Commissioner of Police v Vinnik
[2023] NZHC 370
•2 March 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-000609
[2023] NZHC 370
UNDER the Criminal Proceeds (Recovery) Act 2009 BETWEEN
COMMISSIONER OF POLICE
Applicant
AND
ALEKSANDR VINNIK
First Respondent
CANTON BUSINESS CORPORATION
Second Respondent
Hearing: 8 February 2023 Appearances:
M Harborow and C Purdon for the Applicant
No appearance for First and Second Respondents J Spring for Interested Party, Nobuaki Kobayashi
Judgment:
2 March 2023
REDACTED JUDGMENT OF GORDON J
This judgment was delivered by me
on 2 March 2023 at 10.30 am, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors/Counsel:
Meredith Connell, AucklandJ Spring, Minter Ellison, Auckland
COMMISSIONER OF POLICE v VINNIK [2023] NZHC 370 [2 March 2023]
[1] The Commissioner of Police (Commissioner) applies on notice by way of an application dated 4 May 2020 for restraining and further orders (application) under ss 21, 24 and 25 of the Criminal Proceeds (Recovery) Act 2009 (Act) over the following items of property:
(a)all funds in eWallet account number [redacted] at XP Solutions Ltd (eWallet 1), held in the name of or for the benefit of Canton Business Corporation (Canton);1 and
(b)all funds in eWallet account number [redacted] at XP Solutions Ltd (eWallet 2), held in the name of or for the benefit of Aleksandr Vinnik (Mr Vinnik),2
(together, the eWallet funds).
[2] Prior without notice restraining orders were made and subsequently executed on 16 June 2020. Since that date the eWallet funds totalling approximately
$140 million (NZD) have been in the Official Assignee’s custody and control.
Summary of Commissioner’s case
[3] The Commissioner says that the eWallet funds represent the proceeds of various criminal activities of Canton and Mr Vinnik committed between 2011 and 2017 in relation to their California-based digital currency exchange platform, BTC-e. Prior to execution of the without notice restraining orders the eWallet funds were held with a New Zealand company, XP Solutions Ltd (XPS NZ). The Commissioner says that Mr Vinnik and Canton attempted to conceal and launder the proceeds of BTC-e’s offending by transferring the proceeds into eWallet 1 and eWallet 2, both held in New Zealand.
1 Balance as at 13 February 2020: US dollars (USD) $89,683,590.51; Australian dollars (AUD)
$5,471,132.02; Russian rubles (RUB) 9,339,457.71; Great British pounds (GBP) 35,459.32.
2 Balance as at 13 February 2020: USD $72,574.48; RUB 453,361.66.
[4] Accordingly, the Commissioner’s case is that the offences of money laundering3 and receiving4 have been committed in New Zealand. The Commissioner says the eWallet funds represent the unlawful benefit of that offending.
Brief procedural background
[5] The application has been adjourned on a number of occasions, both at the request of the Commissioner and to enable the respondents and interested parties to engage with the proceeding. Part of the delay was as a consequence of difficulties with service on Mr Vinnik, who was incarcerated in Fresnes Prison, Paris, France and Canton’s registered office was located in the Seychelles. Along with the difficulties inherent in overseas service, there was the worldwide COVID-19 pandemic.
[6] Between 19 and 23 October 2020 Mr Vinnik was tried on a number of criminal charges in the Judicial Court of Paris. The case related to a large cyber-attack in early 2016 against French citizens and organisations using the ransomware “Locky” which, when installed on a victim’s computer, paralysed the entire system. Only upon payment of a ransom in cryptocurrency to the persons in control of the ransomware would the victim’s data be restored.
