Another ‘Blockchain Island’ pioneer investigated, Malta companies also declared bankrupt

The US Securities and Exchange Commission has filed a complaint after an investigation into one of the cryptocurrency exchanges that flocked to Malta during the initial 2018 and 2019 crypto-craze when such operations went largely unregulated and unmonitored.

Bittrex, then a leading crypto exchange, set up shop in Malta in October 2018 and moved to Liechtenstein in October 2019 right when actual regulations for the free-for-all shady market were announced.

Bittrex Inc. said at the end of October 2019 that it was closing down its Malta operations, Bittrex International, which “coincided with the launch of a new exchange”, Bittrex Global om Liechtenstein.

Bittrex Inc. said on Monday that it and several affiliates filed for bankruptcy in the wake of the SEC complaint and after its US operations were shut down in response to a regulatory crackdown.

According to court papers, Bittrex-related entities Bittrex Malta Holdings Ltd and Bittrex Malta Ltd also entered bankruptcy. They are still registered as active on the Malta Business Registry.

The SEC sued Bittrex in US federal court last month, alleging it broke the regulator’s rules between 2017 and 2022 while earning at least $1.3 billion in revenue. Its time in Malta was right in the middle of the period under investigation.

The SEC said Bittrex at times acted as a brokerage, exchange, and clearing agency but didn’t register with the SEC.

The company is also listed on the US Treasury’s Office of Foreign Assets Control as its biggest unsecured creditor, to which it owes US$24 million from an earlier settlement for failing to prevent customers in Iran, Cuba and other sanctioned nations from using its cryptocurrency platform.

Bittrex among was a number of crypto companies that Malta opened its doors to and who benefited from a so-called ‘grandfathering period’.

Until that ‘grandfathering period’ elapsed and their applications were processed, such companies were essentially exempt from the need for authorisation or even the need to comply with anti-money laundering laws.

This largely explains the rush of big companies registering their interest in setting up in Malta at a time when other governments were focusing on regulating the sector rather than attracting as many players as possible like Malta was doing.

A number of them were later investigated by the SEC and others for their actions in Malta and/or after their departure over the untold billions that changed hands and disappeared without a trace.

Many have since found themselves under investigation for a variety of crypto-crimes.

These include Justin Sun, an early entrant to Malta’s Blockchain Island, who was charged by the US Securities and Exchange Commission with the unregistered offer and sale of crypto assets. He was also charged with fraudulently manipulating the price of TRX, his cryptocurrency.

They also include the government’s then-‘virtual currency partner’ Christopher Emms, now wanted by the FBI for teaching North Korea blockchain money laundering while operating in Malta.

Emms, now seeking asylum in Russia, once claimed to be spearheading Malta’s ‘Blockchain Island’ fever. He is now wanted for violations against US sanctions at a conference in North Korea that also led to the highly-publicised arrest and indictment of Ethereum developer Virgil Griffith.

Emms is currently wanted in the US where he is facing up to 20 years in prison for allegedly teaching North Korean government functionaries at the conference how to use blockchain to launder money and evade US sanctions – crimes he allegedly perpetrated while he was active during Malta’s Blockchain Island frenzy.

Emms was then placed on the FBI’s wanted list for teaching the technology to North Korea – has said he is now seeking political asylum in Russia.

More light is also being shed on the shady dealings Binance is suspected of having run through Malta during its year-long 2018-2019 stint on ‘Blockchain Island’.

The latest revelation is that Binance had processed close to $346 million in bitcoin for the Bitzlato – a digital currency exchange whose founder was arrested by American authorities last week over allegations the exchange was running a “money laundering engine”.

The US Justice Department charged Bitzlato’s co-founder and majority shareholder Anatoly Legkodymov, a Russian living in China on 18 January with operating an unlicensed money exchange business that “fuelled a high-tech axis of cryptocrime” by processing $700 million in illicit funds.

Binance was among Bitzlato’s top three counterparties by the amount of bitcoin received between May 2018 and September 2022, according to the US Treasury’s Financial Crimes Enforcement Network (FinCEN).

Binance chief strategy officer Patrick Hillmann recently admitted in an interview with The Washington Post that the world’s largest cryptocurrency exchange that set up shop in Malta in 2018 ‘had shortcomings in its approach to regulatory compliance in the first few years of its rapid expansion’.

The company, he said, has now changed its ways and is attempting to make a clean break from its early days of shaky regulatory compliance.