Editor’s Note
This excerpt from a firsthand account details a clandestine cryptocurrency-to-cash exchange, highlighting the tangible, almost analog mechanics that still underpin parts of the digital finance world.
Two men in polo shirts and wearing Apple watches signaled us into a sparse room and closed the door. A desk was equipped with a cash-counting machine, an old-school plastic calculator and a small cardboard box filled with rubber bands for binding stacks of bills. One of the attendants flashed a QR code that connected my cryptocurrency wallet to theirs for the transaction. I sent 1,200 tether to their crypto wallet. The cash machine shuffled to life, and in an instant one of the men handed me a stack of money wrapped in a thick rubber band.
A cab took us to a sleek complex of three-story buildings devoted to the wholesaling of gold bars, diamonds and jewelry. Sanders walked into a shop that looked no different from any regular jewelry store, but he saw it as an intelligence target — a place where a criminal could discreetly change crypto into rectangular gold bars worth tens of thousands of U.S. dollars. To obtain the shop’s cryptocurrency address, Sanders bought a 100 gram-gold bar for 13,000 tether. A few doors away, a jewelry shop was selling individual diamonds in neat plastic packaging. Sanders had visited the shop a few days earlier and struck up small talk with the seller about the wonders of cryptocurrency.
We had just pulled into the bus station in Lviv, Ukraine, when the city’s air-raid sirens began to wail. I’d taken an eight-hour trip from Kyiv with Richard Sanders, a U.S. Army veteran who was crisscrossing the war-torn country to collect digital intelligence. Sanders is a volunteer for Ukraine’s national police force, which has become increasingly concerned about Russian operatives being paid in cryptocurrency.
Sanders grabbed his camouflaged luggage, which contained a hidden camera disguised as a car key, a wand to scan for eavesdropping devices in his hotel room, and an array of tourniquets in case of an airstrike. He also carried a stack of cash and a digital wallet on his iPhone loaded with cryptocurrency.
My editor’s directive was clear: Find a bunker at the first warning of incoming drones or missiles. So I flagged a cab to the closest bomb shelter on my map. Sanders, though, had more pressing matters to attend to.
His targets were embedded in the country’s vast shadow financial system — where untold amounts of cryptocurrency are exchanged for hard cash, and vice versa, with few questions asked and almost no regulation. He didn’t want to lose any time in making strategic crypto purchases.
I’d come to Ukraine to meet Sanders, one of the world’s foremost experts on these crypto-to-cash operations, which have surged in number not only there but in Hong Kong, Toronto, Istanbul, Dubai and other cities around the world. These services allow holders of cryptocurrency to cash out huge sums without touching the mainstream banking system or its safeguards on dirty money tied to organized crime, human trafficking or foreign sabotage operations. Along with a growing number of researchers, Sanders sees the expanding exchange of often-anonymous cryptocurrency with cash as posing a dire threat to the global anti-money laundering system that has been constructed over decades.
Sanders acted as my guide through this new financial underworld, taking me to crypto-to-cash operations in more than a dozen loosely regulated shops — from gritty backrooms in Kyiv to sleek offices in the upper reaches of skyscrapers in the United Arab Emirates. I witnessed more than $130,000 in transactions with these operators, who rarely asked for identification and, on one occasion, openly discussed handling dirty money.
Along with partner reporters, the International Consortium of Investigative Journalists spoke with more than a dozen cryptocurrency experts and law enforcement officials who expressed deep concern over the rise of a parallel banking system often operating in anonymity and ripe for abuse. This new financial system has successfully evaded regulators and law enforcement alike, hindering investigations with effectively anonymous cryptocurrency addresses — the crypto equivalent of bank account numbers — and scant customer information.
Smart has overseen a team that, over two years, has collected intelligence on hundreds of crypto-to-cash operations on five continents. Last year alone, the team found that Hong Kong’s cash desks processed at least $2.5 billion in crypto transactions. Smart says that while there are legitimate uses for the operations such as remittance payments, they’re “a perfect place to operate as a criminal because no one’s going to ask any questions.”
