminded everyone that Alameda had taken an $11.5 million stake in FBH Corp. FBH was controlled by Jean Chalopin, who also served as Deltec’s chairman (and was co-creator of the Inspector Gadget animated TV series).
In 2020, FBH acquired Farmington State Bank, a tiny bank in Washington State. In 2021, Farmington was approved for membership in the Federal Reserve System, allowing it access to the SWIFT system for international bank transfers.
In March 2022, Alameda took its stake in Farmington, the $11.5 million somehow giving Alameda only a 10% stake in Farmington despite the bank having a net worth of less than $6 million. (Red flags, anyone?) Farmington was rebranded as Moonstone Bank and swiftly saw its deposits spike from an average of around $10 million to $84 million, nearly all of it held in just four new accounts.
Since its launch, FTX experienced difficulty convincing banks to transmit money from U.S. customers to its operations in the Bahamas. Alameda’s Moonstone stake was a way of eliminating this friction by becoming the bankers and just looking the other way when fraud occurred.
Alameda was also among the largest recipients of Tether and it’s still unclear to what extent FTX customer cash was used to buy all those billions of dollars in Tether. Equally unclear is how much of those billions might still be sitting in Deltec accounts.
Where there’s smoke…
Deltec was once the primary custodian of the fiscal reserves allegedly backing the billions of Tether circulating in the wild. Recently disclosed documents from the New York Attorney General’s 2021 $18.5 million settlement with Tether—which concluded that there were periods in which Tether “held no reserves to back Tethers in circulation”—showed Deltec holding over $26.3 billion on Tether’s behalf as of March 31, 2021, nearly two-thirds of all issued Tether at the time.
This spring, the Wall Street Journal reported that individuals behind Tether and its affiliated Bitfinex exchange engaged in bank fraud to ensure access to U.S. banking services. In April, Bloomberg reported that Tether had been instructing U.S. customers to wire money for stablecoin purchases to Capital Union Bank, another of Tether’s Bahamian financial partners, conveniently based right across the street from Deltec. (In January 2022, Deltec acquired Ansbacher, a third Bahamian bank allegedly holding Tether reserves.)
Tether’s Capital Union transfers were made via New York’s now defunct Signature Bank, which was reportedly under investigation for money laundering by the U.S. Department of Justice at the time of the bank’s implosion this spring.
The affidavit seeking the seizure of Deltec’s MUFJ cash notes that U.S. federal courts have “the authority to issue seizure warrants for assets located in another district and even outside the U.S.” Seizure warrants for the proceeds of crime “may be executed in any district in which the property is found, or transmitted to the central authority of any foreign state for service in accordance with any treaty or other international agreement.”
Moreover, “in cases involving a money laundering offense, the forfeiture statutes connected to money laundering offenses permit the government to forfeit property ‘involved in’ money laundering. Such property includes ‘untainted property’ commingled with ‘tainted’ property, when that untainted property is used to facilitate the laundering offense, such as by obscuring the nature, source, location, or control of any criminally derived property.”
Keep tugging that Tether/Deltec thread, fellas…. A garment this flimsy is bound to unravel eventually.
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Editor’s note: This article has been updated to include the statement from Deltec Bank.
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