[7] Mr Vinnik was charged with, and convicted of, the laundering of the proceeds of those ransomware attacks through BTC-e. The Court found that:
(a)BTC-e appeared to be a “pivotal element” in the process of laundering the extortion proceeds;
(b)six accounts on the BTC-e platform were used to launder the “Locky” ransoms and those accounts were controlled by a single person;
(c)evidence extracted from Mr Vinnik’s devices confirmed that he was in control of two of those accounts and also demonstrated his central role in managing the accounts used for money laundering;
3 Crimes Act 1961, s 243.
4 Crimes Act, s 246.
(d)the value of the moneys received by the accounts linked to Mr Vinnik showed the major role he played in the money laundering operation; and
(e)Mr Vinnik had full knowledge of the functioning of BTC-e.
[8] The French charges related to “some twenty” victims who paid a ransom for the restoration of their computer data. However, the Court noted that internationally perhaps as many as 5,700 ransom payments of between two to five bitcoins each were extorted from victims of the “Locky” ransomware cyber-attack.
[9] Mr Vinnik was also charged but was acquitted of committing the cyber-attacks themselves using the “Locky” ransomware.
[10]The Court sentenced Mr Vinnik to five years’ imprisonment.
[11] Between September 2021 and June 2022 it was indicated to this Court that New Zealand counsel were to be engaged to act on Mr Vinnik’s behalf. Various memoranda were filed by (prospective) New Zealand counsel. However, the instructions never came to fruition.
[12] On 4 August 2022 Mr Vinnik was extradited from Greece to the United States of America (US),5 to face the following charges under title 18 of the United States Code:
(a)§ 1960, operation of an unlicensed money service business;6
(b)§ 1956(a)(1), laundering of monetary instruments;7
5 Mr Vinnik was returned to Greece at the conclusion of his sentence in France.
6 Maximum penalty of five years’ imprisonment, or a fine in accordance with title 18 of the United States Code, or both.
7 Maximum penalty of 20 years’ imprisonment, or a fine of not more than the greater of $500,000 or twice the value of the property involved in the transaction, or both.
(c)§ 1956(h), conspiracy to commit laundering of monetary instruments;8 and
(d)§ 1957, engaging in monetary transactions in property derived from specified unlawful activity.9
[13] The above charges were laid in January 2017 while Mr Vinnik was outside of the United States. The underlying premise of the above charges is the same as that which underlies the Commissioner’s application against Mr Vinnik and Canton: the operation of the unlicensed money transmitting business and currency exchange, BTC-e, which engaged in international money laundering of known criminal proceeds.
[14] On 3 October 2022 the application was called in this Court for the seventh time. There was no appearance by or on behalf of Canton. The Court declined to appoint (prospective) counsel who had filed memoranda from time to time on behalf of Mr Vinnik, but who were never engaged by him, as standby counsel. The Court noted that is a role that applies only in criminal proceedings. The Court directed the application be heard as a formal proof.
[15] The Commissioner relies on affidavits filed in support of his without notice application and further affidavits sworn after the without notice application was determined.
Service on respondents
[16] I am satisfied that Mr Vinnik has been served with all relevant documents and he had notice of the hearing. Canton was served with the first two rounds of documents. Although Canton refused to accept the third round of documents I accept that through Mr Vinnik it had notice of the hearing. A brief summary of evidence of service is set out below.
8 Maximum penalty of 20 years’ imprisonment, or a fine of not more than the greater of $500,000 or twice the value of the property involved in the transaction, or both.
9 Maximum penalty of 10 years’ imprisonment, or a fine under title 18 of the United States Code, or both.
[17] On 14 May 2021 Mr Vinnik was personally served in the prison in Paris, France, where he was then incarcerated, with relevant documents to that date.
[18] On 6 September 2021 when the on-notice application was called for the third time, this Court made an order regarding future service directing substituted service by email on Mr Vinnik’s lawyer in France, Mr Frederic Belot. Mr Vinnik has been served by that means since then. Further, the appearance of prospective counsel on various occasions in this Court indicates that Mr Vinnik was plainly aware of the proceedings.
