How a crypto refugee turned the politics of a troubled Balkan nation upside down

The crypto industry, already notorious as an agent of market chaos, has now also wreaked political havoc, with a critical general election in Montenegro, a troubled Balkan nation struggling to break the grip of organized crime and the to shake off the influence of Russia, to turn it on its head.

Just days before a vote on June 11, the political landscape in Montenegro was thrown into disarray by the intervention of Do Kwon, the fugitive head of a failed crypto venture whose collapse last year contributed to a $2 trillion crash in the entire nation. industry.

In a handwritten letter to the authorities from the Montenegrin prison where he has been held since March, Mr. Kwon said he had “a very successful investment relationship” with the leader of the Europe Now movement, the election leader, and that “friends in the crypto industry” had provided campaign finance in return for pledges of “crypto-friendly policies.”

Europe Now was expected to win a decisive popular mandate in elections for a new parliament. The campaign mixed populist promises to raise salaries and pensions with pledges to put the country on a clear path to joining the European Union by cleaning up the crime and corruption that flourished under Montenegro’s former longtime leader Milo Djukanovic.

The party still won the most votes but fell far short of expectations, finishing just ahead of a rival group backing Russia that could now disrupt efforts to form a stable pro-Western coalition government. Only 56 percent of voters voted, a record low turnout.

Mr Kwon’s intervention “has destroyed us,” said Europe Now leader Milojko Spajic, a target of the letter from the disgraced crypto entrepreneur, who was reviewed by The New York Times and whose existence leaked into the local news media before the vote.

In an interview, Mr. Spajic’s allegations of Mr. Kwon as “super fake” and part of a “dirty political game” to damage his party’s chances. Mr Kwon’s lawyers have not disputed the authenticity of the letter.

As the founder of Terraform Labs, Stanford-educated Mr. Kwon was once hailed as a crypto pioneer, responsible for the design of a popular digital coin, Luna, which he said would change the world and whose fans he proudly referred to as “Lunatics”. “. .”

The spectacular May 2022 collapse of Luna and a second cryptocurrency designed by Mr. Kwon, TerraUSD, transformed him from a hero of innovation into a fugitive wanted by both the United States and South Korea on fraud charges.

He then disappeared, his whereabouts a mystery until authorities in Montenegro announced in March that he had been arrested trying to board a private jet to Dubai in Podgorica, the capital, using a forged Costa Rican passport.

He had insisted it was real, but a Podgorica court found Mr Kwon and a South Korean crypto business associate 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 is still unclear. His activities since his arrest have been murkier.

Though stripped of his electronic devices, the imprisoned Mr. Kwon appears to have somehow transferred $29 million from a crypto wallet linked to him, South Korean prosecutors said, corroborating a Bloomberg News report.

Dritan Abazovic, Montenegro’s acting prime minister and a political rival of Mr Spajic, said there are no records of Mr Kwon entering the country or checking into hotels, so authorities want to establish whether he had local collaborators.

“I am not accusing Spajic of anything,” Mr Abazovic said in an interview, “but we need to see what happened in the crypto community here and whether it was involved in money laundering and campaign financing.”

Montenegro was long a center for cigarette smuggling and cocaine trafficking during Mr. Djukanovic, but has promoted itself as a center for the crypto industry in recent years.

In 2022, Mr Spajic, who was then finance minister, predicted that industry could account for almost a third of Montenegro’s economic output within three years.

According to Zeljko Ivanovic, the head of the independent media group Vijesti, crypto was the next big thing for Mr. Spajic and other blockchain supporters.

“It was seen as an easy way out – a new secret recipe to replace the smuggling that had been Djukanovic’s recipe for decades,” said Mr. Ivanovic. “But the panacea turned out to be a disaster.”

Eager to attract talent, Montenegro last year citizenship granted to Vitalik Buterin, a Russian-Canadian and the founder of Ethereum, the most popular cryptocurrency platform.

Mr Buterin said he “never knowingly met or spoke to Do Kwon, not even through third parties”, and “never gave money to Europe Now”.

Mr. Spajic posted a photo on Twitter of himself with Mr. Buterin, holding up his new Montenegrin passport, and the message: “We will bring the best people in the world to Montenegro.”

However, Montenegro’s hospitable ways also attracted George Cottrell, a British financier sentenced for wire fraud in the United States, which later moved to Montenegro under a new name, George Co.

Mr Cottrell left Montenegro for London on June 9, according to officials, shortly after police raided Salon Privé, a bar in the seaside town of Tivat believed by law enforcement to be linked to him. It features slot machines and a “cryptomat”, which is used for buying and trading digital currencies.

Ratko Pantovic, Mr Cottrell’s lawyer, who also represents the bar, said his British client had no ties to the gambling parlor or the crypto industry.

Montenegro’s acting interior minister Filip Adzic, who oversaw the police raid in Tivat, said Mr Cottrell had not been charged with any crime but was being investigated for involvement in potentially illegal crypto activities.

Montenegro, Mr Adzic said, should be careful with a company that, because it allows anonymous transactions, is “good for organized crime, good for terrorist financing and good for money laundering.”

US and South Korean prosecutors want to investigate three laptops and five mobile phones seized by authorities from Mr Kwon at the time of his arrest, seeking clues as to what happened to billions of dollars invested in his now largely worthless digital coins.

Of more interest to the Montenegrin authorities, however, is what they can grasp regarding campaign finance and Mr Kwon’s relationship with Mr Spajic.

At a court hearing on June 16, Mr Kwon’s lawyers said their client denied financing Mr Spajic’s election campaign. However, Mr Kwon’s letter stated that “other friends in the crypto industry” contributed.

“I have proof of these communications and contributions,” Mr Kwon said in his letter.

Mr Spajic initially denied any connection to Mr Kwon, but later acknowledged that he had known him since 2018 and invested money with him on behalf of an investment fund he said he worked for in Singapore – “he cheated us”, Mr Spajic said – and met him again in Belgrade at the end of last year.

That followed an announcement by South Korean prosecutors in September that Interpol, the global police organization, had issued a “red notice” for Mr Kwon’s arrest. Mr Spajic said he only met Mr Kwon because “we wanted our money back”.

Mr Kwon gave a different story, claiming in his letter that Mr Spajic wanted to discuss campaign finance. He said Mr Spajic, who was then planning to run for president, explained that he was “raising a few million dollars for the upcoming campaign” and “asked me to contribute”. Mr. Kwon said he refused.

Mr Spajic said it was “absolutely incorrect” for them to discuss campaign finance.

Milan Knezevic, the leader of the pro-Russian bloc that finished second in the election, said he enjoyed his group’s unexpectedly strong result, partly due to the disruption caused by Mr Kwon, but still regretted that Montenegro had opened its arms. to crypto experts.

It would have been better, Mr Knezevic said, sitting in an office decorated with pictures of Russia’s President Vladimir V. Putin, to welcome fighters from the Islamic State terror group.

“At least with ISIS you know what you’re dealing with,” he said. “But we have no idea what these crypto people are really doing.”

Alisa Dogramadzieva contributed reporting from Podgorica and Tivat, Montenegro, and Choe Sang Hun from Seoul.