A Client’s Investment Is Laundered into Cryptocurrency

A Client’s Investment Is Laundered into Cryptocurrency

Case Study: A Client’s Investment Is Laundered into Cryptocurrency 

This case involved the following MyChargeBack services: preparation of three separate chargeback requests and an appeal to the bank ombudsman.

The Basis for the Dispute

C.E. is a recently retired grandmother in South Africa who wanted to build a larger nest egg to supplement her pension. So when she saw an ad on social media for what was described as a brokerage she naturally inquired. She was soon called by an eager but seemingly sympathetic individual who introduced himself as an account manager for a major brokerage that traded in foreign currency – forex. Soon, he convinced her that she could expect far greater returns by trading in forex than other possible options, so she decided to give it a try. After all, there was little that could go wrong, since she would be able to withdraw her funds (and profits) at any time she saw fit.

But C.E. did not know at the time that the brokerage was unlicensed to offer forex or any other type of investments in South Africa. It also claimed to operate out of the Caribbean island nation of St. Vincent and the Grenadines, whose weak financial regulatory structure has unintentionally made it a popular address for these types of merchants. In fact, the brokerage in question was offering investments to residents of multiple countries in which it was unlicensed, including the United Kingdom and Belgium, whose respective regulators, the Financial Conduct Authority (FCA) and the Financial Services and Markets Authority (FSMA), issued warnings about it. 

C.E. immediately became suspicious of the broker, however, when she attempted to withdraw her funds and was told that was now impossible, even though she was promised otherwise. The reason, so the brokerage claimed, was that her fiat currency had not been used by the unlicensed broker to purchase forex, as it promised her, but rather cryptocurrency. The crypto, moreover, was purchased by the broker through three separate crypto exchanges and deposited in wallets it claimed it did not control, in an obvious attempt to launder her funds and make it even harder to recover them than it otherwise would have been. When C.E. asked to have it transferred to her, therefore, the broker claimed that was now impossible. Frustrated with that blanket rejection, she turned to MyChargeBack for help. 

Strategies and Tactics

At first, on hearing her story, we saw a major hurdle. We would require the bitcoin addresses of the initial cryptocurrency transactions in order to track the path the coins took through the blockchain to the wallets in which they now sit. Obviously, the unlicensed brokerage would refuse to provide C.E. with that critical information. The only way to obtain it would be by sending it legal demand letters warning of possible judicial remedies if it would stonewall. That, however, would require time to yield results and, for our client, a significant investment in a retainer for an attorney. So instead we proposed an alternative.

Given that C.E. deposited her money in three installments with the brokerage using her credit card, we prepared three separate chargeback requests, one for each of the crypto exchanges that ultimately received her money. It wasn’t simple. We had to engage in lengthy discussions with the dispute department at C.E.’s bank, which initially refused to accept our arguments. Not being willing to accept ‘no’ for an answer, we appealed the dispute department’s decision to the bank’s internal ombudsman, who studied the case for a week before ruling in our favour. The ombudsman agreed that C.E.’s disputes with the exchanges are justified because of their refusal to allow her access to her funds. 

The appeal to the ombudsman, however, may have provided an unexpected advantage by convincing two of the three exchanges not to contest their respective disputes. As a result, C.E. received the money sent to those two merchants once their time limit for responding expired 31 days later. The third exchange did contest the chargeback, which the bank rejected. C.E. then received a full chargeback for the funds sent to that exchange as well. Her victory was now complete.  

The MyChargeBack Difference

MyChargeBack promises to invest 100% of its effort on behalf of every client. Inherent in that promise is a commitment to providing the best possible service to reach the best possible outcome in the best possible timeframe. In this instance, the best possible strategy was not the one that was most obvious to the client at the outset. What makes MyChargeBack different is that our Recovery Team methodically evaluates every case before it begins work on it in order to ensure that the initial strategy is indeed the most appropriate one available. With C.E. it was not, so we switched gears and instead of following the blockchain to reach the crypto exchanges we went directly to the bank that issued the credit card instead.

Another vital MyChargeBack difference is that we explore every possible avenue on the client’s behalf. In this case, we did not allow the initial rejection we received from the bank’s dispute department to deter us from that goal. We appealed, and we won.

At a Glance: MyChargeBack in South Africa

The Basis for the Dispute

  • The client used a credit card to transfer a substantial deposit to an unlicensed brokerage for the purpose of purchasing forex
  • Unbeknownst to the client, the brokerage used those funds to acquire cryptocurrency instead
  • The brokerage claimed that it could not refund the client the crypto because it was held in inaccessible wallets
  • Rather than employing a longer strategy to force the brokerage to provide the crypto addresses and trace the coins through the blockchain, we persuaded the issuing bank to raise disputes directly with the exchanges

Payment made by the crypto exchanges

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