[19] On 27 June 2022 a Judge of this Court directed counsel for the Commissioner to provide to Mr Vinnik a copy of the Court’s minute of that date which noted that the on-notice application was likely to proceed by way of formal proof in the absence of Mr Vinnik instructing counsel in the proceeding. The Judge’s minute was forwarded by email to Mr Belot on 27 June 2022.
[20] On 2 February 2023 at the same time as filing submissions in support of the present application, counsel for the Commissioner simultaneously served the submissions on Mr Belot. The submissions record the date of the formal proof hearing as 8 February 2023.
[21] Turning to service on Canton. The first round of documents was served on Canton at its registered address in the Seychelles on 3 July 2020.
[22] The second round of documents were sent by courier from New Zealand on 14 June 2021 to Canton’s registered address by New Zealand Couriers. A New Zealand Couriers document records that the documents were delivered to the registered address on 18 August 2021.
[23] On 21 December 2022 an employee of the Crown Solicitor at Auckland made arrangements for service of the third round of documents to be delivered to Canton’s registered address.
[24] On 7 February 2023 the employee of the Crown Solicitor received an email from a Customer Experience Representative at FedEx New Zealand advising the documents could not be delivered as the receiver was not expecting the shipment and refused to accept it.
[25] Nevertheless, I consider first that Canton was well aware of the proceeding having regard to the successful service of documents on two occasions. I also consider that Canton would have been aware of the hearing date. The evidence satisfies me that Mr Vinnik is the person behind Canton. Accordingly, service on Mr Vinnik acts as notification to Canton.
Name suppression
[26] Mr Vinnik and Canton have had name suppression to date. On 5 May 2020 a Judge of this Court made directions for the application to have its first call on 1 July 2020, and also directed that:
(a)the proceeding name and other identifying details not be published by the Registry (including in the daily list published online);
(b)the Commissioner be notified of any requests to access the Court file and be given an opportunity to be heard; and
(c)the Without Notice Orders continue in force until the Commissioner’s application is disposed of.
[27] The above orders were made on the application of the Commissioner. The Commissioner was concerned that if publication of the existence of the proceeding occurred and there was publication of the fact that without notice orders had been made, this would place the eWallet funds at risk of dissipation. The Commissioner wished to first have those orders executed and for the eWallet funds to be under the New Zealand Official Assignee’s custody and control before any publication occurred.
[28] The Commissioner now applies (orally) for the suppression orders to be rescinded having regard to the passage of time since the orders were made, and more particularly, the rationale for their existence no longer applies.
[29] For the reasons advanced on behalf of the Commissioner I make an order rescinding the suppression orders made by this Court on 5 May 2020.
Other parties
[30] Nobuaki Kobayashi is the rehabilitation trustee for Mt Gox Co Ltd, a digital currency exchange based in Japan, from which 647,000 bitcoins were allegedly stolen over the period October 2011 to May 2014. On 15 October 2020 counsel for Mr Kobayashi indicated that Mr Kobayashi intends to file for relief from civil forfeiture in due course.
[31] Mr Spring appeared on behalf of Mr Kobayashi but did not make any submissions.
[32] Four further parties, Sergey Mayzus, OKpay CY Ltd, OKpay Inc and Mayzus Financial Services Ltd (together the Mayzus parties) obtained an interim charging order against all personal property held by XP Solutions Ltd for the benefit of Canton on 29 October 2020 (interim charging order).
[33] On 19 March 2021 the Commissioner filed an application for relief seeking rescission of the interim charging order. This Court ordered rescission on 21 April 2021.
[34] The Commissioner’s position is that the Mayzus parties are not interested parties in this proceeding having no interest in the property to which it relates, namely the eWallet funds. Notwithstanding that position, Mr Harborow, counsel for the Commissioner, advised the Court that the Commissioner has continued to update the Mayzus parties as to the progress of this proceeding, including by serving a copy of the Commissioner’s submissions filed for this hearing. The Mayzus parties did not seek to be heard at the hearing.
