How easy is it to be a crypto refugee like Kwon?

The authorities arrested the fugitive Do Kwon at a Montenegrin airport. How easy would it be to avoid capture?

Do Kwon, the cryptocurrency fugitive behind the Terra crisis, is facing charges of falsifying official documents following his arrest by Montenegrin police. On Thursday, police arrested Kwon and another person at Podgorica airport as they tried to board a flight to Dubai. Police reportedly found fake Costa Rican and Belgian passports in their luggage.

Kwon had been on the run for months, and South Korean authorities issued an arrest warrant for him last September. Montenegrin police confirmed on Friday that the arrested suspect was Kwon after his fingerprints matched information in South Korea’s National Police Agency.

Kwon is also indicted by the US District Court in Manhattan on eight counts, including securities fraud and conspiracy. The criminal case follows civil charges filed by the Securities and Exchange Commission against Kwon and Terraform Labs in February. Also, Kwon is the subject of a “red notice” from Interpol.

We wondered how easy it would be, given current laws and regulations, to escape the long arm of the law as a crypto fugitive. (BeInCrypto obviously does not condone illegal activity.)

Kwon sought the right country

Following a tip about Do Kwon’s location, South Korean authorities confirmed on December 11 that he was in Serbia. The fugitive had reportedly moved there after moving to Singapore shortly before Terra’s collapse. But why would an international refugee hide in Serbia?

Turns out that was probably a wise move. Serbia and South Korea do not share an extradition treaty that would have expedited the process of removing Do Kwon to his home country. However, the law has a long arm. South Korean officials said on February 7 that they were sending at least two people to Serbia to track him down. Serbian authorities later confirmed that they were working with their South Korean counterparts to find him.

On February 23, the Securities and Exchange Commission (SEC) in the United States charged Do Kwon with defrauding investors. Which, to say the least, was incredibly bad news for Kwon. The US is one of the most aggressive pursuers of international refugees, with a long list of extradition treaties – including Serbia.

So anyone who becomes a crypto-refugee will probably try to choose a country carefully. Ideally, a country that is not bound by treaty to consider extradition. Iran, Belarus, Syria and Somalia come to mind.

Bad actors exploit VPNs

One of the first ways authorities will try to track down a crypto fugitive is via a digital footprint. The best and easiest way to get around is via a virtual private network (VPN). VPNs are common tools, although they are more likely to be used to access another country’s Netflix library than to evade the law.

By using a VPN, all your online activity is routed through an encrypted tunnel, making it difficult to see which websites you visit or what you do online. A VPN can also help hide your physical location by masking your IP address. Websites and services will see the IP address of the VPN server you’re connected to, instead of your own. This can be useful for accessing geo-restricted content or for staying anonymous online.

However, VPNs are not a foolproof way to ensure privacy. Ross Ulbricht (aka “Dread Pirate Roberts”), founder of the dark web marketplace Silk Road, was a regular user of VPNs. But in the hunt for Ulbricht, the police also subpoenaed the provider of the VPN. The information led authorities to an Internet cafe in San Francisco.

Although VPNs encrypt internet traffic and mask IP addresses, they can still track user activity on their network, revealing websites visited and browsing durations. VPNs are not completely anonymous since providers can see IP addresses and browsing history. VPNs are also vulnerable to hacking in case of compromised encryption protocols.

The use of privacy-enhancing crypto

While on the run, a refugee will still need money. While crypto has long been associated with crime, it’s actually not that hard to track if you know how. Public blockchains are transparent by default. So, as long as you know where and how to look, following the crypto breadcrumb trail is far from impossible.

This is where privacy-protecting crypto comes in. There are several cryptocurrencies that prioritize privacy and anonymity, including Monero, Zcash, and Dash. They use various advanced cryptographic techniques to make transactions anonymous and untraceable, such as zero-knowledge proofs, ring signatures, and stealth addresses. However, no cryptocurrency can guarantee complete anonymity.

There are always crypto mixers, who mix crypto assets with those of other users. This pool of commingled funds then returns corresponding amounts to the respective owners.

Kwon made use of Shell companies

Just to make sure your money is safe, why not take a new leaf out of Do Kwon’s book?

Last year, Kwon’s company Terraform Labs allegedly laundered $4.8 million through a South Korean shell company disguised as a blockchain consultancy. Shell companies are entities established for the purpose of holding assets or carrying out financial transactions, but without actually conducting any business.

Shell companies can be used for legitimate reasons, such as minimizing taxes, protecting intellectual property or facilitating mergers and acquisitions. However, they are often used to hide assets. Shell companies typically use a process called “layering” to hide money by transferring funds across multiple accounts and jurisdictions, making it difficult to trace the origin of the funds. They can also appoint “nominee directors” or “nominee shareholders” to act as a front for the true owners, who remain anonymous.

BeInCrypto reached out to the SEC for comment on this article. The agency declined to comment, but referred us to its press release regarding Do Kwon’s allegations.