Global RADAR’s Weekly Roundup

OneCoin Compliance Chief Pleads Guilty to Money Laundering, Wire Fraud

This past week, the U.S. Attorney for the Southern District of New York announced that Irina Dilkinska, once the head of compliance for the multi-billion dollar cryptocurrency fraud scheme known as OneCoin, pled guilty in Manhattan Federal Court to charges of wire fraud and money laundering. The charges came in connection to her participation in OneCoin’s massive pyramid scheme dating back to the mid-2010’s. The 42-year-old Bulgarian national worked underneath Ruja Ignatova, know as “the Cryptoqueen”, who founded OneCoin in 2014 along with partner Karl Sebastian. While the former remains at large after vanishing in 2017 (she remains on the FBI’s Top 10 Most Wanted List), the latter was also convicted of wire fraud and money laundering charges in late 2022 and sentenced to 20 years in prison and the forfeiture of $300 million for his role in the crimes committed.

All told, the ploy centered on this faux-coin offering working like any other valid cryptocurrency, with OneCoins marketed as being able to be mined, held in legitimate e-wallets, and used to make payments and facilitate transactions. It would later be revealed that OneCoin was anything but legitimate, given that there was no blockchain model or payment system supporting it. Acting under Ignatova’s direction, Dilkinska used her position to help OneCoin evade compliance regulations, rather than keeping her company in line with them. Together, they ran OneCoin as a multilevel marketing scheme (MLM) where employees received commission by recruiting others to purchase cryptocurrency packages that included educational materials on the market as a whole. Buyers of these packages were ultimately promised to receive tokens that could be used to mine OneCoins, with these promises never coming to fruition given that the entire company was built on a foundation of deceit. In total, over three million people invested into these fraudulent cryptocurrency packages, with the scheme raising upwards of $4 billion between 2014 and 2016. Company executives are alleged to have pocketed nearly $3 billion of these funds, while investors further down the pyramid were left in an inescapable pit of debt. Adding insult to injury, the aforementioned educational materials – which remain the only tangible return on the financial investment made by those scammed – were also later confirmed to be mostly plagiarized from other sources.

The investigation against Dilkinska ultimately revealed that she played a major role in the firm’s day-to-day operations, which given her position included actively laundering funds on behalf of OneCoin and transferring proceeds from the ploy to various offshore accounts. Summing up the case, U.S. Attorney Damian Williams stated “As OneCoin’s so-called ‘Head of Legal and Compliance’ Irina Dilkinska accomplished the exact opposite goal of her position.  As she has now admitted, Dilkinska facilitated the laundering of millions of dollars of illicit profits OneCoin accrued through its multi-level-marketing scheme.”⁴ Dilkinska now faces a maximum sentence of five years in prison for conspiracy to commit wire fraud and an additional five years for conspiracy to commit money laundering.

U.S. Federal Reserve Probes Morgan Stanley Over AML Shortcomings

Reports surfaced this past week that Morgan Stanley’s wealth management department is facing further investigation by the U.S. Federal Reserve for possible anti-money laundering failures. The regulator has been looking into whether the New York-based investment banking staple’s wealth-management branch has sufficient controls in place to prevent their wealthy foreign clients from laundering money over the last several years, with the Fed taking particular interest in just how thoroughly Morgan Stanley is vetting their clients during the onboarding process. This issue was unveiled several years ago when a routine review of Morgan Stanley’s regulatory compliance standards revealed various shortcomings. In 2020, the Fed found that the bank lacked sufficient risk-management controls for vetting foreign wealth-management clients. In response, the regulator requested that Morgan Stanley amend its due diligence processes and fortify its AML controls amongst other recommendations. When the Fed followed up on the issue a year later, several of the items on said checklist had not been adequately addressed.

Though international investors do not make up a massive percentage of Morgan Stanley’s client base, there are some significantly wealthy individuals who do have am impact on the whole of their wealth management division, a subsection that remains a key moneymaker for the multinational financial service provider. Altogether, the group’s wealth management division has grown to account for nearly 50% of their overall revenue and bringing in a record $24.4 billion in full year revenue in 2022.³ This revenue stream has helped to sustain the company when their investment dealings go through a dry spell, this as their net revenue from their comprehensive operations fell 10% from $59.8 billion in 2021 to $53.7 billion in 2022.³

While many of America’s big banks can afford to take even large-scale financial penalties in stride, fines for non-compliance do add up, and bad press can create a whirlwind of further losses, and contribute to clients choosing to take their business elsewhere. Morgan Stanley is already under investigation by the U.S. Justice Department and the Securities and Exchange Commission (SEC) dating back to 2021 for its mishandling of funds tied to an alleged Venezuelan money-laundering scheme where they may have allowed a foreign businessman – one whose account was flagged for potential money laundering – to make a corrupt oil deal with a Venezuelan government official.¹ This latest development also comes on the heels of the company agreeing to pay $6.5 million to a coalition of six states for compromising the personal data of millions of customers while decommissioning computers at the financial services giant several years ago.²

Citations

1. Andriotis, AnnaMaria. “Fed Probes Morgan Stanley’s International Wealth-Management Practices.” The Wall Street Journal, Dow Jones & Company, 8 Nov. 2023. 
2. Mangan, Dan. “Morgan Stanley Fined for Putting Customer Personal Data at Risk in Computer Purge: New York AGc.” CNBC, CNBC, 16 Nov. 2023. 
3. Zhuang, Victoria. “Morgan Stanley Books Record Quarter and Year for Wealth Management.” Financial Planning, Financial Planning, 18 Jan. 2023. 
4. “‘Head of Legal and Compliance’ for Multibillion-Dollar Cryptocurrency Pyramid Scheme ‘Onecoin’ Pleads Guilty.” Southern District of New York | “Head Of Legal And Compliance” For Multibillion-Dollar Cryptocurrency Pyramid Scheme “OneCoin” Pleads Guilty | United States Department of Justice, 9 Nov. 2023.