The criminal proceeds regime
[35] The primary purpose of the Act is to establish a regime for the forfeiture of property that has been derived directly or indirectly from significant criminal activity or that represents the value of a person’s unlawfully derived income.10
[36] It is not necessary for restraint to precede forfeiture.11 However, the Commissioner frequently applies for restraint to ensure the preservation of property pending forfeiture in accordance with the purpose of the regime.12
[37] The courts have recognised that the Act must respond in situations involving multi-jurisdictional crime. In Yan v Commissioner of Police the majority of the Court of Appeal observed that in the digital age and in a global economy, the imperative of combatting criminal activity, particularly organised crime, is “arguably more pressing than ever”.13
Nature of restraining orders
[38] In Vincent v Commissioner of Police, the Court of Appeal referred to the nature of restraining orders as follows:14
[45] …
(b) It is important to recall what the judge must be satisfied about before issuing a restraining order. He or she must be satisfied that there are “reasonable grounds to believe” that the property is tainted property or that the relevant person unlawfully benefited from significant criminal activity. …
…
[47] By way of explanation, restraining orders will often need to be obtained in situations of urgency, as is illustrated by the provision for “without notice” applications. They are, as we have said, temporary orders, which give the police time to gather further evidence, and may lead to forfeiture but only on the completion of further processes. Restraining orders are issued on the basis
10 Criminal Proceeds (Recovery) Act 2009 [Act], s 3(1).
11 Section 11 of the Act.
12 Section 3(2): to eliminate the chance of persons to profit from undertaking or being associated with significant criminal activity; to deter significant criminal activity; and to reduce the ability to continue to expand criminal enterprise.
13 Yan v Commissioner of Police [2015] NZCA 576, [2016] 2 NZLR 593 at [33]. See also
Commissioner of Police v Vincent [2012] NZHC 2581 at [29].
14 Vincent v Commissioner of Police [2013] NZCA 412, (footnotes omitted).
of reasonable grounds to believe, rather than proof, that the target has unlawfully benefited from significant criminal activity. …
[39] In Commissioner of Police v Li, after referring to the above observations by the Court of Appeal, Katz J noted that “the threshold for making restraining orders is therefore relatively low, consistent with their role as a ‘holding’ measure”.15
Section 25 restraining order: unlawful benefit
[40] Section 25(1) provides for the making of a restraining order based on unlawful benefit:
25 Making restraining order relating to all or part of respondent’s property
(1) A court hearing an application for a restraining order relating to all or part of a respondent’s property may, if the court is satisfied it has reasonable grounds to believe that the respondent has unlawfully benefited from significant criminal activity, make an order that the property it specifies in the order (restrained property)—
(a)is not to be disposed of, or dealt with, other than is provided for in the restraining order; and
(b)is to be under the Official Assignee’s custody and control.
…
[41] The expression “significant criminal activity” is defined in s 6 of the Act as follows:
6 Meaning of significant criminal activity
(1) In this Act, unless the context otherwise requires, significant criminal activity means an activity engaged in by a person that if proceeded against as a criminal offence would amount to offending—
(a)that consists of, or includes, 1 or more offences punishable by a maximum term of imprisonment of 5 years or more; or
(b)from which property, proceeds, or benefits of a value of $30,000 or more have, directly or indirectly, been acquired or derived.
…
15 Commissioner of Police v Li [2014] NZHC 479 at [8].
[42] The phrase “unlawfully benefitted from significant criminal activity” is then defined in s 7 of the Act:
7 Meaning of unlawfully benefited from significant criminal activity
In this Act, unless the context otherwise requires, a person has unlawfully benefited from significant criminal activity if the person has knowingly, directly or indirectly, derived a benefit from significant criminal activity (whether or not that person undertook or was involved in the significant criminal activity).
