Chinese Officials Hoped CoinJoin Would Hide Bitcoin Bribes

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  • Guochun He and Zheng Wang used bit­coin mix­er Wasabi Wal­let to hide bribe pay­ments, Ellip­tic said
  • The pair alleged­ly hoped to gath­er con­fi­den­tial doc­u­ments relat­ed to a fed­er­al inves­ti­ga­tion into Huawei

Two Chi­nese offi­cials tried to hide bit­coin bribes paid to a US dou­ble agent with cryp­to mix­ing tech­nol­o­gy, once again thrust­ing pri­va­cy-pre­serv­ing pro­to­cols into pub­lic discourse.

In 2019, author­i­ties say Guochun He and Zheng Wang direct­ed a US gov­ern­ment employ­ee to steal infor­ma­tion about an ongo­ing crim­i­nal inves­ti­ga­tion into a glob­al tele­com com­pa­ny based in the People’s Repub­lic of Chi­na (PRC), accord­ing to the Depart­ment of Jus­tice (DOJ). 

The DOJ doesn’t name the com­pa­ny, but the Wall Street Jour­nal and CNBC both report­ed the firm as Huawei. 

The offi­cials, said to be con­duct­ing for­eign intel­li­gence oper­a­tions in the inter­est of Huawei, believed the US gov­ern­ment employ­ee was recruit­ed to work for Bei­jing. He was in fact work­ing with the US Fed­er­al Bureau of Inves­ti­ga­tion (FBI), the com­plaint alleges.

In Sept. 2021, the Chi­nese offi­cials assigned the dou­ble agent with detail­ing their meet­ings with pros­e­cu­tors at the US Attorney’s office in Brooklyn. 

They were espe­cial­ly inter­est­ed in under­stand­ing which Huawei employ­ees had been inter­viewed by the gov­ern­ment, seek­ing a descrip­tion of the pros­e­cu­tors’ evi­dence, wit­ness list and tri­al strategy.

Guochun He, one of the Chi­nese offi­cials who paid the bit­coin bribes, alleged­ly told the agent that the com­pa­ny in ques­tion was “obvi­ous­ly inter­est­ed” in the infor­ma­tion. He first hand­ed over $41,000 in bit­coin in Oct. 2021 for steal­ing a doc­u­ment and anoth­er lot worth $20,000 in September.

Huawei didn’t return Block­works’ request for com­ment by press time.

Analytics unit traced bitcoin bribes despite Wasabi Wallet

In pri­vate mes­sages, He alleged­ly asked the agent to accept bit­coin as he believed it would be “pri­vate and safe” from the eyes of the government.

Cryp­to has long been con­sid­ered a means of engag­ing in dis­crete trans­ac­tions, but most­ly the oppo­site is true. Blockchain data, at its core, is almost always pub­lic and trans­ac­tions are trace­able, albeit pseudonymous. 

Cryp­to mix­ers were designed to pro­vide pri­va­cy for this open finan­cial sys­tem. There are many dif­fer­ent kinds but they gen­er­al­ly work by com­min­gling funds with oth­er users. 

Mix­ers have increas­ing­ly come under the spot­light after usage by North Kore­an hack­ers and oth­er bad actors in laun­der­ing illic­it cryp­to gath­ered from exploits across the cryp­to ecosys­tem along­side ran­somware attacks.

Excerpt from DOJ indict­ment.

The US recent­ly banned cit­i­zens from using Ethereum-pow­ered cryp­to mix­ing ser­vice Tor­na­do Cash for this reason. 

Blockchain ana­lyt­ics firm Ellip­tic found that the two offi­cials used bit­coin wal­let Wasabi Wal­let to con­ceal their trans­ac­tions. Wasabi describes itself as an open-source, non-cus­to­di­al bit­coin wal­let cre­at­ed to pro­vide pri­va­cy by default. 

The wal­let makes use of tech known as “Coin­Join,” which com­bines bit­coin of mul­ti­ple trans­act­ing par­ties to ren­der iden­ti­fy­ing fund prove­nance more difficult.

“All of the bribe pay­ments can be traced back to Wasabi,” Ellip­tic said in a state­ment. Tom Robin­son, co-founder and chief sci­en­tist at Ellip­tic, told Block­works the firm was able to iden­ti­fy the bit­coin trans­ac­tions based on details dis­closed in the crim­i­nal complaint.

Ellip­tic was then able to use its blockchain ana­lyt­ics tools to trace the source of the pay­ments and iden­ti­fy the use of Wasabi. Wasabi Wal­let didn’t imme­di­ate­ly return Block­works’ request for comment.

Image source: Elliptic

Both offi­cials are charged with attempt­ing to obstruct a crim­i­nal pros­e­cu­tion of Huawei in the fed­er­al dis­trict court in the East­ern Dis­trict of New York. He is addi­tion­al­ly charged with two counts of mon­ey laun­der­ing based on bribe payments. 

They cur­rent­ly remain at large. If con­vict­ed, He faces up to 60 in prison and Wang faces up to 20 years.

In any case, the mat­ter once more high­lights the dif­fi­cul­ty of hid­ing cryp­to activ­i­ty — whether illic­it or benign — even after funds are sent through cryp­to mix­ing tech­nol­o­gy such CoinJoin. 

Elliptic’s Robin­son told Block­works the firm has “spe­cial tech­niques for iden­ti­fy­ing bit­coin address­es asso­ci­at­ed with Wasabi use.”


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  • Shali­ni Nagarajan

    Block­works

    Reporter

    Shali­ni is a cryp­to reporter from Ban­ga­lore, India who cov­ers devel­op­ments in the mar­ket, reg­u­la­tion, mar­ket struc­ture, and advice from insti­tu­tion­al experts. Pri­or to Block­works, she worked as a mar­kets reporter at Insid­er and a cor­re­spon­dent at Reuters News. She holds some bit­coin and ether. Reach her at [email pro­tect­ed]

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