South Africans hoping to see their missing Bitcoin may be disappointed: attorney and crypto specialist Darren Hanekom. From Moneyweb.
CIARAN RYAN: Johann Steynberg was arrested by Brazilian military police on December 29, 2021, just before New Year, bringing to an end a year-long hunt for the fugitive behind Mirror Trading international, or MTI.
According to the Hawks, his arrest in Brazil is in relation to cases that were brought in Brazil by the FBI for suspected crimes against US citizens. The FBI is also known to take on cases where US dollars are involved. All of this poses a number of interesting questions.
Read: MTI’s Johann Steynberg arrested in Brazil
Will Steynberg end up being extradited to the United States and, once the FBI has recovered Bitcoin belonging to US citizens, will it keep the rest?
To help us unravel this we are joined by attorney and crypto specialist Darren Hanekom. First of all, welcome Darren to our inaugural crypto podcast for 2022.
DARREN HANEKOM: Thank you, Ciaran. Thanks for having us.
CIARAN RYAN: Okay, let’s get into this. Johann Steynberg was arrested in Brazil on a warrant apparently issued by the FBI and executed by the Brazilian police. Can you walk us through the ramifications of this from a South African point of view? How does this come about, and where is South Africa featuring in this picture?
DARREN HANEKOM: Well, this is certainly an interesting start to the year, and it definitely means that the South African government also has some work to do to ensure that the investors who have allegedly been defrauded through the MTI company are made whole again.
So, from a South African perspective, one really needs to appreciate this is a sort of multifaceted, multi-jurisdictional matter that now involves quite a few role players.
The role players are the South African government, being the Department of International Relations and Cooperation who’d ordinarily work alongside the South African National Prosecuting Authority, who would then coordinate efforts through the diplomatic channels with the said state that the individual is in. Obviously the Brazilian authorities play a key role in this right now, more particularly the Brazilian government, as well as the Supreme Court, as it relates to extradition matters.
But, interestingly, there’s another role player, and that is the United States government. That also has a key role to play in this matter especially since, from what we’ve been told and from what we know, Johann Steynberg has been arrested under the auspices of a warrant of arrest originating from the United States and not South Africa.
What effectively needs to happen is a joint effort by all three countries in bringing Mr Steynberg to book.
CIARAN RYAN: Okay, there’s a saying in crypto, ‘not your keys, not your crypto’. In other words, you have to control the key to your crypto wallet or you can lose the lot. It’s rather like having your bank-account password. If you don’t have that, whoever’s in possession of that password can take all your money. In this case he who owns Steynberg may end up owning the Bitcoin under his control, and in this case it could be the United States. Am I correct?
DARREN HANEKOM: Yes. That’s a very well-known saying, at least in the crypto community: ‘Not your keys, not your coins.’
Right now at the onset that phase was largely on the back of some massive security breaches on other exchanges as far back as the exchange Mt Gox. I think that is where that term largely originated. It really goes along the lines of when you make use of a centralised exchange or an exchange with a custodial function, there are many benefits to that, because it also means that people who are new to the industry don’t have to worry about storing keys or mnemonic phrases, or losing their keys or having their keys compromised in some way or another. So it does fulfil a good function – at least from a centralised exchange point of view.
There are obviously decentralised exchanges which make use of various browser wallets and the like, but in cases similar to this one can see that, if the custodians are compromised, that really leaves the clients exposed. We don’t know how the Bitcoin was stored.
We don’t know where it was stored and whether it is currently even held in the form of Bitcoin.
But centralised exchanges do unfortunately have that sort of gap in the system where, if they are bad actors in control, that could result in a situation that many of the MTI investors currently find themselves.
CIARAN RYAN: It’s probably worth just summarising what Mirror Trading International actually was and is. It’s a company that is currently in final liquidation. Of course, it really came to public prominence in 2019/2020. It was offering investors returns of up to 10% month, but you had to send Bitcoin to addresses which were controlled by MTI, or by Johann Steynberg personally now it seems.
The FSCA, the Financial Sector Conduct Authority, in August of I think 2019, came out with a notice advising people to get their money out, that this was likely a scam; but in fact MTI, using pretty aggressive marketing methods, increased the number of people and increased the number of Bitcoin under its control in the subsequent months until it all collapsed. Johann Steynberg fled South Africa in December of 2020 when peoples’ requests for withdrawals went unanswered. That’s kind of the background.Read:FSCA opens criminal case against MTI, says investigation ‘nearly complete’Anonymous data dump ‘spills the beans’ on Mirror Trading International
But if we can just pick up the process from here, Darren, we now know that he’s in custody in [Brazil]. It must have been a terrible new year for Johann Steynberg. He spent New Year’s Eve in a Brazilian prison, which I’m sure is no walk in the park. What is the process from here? How long will it take before Steynberg is extradited, and is he likely to end up in the US before he ends up in South Africa? How’s this likely to play out?