[43] It is not necessary for the property itself to be derived from criminal offending. What is relevant is the knowing derivation (including wilful blindness) of financial reward from crime.16
[44] Unlawful benefit may be established on the basis of circumstantial evidence and inferences can be drawn from several strands of such evidence.17 Possession of large sums of unidentified income which cannot be adequately explained will tend to support an inference that the relevant cash has been sourced from illegitimate or criminal activity.18
[45] A restraining order under s 25 may relate to all of a respondent’s property or a specified part of a respondent’s property.19 “Property” is defined as including “an interest in real or personal property”.20 “Interest” in relation to property of any kind is defined as meaning:21
(a)a legal or equitable estate or interest in the property; or
(b)a right, power, or privilege in connection with the property.
16 Commissioner of Police v Vincent, above n 13, at [48] – [53].
17 Commissioner of Police v de Wys [2016] NZCA 634 at [9].
18 At [71].
19 Section 25(2) of the Act.
20 Section 5(1) of the Act.
21 Section 5(1) of the Act.
Section 24 restraining order: tainted property
[46]Section 24 provides for a restraining order based on tainted property:
24 Making restraining order relating to specific property
(1) A court hearing an application for a restraining order relating to specific property may, if the court is satisfied it has reasonable grounds to believe that any property is tainted property, make an order that the property (restrained property)—
(a)is not to be disposed of, or dealt with, other than is provided for in the restraining order; and
(b)is to be under the Official Assignee’s custody and control.
…
[47]“Tainted property” is defined as:22
tainted property—
(a) means any property that has, wholly or in part, been—
(i)acquired as a result of significant criminal activity; or
(ii)directly or indirectly derived from significant criminal activity; and
(b) includes any property that has been acquired as a result of, or directly or indirectly derived from, more than 1 activity if at least 1 of those activities is a significant criminal activity
[48] The respondent need not be engaged in the significant criminal activity personally, provided the property was wholly or partly derived from significant criminal activity.23
Money laundering and domestic restraining orders
[49] The Court of Appeal has addressed the position on the use of domestic restraining orders when they are applied for in circumstances where money laundering involves “predicate offending” in overseas jurisdictions:24
[26] Ms Guthrie made the point that money laundering can involve the commission of an offence in multiple jurisdictions and that the courts have regularly recognised
22 Section 5(1) of the Act.
23 Doorman v Commissioner of Police [2013] NZCA 476, [2014] 2 NZLR 173 at [32] – [36].
24 Rodriguez v Commissioner of Police [2020] NZCA 589, (footnotes omitted).
the Act must respond in situations involving multi-jurisdictional crime. We agree with her submission that the purpose of deterrence must include deterring foreign criminals from using New Zealand as a haven to deposit the proceeds of crime, regardless of whether there has been a request to act by a foreign state.
…
[29] We therefore agree that where money laundering is alleged in respect of funds located in New Zealand the Commissioner is at liberty to apply for a domestic restraining order under s 25 irrespective of where the so-called predicate offending may have occurred. Like the Judge we consider that the appellants’ argument attempts to read in a restriction which the statute does not impose.
Analysis: section 25 (unlawful benefit from criminal activity)
[50] The Commissioner applies under both ss 24 and 25 of the Act. I will discuss the application of s 25 first.
[51] Mr Harborow for the Commissioner submits that the evidence demonstrates that Canton and Mr Vinnik substantially benefitted from criminal activity in New Zealand, being money laundering and receiving: to the extent of the eWallet funds. Mr Harborow submits that for the purposes of this application there are reasonable grounds to believe that they so benefitted.
[52] The following discussion and analysis of the factual background is drawn in significant part from the submissions on behalf of the Commissioner which I am satisfied properly summarise the relevant parts of the affidavit evidence.
Predicate criminal offending
[53] BTC-e was a digital currency exchange that allowed users to buy and sell Bitcoin and other digital currencies anonymously through its web domain, btce.com, effectively controlled by Mr Vinnik. Canton and BTC-e are virtually synonymous. Mr Vinnik effectively controlled BTC-e.
