Last December Rosen Yosifov, owner of cryptocurrency exchange company RGcoins was arrested in Bulgaria. It turns out that US authorities require his extradition to the US due to suspicions he has helped a Romanian money laundry group. The Bulgarian court has approved the request so that the case is further investigated overseas where the trial will take place. This all provoked a wave of disagreement among Bulgarian crypto and IT communities, and not only. The reason? Yossifov’s main activity was on the Bulgarian and CEE market and therefore, he should be, if at all, sued under the local legislation, most of the statements in social media say. А petition against his extradition has started to circulate around in the net.
The truth is, if the emotional side of this story is set aside, that too many facts are missing. At the same time, extradition is a common practice and Bulgaria has an agreement with the US to extradite Bulgarians, in case US citizens are affected. The regulations of the US Security Exchange Commission is tight and this might be just the start for crypto exchange businesses like RGcoins.
Here’s all we know
RGcoins is a crypto exchange company registered in 2015. According to its financial report, the business has declared revenues of close to €10M and around €150K profit in 2017. Its business model relied on exchanging bitcoin for cash or via bank transfers, and according to its customers, it has always required personal identification of its clients. The main focus of the company seems to be the Bulgarian market – exchanges in local BGN currency and for local citizens. It’s been one of the three biggest exchanges in the region, our sources said.
There’s however a statement on RGcoins’ website that says: “Deals with clients who are not Bulgarian citizens and payments in currencies other than BGN will be processed after individual negotiations.” This means there are indeed exceptions, like in the case with the Romanian citizens – the supposed culprits who caused the current situation.
The Romanian connection is not yet completely clear. The RGcoins case further developed after the Romanian bitcoin entrepreneur Vlad Nistor, owner of Coinflux, was also arrested and accused of money laundering in December. According to local media, the story goes back to 2014-2015, when a group of Romanian criminals was reported to perform cybercrimes and defrauded US citizens living in United States territory. Reportedly, the used methods were false emails with prize promises and phishing sites that look like official trading institutions ones. By following the flow of money, the investigators found that the group was using the money they got from their illegal activities to buy cryptocurrency through Nistor’s platform. In addition, the US authorities suspected that not only have the criminals used Coinflux to launder the money, but they also engaged in conversations with Nistorvia Telegram.
The case with RGcoins looks similar – one of the 14 Romanians has reportedlyalso used the services of RGcoins to exchange money for cryptocurrency. There is, however, no official evidence that Yosifov has actively participated in the process.
“The extradition itself is warrantable due to the fact that US citizens had been affected. Bulgaria could do the same with US citizens if there were Bulgarians affected”, a local lawyer familiar with several similar cases explained us. According to him, Yosifov could be sued if there is evidence he has traded and offered services to US citizens.
The case is a warning
According to representatives from the Bulgarian local blockchain community, the RGcoins case is caused by the unclear regulations related to trading of cryptocurrencies in the country. It is not clear what KYC/AML procedures must be followed in deals related to cryptocurrency exchange and nascent local industry is left to self-regulate. Some services are better than others at that. Due to the lack of information related to the facts around the RGcoins case it is currently not clear if Mr. Yossifov has followed standard KYC/AML procedures, has fully identified his Romanian clients but he is being extradited regardless. Vladislav Dramaliev, a member of the Balkan Blockchain Association has commented on the case by urging for the establishment of a dialogue with the relevant national institutions with the goal of drafting rules and procedures that local crypto-managing companies should follow. In his words:
“The Bulgarian institutions and banks are currently some of the least friendly in the European Union. All banks have stopped servicing transfer to and from crypto exchanges since December 2017 and no company dealing with cryptocurrency is allowed to open a bank account. In addition, the only Bulgarian institution that has expressed an official opinion on the treatment of cryptocurrency exchanges is the Revenue agency and that was back in 2014. The Balkan Blockchain Association has been established to attempt to break the current status quo that is stifling an industry that could become a source of tax revenue for our destitute country. With its large community of experts and companies interested in and working with blockchain technology and cryptocurrencies, Bulgaria could become a hub of blockchain innovation in the Balkans. We urge the relevant authorities to get in touch with us so we can find the best way to make this happen.”
We also talked to a startup that is currently building a new type of platform for crypto trading and exchange in Bulgaria. “Once we are ready to launch, we will definitely register the company somewhere else because the local regulation is inadequate and too dependent on the US”, its founders told us.