DARREN HANEKOM: Well, right now what needs to happen is, as I mentioned, the process of governments cooperating in executing the relevant legislation relating to extradition. So the first question then is: does South Africa have any mutual legal assistance treaties with Brazil?
As it stands, there is an agreement between South Africa and Brazil; however, that agreement is unsigned.
What we do know is that Brazil does have an agreement relating to mutual legal assistance with the United States. So ordinarily what happens is that the requesting state in the presence of a mutual legal assistance treaty would under two circumstances launch an extradition request.
If it’s urgent they could launch what’s called a provisional request for the arrest of the alleged fugitive. If that person is arrested there are timelines in play when there is an extradition agreement in place. The timelines really relate to the amount of time that the alleged fugitive can be held in custody.
So right now the formal request sets a timeline of 90 days – and that’s between the United States and Brazil – that he can be in Brazilian custody for a period of no longer than 90 days.
During that time a few things need to happen. One is a bail hearing together with an extradition hearing. The Brazilian Supreme Court would be the authority exercising its discretion as to whether this individual should be extradited to the requesting state. If the extradition process is successful, the alleged fugitive then needs to be returned or extradited to the requesting state within 60 days. Those are the prescribed timelines in play.
If a provisional request is actioned and a formal request does not follow it, that then means that the alleged fugitive needs to be released. But, from what we can discern from media releases is that he was arrested for planning and being in possession of falsified travel documents relating to passports. I think there’s also mention of credit cards. What we can also draw from that is that that could very well be an offence in Brazil as well, which in turn means that the Brazilian authorities could equally take a decision not to extradite him, and prosecute Mr Steynberg in Brazil.
There are a few factors that also relate to his time in Brazil – whether he could be released on bail, and be released into his own custody. Certain factors will most likely play against him. Especially if he was arrested for falsified travel documents he could very well be regarded as a flight risk, which makes the prospects of bail quite difficult.
CIARAN RYAN: There’s another case involving a South African who goes by the name of a Fluffy Pony, who was involved in the Monero privacy cryptocurrency.
Monero, for people who are not familiar with it, is a completely anonymous cryptocurrency. It has attracted a lot of negative interest from regulators and authorities around the world because of that. If you own Monero it’s very easy to hide the identity of the person who owns it.
Fluffy Pony was arrested in Tennessee. This was late last year or towards the late middle/end of last year, on a warrant relating to a claim that he had an unpaid bill in South Africa.
So far he’s successfully fought any attempt to extradite him back to South Africa, and you were involved in that case. Can you tell us a bit about that case?
DARREN HANEKOM: Yes. We have been mandated by Mr Spagni [Riccardo Spagni, aka Fluffy Pony], and what we can say is that the case is still ongoing, so unfortunately we aren’t at liberty to divulge much more than that at this particular stage.
CIARAN RYAN: But the point is there is a request for extradition to South Africa. So far he’s been released from custody in Tennessee into his own – I don’t know exactly what the term is – into his own custody. And he’s definitely not in South Africa, correct?
DARREN HANEKOM: Yes. There are many different role players in that particular matter, being the South African government with the United States government. So yes, there are quite a few moving parts in that. But we are confident that we will reach a speedy resolution.
CIARAN RYAN: Right. You are representing Fluffy Pony. Is that correct?
DARREN HANEKOM: That’s right.
CIARAN RYAN: Okay. Just going back to the Steynberg case, what is rather strange about this is that he was put on a watch list as a potential flight risk in late 2020. This was after the FSCA, the Financial Sector Conduct Authority, had investigated MTI and found it was making bogus claims that you could earn up to 10% a month, as I mentioned earlier.
Despite that, Johann Steynberg still managed to flee the country. What lessons can we learn about this?
What’s the point of being on a flight-risk [watch list] if you can just walk out of the country and your passport doesn’t get flagged at Jan Smuts/Oliver Tambo [OR Tambo International Airport] or wherever, whatever border post you exit through?
DARREN HANEKOM: There are, I suppose, moving parts to what authorities could or should have done. One also needs to look at what the global sort of standard is for situations similar to that.
We know that the Financial Action Task Force, also known as FATF, has taken a rather mediocre approach to South Africa’s ability to enforce its available legislative provisions in accordance with its current risk profile.
One also needs to appreciate that it’s always difficult to retrospectively look at what could have been done. But we also need to understand that I don’t suspect that Mr Steynberg was a fugitive or he appeared as a fugitive at the time. I can’t imagine that he would have been able to leave the country had there been an authorised issued warrant for his arrest.
So in the absence of a warrant of arrest he was not a fugitive and therefore not barred from leaving the country.