[54] Broadly speaking, BTC-e was involved in two categories of criminal activity. First, it was operating as an unlicensed money transmitting business in the US. It failed to have any meaningful anti-money laundering (AML) or ‘Know your Customer’ (KYC) processes in place, as required by US law.
[55] Second, it consequently provided a platform for criminals and cybercriminals to launder proceeds from a range of criminal activities including fraud, embezzlement, theft, and illegal drug distribution. Specific examples of note are:
(a)The theft of approximately 647,000 bitcoins from Mt Gox digital currency exchange and the depositing of portions of the stolen bitcoin into eWallets and accounts that were directly linked to BTC-e and Mr Vinnik.
(b)The laundering of approximately USD $800,000 of proceeds of ransom payments as a result of ransomware attacks using Cryptowall (ransomware which encrypts computers preventing their use). As well, there were the Locky ransomware cyberattacks in France referred to above where the proceeds were proven in a French criminal proceeding to have been laundered through BTC-e.
(c)The use of BTC-e to transact criminal proceeds by an ex-DEA (Drug Enforcement Administration) agent for which BTC-e did not request any identifying information.
[56] BTC-e also relied on affiliated entities such as Canton and Always Efficient LLP (Always Efficient) which also lacked basic AML and KYC policies.
[57] In relation to this second category of criminal activity, it was apparent that the administrators of BTC-e were aware that it effectively functioned as a money laundering vehicle and they themselves used it in such a way. This was evidenced by messages on the platform, including a message exchange with an undercover agent raising clear suspicions that the funds were derived from drug sales, and the failure to undertake customer verification or to ask for documentation.
Transfer of funds to the eWallets
[58] Some of BTC-e’s proceeds were dealt with by Canton and Mr Vinnik in New Zealand: the eWallet funds. In 2012 Mr Vinnik and Canton both opened eWallets with FXOpen NZ Ltd, a foreign exchange broker offering online currency trading
services. FXOpen NZ Ltd initially provided eWallet services to FXOpen. FXOpen NZ Ltd ceased operations and went into liquidation. At around the same time (around 1 April 2015) XPS NZ commenced providing eWallet services to FXOpen. At that time all eWallet services were transferred from FXOpen NZ Ltd to XPS NZ.
[59] XPS NZ’s eWallet solution is fully integrated into the FXOpen website and is used for deposits, withdrawals and instant fund transfers between trading accounts held with FXOpen. To deposit funds into an FXOpen foreign exchange trading account, a customer must first fund the underlying eWallet held with XPS NZ.
[60] One way of funding an eWallet held with XPS NZ is to transfer funds into XPS NZ’s trading account at the Moscow branch of Alfa Bank. Depositors are required to identify the details of their payment and the details of the eWallet to which the funds are required to be credited. Deposited funds are credited to the depositor’s eWallet once the funds have been received by XPS NZ and are, until that time, pending in the customer’s eWallet.
[61] The funds in eWallet 1 and eWallet 2 were previously held at Alfa Bank. This indicated they had been deposited there before being loaded against the eWallets by XPS NZ.
[62] When eWallet 1 and eWallet 2 were transferred to XPS NZ around 1 April 2015, Mr Vinnik and Canton were required to complete AML declarations and agree to XPS NZ’s terms and conditions. Between 2015 and 2017, BTC-e used Canton and Always Efficient to transfer funds to eWallet 1, funds which appeared to be derived from BTC-e’s operations. It remained unclear as to how the remainder of the funds in eWallet 1 and eWallet 2 were transferred, however, I accept they likely came from BTC-e’s operations as well.
[63] In July 2017, XPS NZ froze all of Canton and Mr Vinnik’s accounts due to concerns about the source of the funds and in furtherance of their AML obligations, and subsequently consolidated all the funds held by Canton and Mr Vinnik into eWallet 1 and eWallet 2 respectively.
