The U.S. government arrested Anatoly Legkodymov, a Russian national and co-founder of Bitzlato, a Hong Kong-based crypto exchange, on Tuesday, alleging the company facilitated the flow of illicit funds.
The unsealed complaint charges Bitzlato with allegedly conducting a money transmitting business that facilitated illicit fund flows for purposes including money-laundering, which totaled more than $700 million in proceeds for a range of cyber criminals.
"Institutions that trade in cryptocurrency are not above the law and their owners are not beyond our reach," stated U.S. Attorney Breon Peace.
"As alleged, Bitzlato sold itself to criminals as a no-questions-asked cryptocurrency exchange, and reaped hundreds of millions of dollars’ worth of deposits as a result. The defendant is now paying the price for the malign role that his company played in the cryptocurrency ecosystem."
The government alleges Bitzlato was a crucial resource for notorious darknet market Hydra, which the Justice Department previously shut down last year.
"Today the Department of Justice dealt a significant blow to the cryptocrime ecosystem," said Deputy Attorney General Lisa Monaco of the Justice Department in a joint press briefing.
"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," Monaco added.
Hydra buyers allegedly funded illicit purchases of illegal drugs, stolen financial information, and hacking tools from Bitzlato crypto accounts while sellers of the services at Hydra sent criminal proceeds "to the tune of over $700 million" of direct and indirect transfers between 2018 and 2022, according to Monaco.
Federal law enforcement seized Bitzlato's servers, which include messages allegedly sent by the 40-year old Legkodymov through the company's internal chat system to colleagues that acknowledge Bitzlato's users were "known to be crooks."
The Treasury Department's Financial Crimes Enforcement Network (FinCEN) issued an order identifying Bitzlato as a "primary money laundering concern" in connection with Russian illicit finance.
"Treasury's action today sends a clear message that we are prepared to take action against any financial institution – including virtual asset service providers – with lax controls against money laundering, terrorist financing, or other illicit finance," Deputy Secretary of the Treasury Wally Adeyemo said in prepared remarks. "Nearly 50 percent of all known Bitzlato transactions during that time involved Russian illicit finance or otherwise risky sources."
French authorities and the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) are taking concurrent enforcement actions.
Data released last week from blockchain analytics company Chainalysis showed illicit crypto flows hit an all-time high of $20.1 billion last year, due mostly to the rise in sanctioned crypto addresses last year.
Another Chainalysis report from February of last year listed Bitzlato on its list of crypto exchanges known to have facilitated money laundering, and included the previously sanctioned exchanges Garantex and Suex.
Concurrent with the arrest, French authorities, working with Europol and partners in Spain, Portugal, and Cyprus, dismantled Bitzlato’s digital infrastructure and took enforcement actions Wednesday.
Legkodymov is presumed innocent unless and until proven guilty. If convicted of operating an illegal money transmitting business, he faces a maximum penalty of five years in prison, according to the Justice Department.
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A Russian national who founded a cryptocurrency exchange that the Justice Department says became a haven for the proceeds of criminal activity has been arrested, federal officials said Wednesday. Anatoly Legkodymov, who lives in China, was arrested Tuesday night in Miami and was due in court on a charge of conducting an unlicensed money-transmitting business. Prosecutors allege that Legkodymov's cryptocurrency exchange, Bitzlato Ltd., of which he served as majority owner, did not implement required anti-money-laundering safeguards and required only minimal identification from its users, even permitting them to supply information belonging to “straw man registrants,” people serving as cover for the users.
U.S. authorities said on Wednesday they have arrested the majority shareholder and cofounder 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.
A Russian operator of a China-based cryptocurrency exchange with links to South Florida and other parts of the world appeared in federal court in Miami Wednesday on charges of running an unlicensed money transmitting business that is suspected of laundering hundreds of millions of dollars in drug trafficking and other criminal proceeds, federal authorities said.
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