CIARAN RYAN: You and I spoke a few months ago about Steynberg possibly fleeing – well, not possibly fleeing the country, but after he actually did flee the country – with so much Bitcoin under his control. It’s reckoned that roughly R20 billion worth of Bitcoin passed through MTI over a period of time. Now, whatever is left is certainly a substantial amount of money. We were talking about Steynberg. He should be able to buy himself a lot of privacy, a lot of anonymity for that money, but I guess he got careless. How do you imagine he slipped up?
DARREN HANEKOM: Right now what we can speculate – and this is all speculative – and appreciate that he will now or at least in time know what has transpired since he left the country; where he was, what happened with the Bitcoins, where he spent them, what he was spending them on, who he was with, who he was working alongside, and what institutions facilitated his sort of disappearance into the ether, because it’s unlikely that he did this by himself, that this was a one-man effort.
This was potentially a coordinated and well-thought-out plan where somewhere along the line, as you said, he got careless.
We also don’t know the facts surrounding his sort of movements and what international authorities already know. What we can speculate is that usually in matters similar to this we see that foreign governments most likely knew exactly where he was and could have been watching him for some time.
But what we do know is that when he was arrested, the warrant of arrest was definitely prompted based on the falsified documents.
So somewhere along the line he was able to obtain these falsified documents and there must have been a means by which he paid for these things. He was certainly going somewhere to do something, and we don’t know what his lifestyle was like, where he was going and what waited for him there.
I’m sure those facts and that sort of narrative will certainly unfold in time.
CIARAN RYAN: There was a video on Brazilian TV over the weekend – I think it was reposted by Cheri Marks who was MTI’s marketing executive.
The video itself is talking about Johann having a private jet and luxury cars, and a new girlfriend in Brazil – with a claim that he had abandoned his wife and daughter in South Africa. Now this of course is per the reports which are coming out of Brazil. It seems to be where he slipped up. He had this girlfriend and he was maybe trying to impress her, and she didn’t want to live this anonymous lifestyle. He put her up in a hotel.
If true, what does this tell us about Steynberg and his quest to find a new life for himself? There are plenty of videos on YouTube on how to disappear. One of the first things they tell you is don’t contact the people that you used to know because all of those communications, all those communication channels are going to be monitored. So where do you think he made his big mistake?
DARREN HANEKOM: Well, what I think is it’s possible that there was a certain amount of confidence that he might have had being out of the country for such an extended period of time. There’s no doubt that he was following the news, as well as following the movements and developments in South Africa.
Perhaps he got bored, perhaps he wanted to see, and perhaps laying low wasn’t a life that he wanted to live for the next 25 or so years.
The thing about matters of this nature is, when people do disappear they have to watch their backs and have to live a life which is substantially different from their last, especially if it was a really public life. That’s quite an adjustment and perhaps along the way not something that he wanted to pursue. He got confident and he got caught.
CIARAN RYAN: And Cheri Marks is saying that he skipped the country, all part of a pre-planned exit for himself, and that he was going to leave the people who were his loyal lieutenants, if you want to put it that way.
He was going to leave them in the lurch and leave them to carry the can – which I think is true. They have had to answer a lot of questions, they’ve had to appear before the Section 417 inquiries. These are inquiries in terms of the Companies Act when a company is liquidated, to find out what happened to the money.
Do you think there are some people who would be nervous now that he might be coming back to South Africa? He’s got nothing to lose. He’s going to spill the beans. Do you think there’s going to be some people running for cover?
DARREN HANEKOM: Most likely. He was definitely portrayed as this rogue CEO, this person who concocted this devious plan to basically exit, scam and pull down his staff and clients.
But the road ahead we suspect is a long one, especially given the international nature of this matter, in that – rightfully – we believe South African MTI investors should be confident; however they should also be cautiously optimistic when it comes to having him back in the country.
Invariably what could result is if the South African government sits as a passive bystander, it could very well see Mr Steynberg extradited to the United States, and then prosecuted in the United States.
South Africa will need, as a country, to trigger the mutual legal-assistance treaty provisions that it has with the United States in order to trigger restitution for South African investors.
That is also what’s required going forward. Whether the South African government does something now, or whether it does something later, action is required at least in order to assist the good work that the current liquidators are doing in South Africa.
CIARAN RYAN: Right. If South Africa doesn’t do that, then there is a chance that the FBI will recover whatever Bitcoin they can from Johann Steynberg’s control.
DARREN HANEKOM: Of course.
CIARAN RYAN: Once they’ve done that, then they can seize the rest, right? This is what they have done in the past. They’re not really concerned about anybody outside the United States. In other words, if South Africans want to get to see any Bitcoin, there is that possibility, right?
DARREN HANEKOM: That is a possibility – especially if South Africa is not party to proceedings in the United States and if the South African government is not regarded as a victim in these proceedings.
CIARAN RYAN: This is obviously going to be an evolving story and there’s going to be a lot of ground to cover in the coming weeks and months on this, so we’re going to leave it there for the moment. Darren Hanekom, thank you very much for joining us.
DARREN HANEKOM: Thank you for having us.