Jurisdiction
[64] Mr Harborow submits that the dealing with, and receiving of, funds in the New Zealand-held eWallets is what constitutes part of the actus reus for the money laundering and receiving offences such that the offences are deemed to have been committed in New Zealand.25
Money laundering as significant criminal activity
[65] I accept Mr Harborow’s submission that the eWallet funds are made up of BTC-e’s revenue and/or its customers’ funds, which in turn derive at least in part from the criminal activity (outlined at [54] – [55] above). It appears the funds have been transferred to the New Zealand-held eWallets in order to distance the eWallet funds from BTC-e and to conceal their illicit source. The eWallet funds are effectively proceeds of an offence for the purposes of predicate offending for money laundering;26 and are also property obtained by an imprisonable offence for the purposes of predicate offending for receiving.
[66] Predicate offending can occur outside this jurisdiction27 provided that the conduct would amount to offending28 if it had been committed in New Zealand. In an affidavit filed on behalf of the Commissioner the alleged criminal activity in the US is set out along with the likely offences that would have been committed in New Zealand had the conduct occurred in this country.
[67] I accept Mr Harborow’s submission that Mr Vinnik and Canton were aware of the true and unlawfully derived nature of the eWallet funds. This is because Canton is virtually synonymous with BTC-e and Mr Vinnik effectively controlled BTC-e. eWallets operated by BTC-e administrators and Mr Vinnik were connected to the bitcoins stolen in the Mt Gox theft. Furthermore, Canton and Mr Vinnik have failed
25 Crimes Act 1961, s 7.
26 The definition of predicate offending for money laundering was widened on 7 November 2015 when the definition of “serious offence” (punishable by five years’ imprisonment or more) was changed to “offence” (punishable under New Zealand law).
27 Crimes Act, ss 243(1), 246(2) and 246(5). See also Rodriguez v Commissioner of Police [2020] NZCA 589 at [26] and [29].
28 Punishable by imprisonment for receiving or punishable under New Zealand law for money laundering (from 7 November 2015) if it had been committed in New Zealand.
to provide any information regarding the source of the eWallet funds, despite requests to do so.
[68] Canton and Mr Vinnik have assisted and instructed XPS NZ to deal with their eWallet funds since they were transferred from FXOpen NZ to XPS NZ. In particular, Canton and Mr Vinnik have assisted XPS NZ by depositing funds in the Alfa Bank, and then authorising and instructing the credits to be deposited into eWallet 1 and eWallet 2. Canton and Mr Vinnik both assisted XPS NZ to deal with their property where XPS NZ, a New Zealand-based company, performed parts of the actus reus for the offence of money laundering in New Zealand.29 Their motivations can only have been to conceal the true, unlawful source of the eWallet funds.
[69] It is also apparent that Canton and Mr Vinnik likely engaged in further money laundering transactions once the credits had been made to the eWallets. They regularly transferred funds to and from their eWallets and their FXOpen currency accounts and transferred funds between one another’s eWallets. These transactions all require a request to XPS NZ from the customer’s account i.e. Canton or Mr Vinnik.
Receiving the eWallet funds as significant criminal activity
[70] The eWallets administered and controlled by XPS NZ, a New Zealand registered company, can be appropriately deemed as New Zealand-held. They are subject to New Zealand’s AML laws and the eWallet Terms of Use agreement recognises the control XPS NZ has over the eWallets. Moreover, the Terms of Use provide that the terms, rights and obligations of parties shall be governed by the laws of New Zealand with any legal proceeding arising out of the terms to be heard and resolved by a court in New Zealand. Therefore, I am satisfied that the introduction of BTC-e’s criminally derived funds into the New Zealand-held eWallets, eWallet 1 and eWallet 2, renders the funds as “received”, forming part of the actus reus of the offence of receiving.
29 Section 243(4)(b) of the Crimes Act 1961 provides that a person engages in a money laundering transaction if, in concealing any property, that person assists any other person whether directly or indirectly to deal with the property.
