No, Bitfinex’s seized $850 million is not likely to be unfrozen within weeks

The extent of the fallout after the New York State Attorney General (NYAG) sued Bitfinex is still taking shape, but we do know that $850 million belonging to Bitfinex’s customers is currently missing, or rather, inaccessible. Bitfinex executives have made reassurances that the seized funds would be released within weeks, but a deep dive into information currently known shows that is unlikely to be the case.

The series of events that led us here started in March of 2017, when Bitfinex, registered in the British Virgin Islands, was working with a range of banks in Taiwan. Wells Fargo, the last remaining U.S. correspondent bank willing to work with these banks, stopped offering its services. Since then, as spelled out in the 23-page document issued by the NYAG’s office, Bitfinex has been unable to establish a stable banking relationship and has had to rely on Crypto Capital and other third-party payment processors to keep its operations going.

Although Bitfinex never mentioned the partnership with Crypto Capital on its platform, the bank accounts Bitfinex listed as fiat deposit addresses were in the name of Crypto Capital or its subsidiaries and agents until the end of last year. Bank accounts used for fiat deposits and withdrawals frequently rotated too, changing as soon as an account was shut down or seized. Customers also received fiat withdrawals from rather unexpected sources, such as Portuguese companies whose activities, according to their registration, list various consulting and construction services.

Now however, $850 million belonging to Bitfinex’s customers is missing, or, as Bitfinex’s statement says, “seized and safeguarded.” Sources including Bitfinex and Crypto Capital customers, who spoke under conditions of anonymity, have led to further insights into the missing $850 million. It also shows the lack of transparency from Bitfinex towards its customers during the last year.

The Poland story

The Polish side to the missing funds relates to the Cooperative Bank of Skiernicewiece, where the Polish Ministry of Justice seized at least one account belonging to a subsidiary of Crypto Capital over a year ago as part of an anti-money laundering operation. The seize amounted to around $350 million. The subsidiary remains under investigation, The Block has learned, along with another company tied to the same people behind Crypto Capital. A third Polish company, of which Crypto Capital used bank accounts for its own customers, is also tied to the investigation. From the information reviewed by The Block, there is no indication that the investigation will be concluded any time soon.

Asked about the Polish operation in July 2018, Kasper Rasmussen, Bitfinex’s head of marketing, acknowledged knowing about the investigation, but denied any further involvement: “Our users have not lost funds or have had funds seized as a result of this investigation,” he said at the time, although later proven untrue. To be fair, the statement may have been consistent with what Bitfinex knew at that moment. The NYAG document includes chat correspondence between ‘Merlin’ and ‘Oz’, representatives of Bitfinex and Crypto Capital, respectively, with Merlin writing that Oz first told him about the Polish situation in July.

Ivan Molina, president of both Crypto Capital and the Polish subsidiary linked to the seized account, declined to comment, citing ongoing legal proceedings. A spokesperson for the Polish Ministry of Justice also declined, and a spokesperson for the Cooperative Bank of Skiernicewiece in Poland offered no comment, citing bank secrecy. A spokesperson for Europol confirmed Europol’s involvement in the operation, but declined to speak in detail and referred back to the Polish authorities.

The U.S. & Portugal story

Following the events in Poland, Bitfinex directed its customers to bank accounts at Caixa Geral de Depositos (Portugal) and subsequently Citibank (U.S.), both linked to Crypto Capital. While the Portuguese account belonged to Crypto Capital through a subsidiary, the Citibank account was in the name of Global Trading Solutions LLC, described to The Block as an agent of Crypto Capital. By May 2018, Bitfinex’s customers experienced severe delays for both fiat deposits and withdrawals, while some customers did not receive their fiat deposits or withdrawals at all. It took close to half a year before some customers, who spoke to The Block, received a refund of their fiat withdrawal on the Bitfinex platform. Whether or not the actual money behind the withdrawal was also returned to Bitfinex is unclear.

Correspondence between customers of Bitfinex and Crypto Capital reviewed by The Block show that the banks presumably closed down both accounts in May and June, according to a Crypto Capital representative. It is not known definitively at this time if either account was seized, although both Portugal and the U.S. are named in the NYAG document as countries where funds supposedly belonging to Bitfinex are held. Other U.S. banks where both Bitfinex and Crypto Capital used accounts include Enterprise Bank & Trust and HSBC.

The banking pattern shows a cat-and-mouse game between Bitfinex, its payment processor Crypto Capital, and the banks. Phil Potter, CSO of Bitfinex at the time, told the Wall Street Journal of such tactics back in 2017: “They close one account, we open another somewhere else.” It’s not uncommon for crypto exchanges to have difficulty finding banking partners, but the banking of other large exchanges has been relatively stable, raising further questions on the legitimacy of Crypto Capital’s operations.

A spokesperson for Citibank declined to comment, but did state that Citibank has a policy not to service cryptocurrency companies. A spokesperson for Caixa Geral de Depositos would not remark on the matter, citing bank secrecy obligations.

Crypto Capital dissolved

As the problems started to mount during 2018, Crypto Capital decided to move shop. In an extraordinary shareholder meeting held on June 13, 2018, Crypto Capital decided to dissolve and liquidate itself. Crypto Capital moved its operations to Zug, Switzerland under the name of Global Trade Solutions AG and continued to handle Bitfinex’s banking for retail customers until the end of 2018. If and how the move impacts the retrieval of the missing funds is not clear.

Towards the end of last year, the problems started to severely affect Crypto Capital’s operations, as evidenced by the long delays experienced by Bitfinex customers. At the time, Bitfinex assured that fiat deposits and withdrawals were processed as normal and that any delays were the result of a small backlog. The chat logs between Merlin and Oz paint a different picture, with Merlin writing on the 28th of November that “we are at the end of the month and you haven't been sending out one wire. [Not] even 1 usd for the whole month.” By December however, it became clear that the problems were so severe that Crypto Capital could no longer process any fiat deposits and withdrawals.

Ivan Molina, also president of Global Trade Solutions AG, wrote a letter regarding ongoing banking issues on December 19 that outlines the company’s operational difficulties as a result of anti-money laundering and financial crimes investigations. The letter makes mention of account freezes in the U.S. and Portugal, as well as in the U.K. The letter further denies any allegations and states that the company expects an acceptable resolution to be found within 60-90 days, a timeframe that has since passed.

With the filing by the NYAG office, we have now learned that $850 million supposedly belonging to Bitfinex is missing, or alternatively “seized and safeguarded.” By all accounts, although The Block is unable to verify any specific amount, it does seem that at least some of the funds are not gone, but rather are inaccessible. However, the $850 million is held in at least three countries, where investigations have been ongoing for more than a year. While many aspects of this story are yet to be uncovered, with the information known today, it seems unlikely that Bitfinex’s situation will resolve itself any time in the near future, let alone in the next few weeks.

Earlier today, Coindesk reported that Bitfinex is looking to raise up to $1 billion—albeit in the equivalent of tethers, the stablecoin with close ties to Bitfinex—through an Initial Exchange Offering (IEO), confirming rumors that started to swirl around the internet last night. If successful, the move would more than cover the current hole of $850 million. Although this is pure speculation and we do not know if the IEO will be followed through on, but perhaps Bitfinex realizes it needs a Plan B.

Neither Bitfinex nor Crypto Capital replied to a request for comment. If either responds, the story will be updated.