Poland lost $230 million in cryptocurrency trying to buy Venezuelan oil in 2023 — USB drives with crypto handed directly to scammers
The country of Venezuela has had a few embattled decades, but it has massive oil reserves continually attracting buyers, despite the U.S.-led sanctions that effectively block dealings with the nation. A few years back, in 2023, Poland’s state-backed Orlen energy group had $600m in hand and was looking to buy 6 million barrels during a sanction reprieve. Like many before him, one executive thought it expedient to use the USDT stablecoin cryptocurrency (1 USD = 1 USDT). It didn’t end well, with $230 million worth of crypto unaccounted for at multiple stages in an adventure chronicled by the Financial Times.
The twisted web of transactions
Orleen enlisted an external company, Hannon, to take care of the purchase, which it did by enlisting the services of UK firm Lexcor Energy, which supposedly had a Venezuelan office. Hannon first needed to convert a large sum into USDT, and did so by exchanging $245m at multiple Dubai companies, adding $15m of its own to the deal. Only one of multiple transfers of $80m into 80m USDT was fully successful.
As for the other two, $135m exchange only produced 85m USDT out the other end, with $50m still unaccounted for. A third exchange of $30m also vanished (partially returning much later). The proverbial PNL is currently -$80m, and Hannon has 165m USDT in hand. All this while, three Polish oil tankers headed to Venezuela anchored there, continually racking up millions in demurrage and port fees, as they were being chartered for far longer than initially agreed.
Weeks of delays followed, which Hannon pinned on Venezuelan energy company PDVSA. One of Hannon’s reps, Kam Tse, headed to Venezuela himself with a colleague, loaded with the USDT, stored in multiple cold wallets on USB sticks. They stayed in high-end hotels, drove around in armored cars, and employed bodyguards out of concern for the money and themselves. Tse found many brokers claiming to be from PDVSA, a cadre later revealed to contain a substantial number of con-men, many of whom fled as a local investigation came cracking down.
The buyers were nevertheless undeterred, and they handed 60m USDT in a USB wallet to a purported representative of local energy corp Synergy. After a few weeks of waiting, a Venezuelan office sent him a picture of a purported PDVSA export schedule displaying all three Polish tankers set to be loaded with 1.9m barrels of oil each, but with no predicted date. Ever-trusting, Tse’s team then handed Synergy’s representative another 50m USDT on another USB wallet. Said representative vanished in a cloud of smoke. PNL currently sits at -$190m.
Seemingly desperate, Tse ordered a buy of 1 million barrels of a lighter blend of oil, eventually finding it contaminated, then switched tactics to acquiring fuel oil instead, signing a contract. At last, a break: some of the money spent in the Dubai exchanges came back; only 21m USDT out of a $30m input, but still better than zero. Tse pays Consulting Services, another Venezuelan firm, 11m USDT for the fuel.
Finally, some good news: 500,000 barrels confirmed loaded onto the one ship, half of the contracted amount. Tse provides Consulting Services with another 11m USDT for the rest of the fuel, but that was never delivered, and there was no further contact. Cumulative PNL = -$186m total. With $72m in shipping costs in total (far outweighing the expected profit), plus additional expenses, the Polish government’s investigation pins the total lost and spent at $424m.
The aftermath
Many folks’ gut reaction may be that the use of cryptocurrency made the cash untraceable, but the problem isn’t with the blockchain. In fact, for the vast majority of currencies, the on-chain ledger offers more visibility into transactions, not less. What failed here was the lack of official records linking wallets to persons or entities.
Reputable exchanges all have a form of identity verification, known as KYC, mandated by law. The problem is that apparently almost no entities Hannon traded with had any recognizable proof their crypto wallets belonged to them. The Venezuelan crude oil salesmen vanished, effectively cutting off nearly every avenue for investigation. Before their exchanges, they had even advised Tse to not keep records of their transactions due to the government’s investigation into their collective’s dealings.
Even in Dubai, pending court cases regarding the dollar-to-USDT exchanges hinge on the same problem, despite the presence of verifiable bank transactions. Broadly speaking, the country’s legal system places the burden of proof fully on the accuser, making them prove wallet ownership before discussing the meat of the dispute. That’s quite the high bar to clear for Hannon in order to prove that it wasn’t handed the funds from the exchanges.
That task may well prove impossible, since one can’t prove a negative when there’s nothing linking the exchange to their wallet. Adding insult to injury, the two exchanges in the court were both recently created, and probably weren’t a part of Dubai’s VARA program for legal crypto operations. Caveat emptor.