[71] While a person cannot receive from themselves,30 such that Canton could not have received the funds in eWallet 1 which it transferred there, I accept that a more accurate reflection of the situation is that Mr Vinnik had control of the funds in eWallet 1, and therefore received them from Canton. This is evidenced by a series of transfers from Mr Vinnik’s eWallet 2 to Canton’s eWallet 1, the overlap in email addresses provided by Canton and Mr Vinnik to XPS NZ, and the degree of control Mr Vinnik exercised over BTC-e. Even if I was not satisfied with this characterisation, at least a portion of the funds in eWallet 1 were deposited by the related but separate corporate entity, Always Efficient, which Canton or Mr Vinnik received.
The unlawful benefit of the significant criminal activity
[72] The unlawful benefit obtained by Canton and Mr Vinnik from laundering or receiving need not be a material increase in wealth. The mere availability of funds as a result of laundering can be viewed as a benefit.31 The eWallet funds themselves in New Zealand is the unlawful benefit derived from this offending.
The eWallet funds are that of Canton and Mr Vinnik
[73] The funds contained in eWallet 1 and eWallet 2, held in the names of Canton and Mr Vinnik respectively, are specific parts of their property for the purposes of a restraining order under s 25(2)(b) of the Act.
[74] For all the above reasons, I am satisfied there are reasonable grounds to believe that Mr Vinnik and Canton have unlawfully benefited from significant criminal activity.
Analysis: section 24 (tainted property)
[75] The Commissioner relies in the alternative on s 24 of the Act. Having decided in favour of the Commissioner to grant the application under s 25, the position under s 24 can be addressed relatively briefly.
30 Ortmann v United States of America [2018] NZCA 233, [2018] 3 NZLR 475 at [207].
31 Rodriguez v Commissioner of Police [2020] NZCA 589 at [49].
[76] Canton was the main corporation BTC-e used for its operations with financial and other records demonstrating that the two were synonymous. For instance, the same IP address was used to log into accounts and email addresses, the confirmation by Mr Vinnik in an email that deposits made into a Canton bank account were profits from BTC-e’s operations, and the admission of Mr Vinnik that transfers into the Canton XPS NZ account were payments made to BTC-e.
[77] A review of BTC-e’s email account also revealed that customers were confirming wire transfers to and from Always Efficient.
[78] BTC-e used Canton and Always Efficient to transfer USD $44,656,686 of its own funds to XPS NZ between March 2016 and July 2017.
[79] Between 2015 and 2017, EUR €39,577,294 was transferred into eWallet 1 at XPS NZ via two accounts held in the names of Canton and Always Efficient. The funds originated from BTC-e, and therefore are likely derived from the criminal activity (outlined at [54] – [55]) that occurred on the platform.
[80]The precise source of the remaining funds in the eWallets remains unknown.
However, the tainting of part of the property is sufficient.32
[81] For all the above reasons, I am satisfied that there are reasonable grounds to believe that the eWallet funds are tainted property.
Result
[82] I make the following restraining orders under ss 24 and 25 of the Criminal Proceeds (Recovery) Act 2009 in terms of the Commissioner’s application dated 4 May 2020.
32 Section 5(1)(a).
[83] The following property (collectively, the property) shall not be disposed of, or dealt with, by any person other than as provided for in this order, and is to be under the New Zealand Official Assignee’s custody and control:33
(a)the credit balance of eWallet account number [redacted] at XP Solutions Ltd (Canton account), held in the name of or for the benefit of Canton Business Corporation; and
(b)the credit balance of eWallet account number [redacted] at XP Solutions Ltd (Vinnik account), held in the name of or for the benefit of Aleksandr Vinnik.
Gordon J
33 The Commissioner sought further orders under ss 33, 34 and 35 of the Act. That part of the application is now redundant given the without notice orders were executed and the eWallet funds were transferred to New Zealand in 2020.
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