Chinese officials hoped CoinJoin would hide Bitcoin bribes

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

In 2019, authorities said Guochun He and Zheng Wang instructed 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 is not naming the company, but the Wall Street Journal and CNBC both reported the firm as Huawei.

The officials, who are said to be conducting foreign intelligence operations in Huawei’s interest, believed the US government employee was being recruited to work for Beijing. He actually worked with the US Federal Bureau of Investigation (FBI), the complaint alleges.

In September 2021, Chinese officials assigned the double agent to describe their meetings with prosecutors at the US attorney’s office in Brooklyn.

They were particularly interested in understanding which Huawei employees had been interviewed by the government, and sought a description of the prosecution’s evidence, witness list and trial strategy.

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

Huawei did not return Blockworks’ request for comment by press time.

Analytics unit tracked bitcoin bribes despite Wasabi Wallet

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

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

Cryptomixers were designed to provide privacy for this open economic system. There are many different types, but they usually work by mixing funds with other users.

Mixers have increasingly come under the spotlight for use by North Korean hackers and other bad actors in laundering illegal crypto obtained from exploits across the crypto ecosystem along with ransomware attacks.

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

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

The wallet uses technology known as “CoinJoin”, which combines bitcoin from multiple transaction partners to make it more difficult to identify the fund’s provenance.

“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 that 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 did not immediately return Blockworks’ request for comment.

Both officials are charged with attempting to obstruct a prosecution of Huawei in the Federal District Court for the Eastern District of New York. He is also charged with two counts of money laundering based on bribes.

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

In any case, the case once again highlights the difficulty of hiding crypto activity – whether illegal or benign – even after funds are sent through crypto-commingling technologies like CoinJoin.

Elliptic’s Robinson told Blockworks that the firm has “special techniques to identify bitcoin addresses associated with Wasabi usage.”

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