U.S. authorities said on Wednesday they have arrested the majority shareholder and Co-Founder of Hong Kong-registered virtual currency exchange Bitzlato Ltd for allegedly processing $700 million in illicit funds
Anatoly Legkodymov, a Russian national living in China, was
arrested in Miami on Tuesday on charges that he operated the exchange as an
unlicensed money exchange business that "in his own words, catered to
'known crooks,'" a top Justice Department official said.
Prosecutors said Bitzlato exchanged more than $700 million
in cryptocurrency with Hydra Market, which they described as an illicit online
marketplace for narcotics, stolen financial information, fraudulent
identification documents and money laundering services that U.S. and German law
enforcement shut down in April 2022.
"Whether you break our laws from China or Europe or
abuse our financial system from a tropical island — you can expect to answer
for your crimes inside a United States courtroom," Deputy Attorney General
Lisa Monaco told reporters at a news conference at the Justice Department.
Bitzlato also received more than $15 million in ransomware
proceeds, prosecutors said. It was not immediately possible to contact Hydra
Market for comment.
“Despite it being a small name, it carries a lot of
weight," said Chen Arad, the chief operating officer at Solidus Labs, a
crypto market surveillance company.
"Small actors are not safe and they carry just as much
risk as any big-name exchange (or) platform," he said.
Authorities described Legkodymov as the cryptocurrency
exchange's Co-Founder, saying the 40-year-old Russian helped run the company
from the Chinese city of Shenzhen. Legkodymov did not immediately respond to an
email with questions, and messages left on Bitzlato's automated Telegram
support chat service were answered with the phrase, "Oops, sorry."
Bitzlato has processed $4.58 billion worth of cryptocurrency transactions since May
3, 2018, prosecutors said, adding a substantial portion constitutes "the
proceeds of crime."
It also broke rules requiring significant vetting of
customers and failed to meet requirements aimed at preventing money laundering,
authorities said. Archived versions of Bitzlato's website noted that the site's
clients could register using "only your email."
Prosecutors said Bitzlato knowingly serviced U.S. customers
and conducted transactions with U.S.-based exchanges using U.S. online
infrastructure. For at least some period of time, it was being managed by the
defendant while he was in the United States, they said.
The charges were filed in conjunction with the U.S. Treasury
Department's Financial Crimes Enforcement Network (FinCEN), which said it has
prohibited certain transmittals of funds involving Bitzlato by any covered
financial institution after labeling Bitzlato Ltd a "primary money
laundering concern" related to Russian illicit finance.
"Identifying Bitzlato as a primary money laundering
concern effectively renders the exchange an international pariah," Deputy
Treasury Secretary Wally Adeyemo said at the news conference.
Adeyemo said Bitzlato has repeatedly facilitated
transactions for Russian-affiliated ransomware groups, including the gang
behind Conti, which he said has links to the Russian government and
Russia-connected darknet markets.
Cari Stinebower, a former Treasury Department official now a
partner at law firm Winston & Strawn, said the penalties imposed are akin
to those under Section 311 of the U.S. Patriot Act and will make Bitzlato
untouchable by U.S. and foreign banks.
"None of the mainstream financial institutions will
deal with an entity identified as a primary money laundering concern," she
said.
"While U.S. financial institutions will refuse to
engage in business with Bitzlato, (one would expect that) other financial
institutions will follow suit," she added. "The impact will be to
freeze Bitzlato out of the global financial sector almost immediately."
By midday Wednesday, Bitzlato's website was replaced by a
notice saying that the service had been seized by French authorities "as
part of a coordinated international law enforcement action. © Reuters
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