Author: The New York Times. Translated by: Cointime.com QDD
The cryptocurrency industry, notorious as an agent of market chaos, has now also sparked political chaos, upending a key election in Montenegro, a troubled Balkan country struggling to break free from the grip of organized crime and Russian influence.
Days before the June 11 vote, Montenegro’s political situation was thrown into turmoil by the intervention of Do Kwon, the fugitive head of a failed cryptocurrency business whose collapse last year led to a $2 trillion crash across the industry.
In a Montenegro prison, where he has been held since March, Mr Kwon claimed to authorities via a handwritten letter that he had a “very successful investment relationship” with the leader of the Europe Now movement, which was elected leader, and that “friends in the crypto industry” provided campaign funds in exchange for promises of “friendly crypto policies”.
The Europeans were now expected to win a decisive popular vote in elections for a new parliament. Their campaign combined promises to raise wages and pensions with putting the country on a clear path to join the European Union to clean up the crime and corruption that was rampant under Montenegro's previous longtime ruler Milo Djukanovic.
The party still won the most votes but fell far short of expectations and was only slightly ahead of a pro-Russia rival group that could now derail efforts to form a stable, pro-Western coalition government. Only 56 percent of voters cast their ballots, a record low turnout.
“He destroyed us,” said Milojko Spajic, leader of the Europe Now movement, who was the target of the disgraced crypto entrepreneur’s letter, which was reviewed by The New York Times and leaked in local news outlets ahead of the vote.
In an interview, Mr. Spajic denounced Mr. Kwon’s allegations as “completely false” and a “dirty political game” designed to hurt his party’s chances. Mr. Kwon’s lawyers did not dispute the authenticity of the letters.
As founder of Terraform Labs, the Stanford-educated Mr Kwon has been hailed as a crypto industry pioneer who designed a popular digital currency, Luna, that he said would change the world and proudly referred to its fans as “lunatics”.
In May 2022, the collapse of TerraUSD, a second cryptocurrency designed by Luna and Mr. Kwon, turned him from an innovation hero to a fugitive wanted by both the United States and South Korea for alleged fraud.
He then disappeared and his whereabouts became a mystery until Montenegro authorities announced in March that he had been arrested while trying to board a private jet to Dubai using a forged Costa Rican passport.
He insisted the passport was authentic, but a court in Podgorica found Mr Kwon and a South Korean crypto business partner guilty of using forged travel documents on Monday and sentenced them to four months in prison.
What Mr. Kwon was doing in Montenegro before his arrest and when he arrived remains unclear. His activities have become even murkier since his arrest.
While deprived of his electronic devices, the detained Mr. Kwon appeared to have managed to transfer $29 million from crypto wallets linked to him, South Korean prosecutors said, a Bloomberg report confirmed by South Korean prosecutors.
Montenegro's acting prime minister, Dritan Abazovic, a political rival of Mr. Spajic, said there was no record of Mr. Kwon entering the country or registering at the hotel, so authorities wanted to find out whether he had local collaborators.
“I don’t accuse Mr. Spajic of anything,” Mr. Abazovic said in an interview, “but we need to look at what’s going on in the crypto community here and whether it involves money laundering and campaign finance.”
Montenegro, long a hub for cigarette smuggling and cocaine trafficking during Mr. Djukanovic’s more than three-decade rule, has promoted itself in recent years as a hub for the crypto industry.
Mr Spajic, the country's then finance minister and now leader of the Europe Now movement, predicted in 2022 that the industry could account for nearly a third of Montenegro's economic output within three years.
For Mr Spajic and other blockchain believers, cryptocurrency is the next big thing, according to Zeljko Ivanovic, head of independent media group Vijesti.
“People thought it was an easy fix — a new secret to replace the smuggling secret that had been Djukanovic’s for decades,” Mr Ivanovic said. “But this miracle cure turned out to be a disaster.”
In an effort to attract talent, Montenegro granted citizenship to Russian-Canadian and Ethereum founder Vitalik Buterin last year to develop the country’s cryptocurrency industry.
Mr Buterin said: “I have never knowingly met or spoken with Do Kwon, including through a third party,” and has “never donated to the Europe Now movement”.
He hosted a blockchain conference in Montenegro in May, which was attended by Mr. Spajic and Mr. Abazovic, the acting prime minister, in addition to high-tech enthusiasts.
Mr Spajic posted a photo on Twitter with Mr Buterin, in which he is holding his new Montenegrin passport, and wrote: “We will bring the best global talent to Montenegro.”
However, Montenegro's enthusiasm also attracted British financier George Cottrell, who moved to Montenegro under the new name of George Co after being convicted of wire fraud in the United States.
According to officials, Mr. Cottrell left Montenegro for London on June 9 after police raided the Salon Privé bar in the coastal resort of Tivat, which law enforcement officials believe is linked to him. The bar featured gambling machines and a “crypto ATM” for buying and trading digital currencies.
Ratko Pantovic, a lawyer representing Mr Cottrell who also represents the bar, said his British client had no connection to the gambling salon or the crypto industry.
Montenegro’s acting interior minister, Filip Adzic, who led the police raid in Tivat, said Mr Cottrell had not yet been charged with any crime but was being investigated for possible involvement in illegal crypto activities.
Mr Adzic said Montenegro needed to be cautious about such businesses that facilitate anonymous transactions because "it facilitates organised crime, terrorist financing and money laundering".
Prosecutors in the United States and South Korea want to examine three laptops and five cellphones that authorities seized from Mr. Kwon when he was arrested, looking for clues to the whereabouts of the billions of dollars he invested in his now-largely worthless digital currency.
To the Montenegrin authorities, however, the devices were of greater interest because they could contain information related to campaign financing and Mr. Kwon’s relationship with Mr. Spajic.
At a court hearing on June 16, Mr. Kwon’s lawyers said their client denied funding Mr. Spajic’s election campaign. However, Mr. Kwon’s letter said that “other friends in the crypto industry” contributed.
"I have evidence of these communications and contributions," Mr Kwon said in the letter.
Mr Spajic initially denied any relationship with Mr Kwon but later admitted knowing him since 2018 and investing in him on behalf of an investment fund he claimed to work for in Singapore - "he deceived us," Mr Spajic said - and meeting him again in Belgrade late last year.
This came after South Korean prosecutors announced in September last year that Interpol had issued a "red notice" for Mr Kwon. Mr Spajic said he met with Mr Kwon simply because "we want to get our money back".
Mr. Kwon offered a different account, claiming that in the letter Mr. Spajic wanted to discuss campaign finance. He said Mr. Spajic was planning to run for president at the time, explained that he was “looking to raise several million dollars for his upcoming campaign” and “asked me to contribute.” Mr. Kwon said he declined.
Mr Spajic said it was "completely false" that they discussed campaign funding.
Milan Knezevic, the leader of the pro-Russia bloc that came in second in the election, said he was happy about the group’s unexpectedly strong result, in part due to the chaos caused by Mr. Kwon, but he still regretted Montenegro’s opening its doors to crypto experts.
“With ISIS, at least you knew what you were dealing with, but we have absolutely no idea what these crypto guys are doing,” Mr Knezevic said, sitting in his office decorated with photos of Russian President Vladimir Putin.