The US Department of Justice has arrested the founder and majority owner of a cryptocurrency platform called Bitzlato, which officials say “catered to known crooks” and intentionally failed to implement necessary regulatory safeguards to gain their business.
The arrest, and the site itself, was an international affair. Bitzlato’s owner, Anatoly Legkodymov, 40, is a Russian national who resides in Shenzhen, China. However, the site was registered as a business in Hong Kong. Legkodymov was taken into US custody in Miami. Then, French authorities seized Bitzlato’s crypto assets and dismantled its digital infrastructure in partnership with officials in Spain, Portugal, and Cyprus.
An estimated $700 million in illegal funds went through Bitzlato. The exchange was commonly used by criminals to launder funds from illegal activities, primarily on the dark net, the DOJ says.
“Bitzlato has marketed itself as requiring minimal identification from its users,” says a statement(Opens in a new window) issued by the Department of Justice. “As a result of these deficient procedures, Bitzlato allegedly became a haven for criminal proceeds and funds intended for use in criminal activity.”
For example, Bitzlato was a notorious resource for buyers and sellers using Hydra Market, a Russian language marketplace responsible for 80% of dark net transactions. On Hydra, users could sell illegal drugs, stolen financial information, fraudulent identification documents, and launder money anonymously—all outside the reach of law enforcement.
Hydra buyers and sellers stored funds and conducted transactions between their Bitzlato accounts. Sellers eventually turned their cryptocurrency proceeds into fiat currency, such as the US dollar. In this way, the platform “helped cybercriminals hide their transactions behind the anonymity of the blockchain,” says Assistant Attorney General Kenneth A. Polite, Jr.
The DOJ shut down(Opens in a new window) Hydra Market in April 2022, and now have done the same to Bitzlato. “Today marks the end of the Hydra-Bitzlato crypto crime access,” says DOJ Deputy Attorney General Lisa O. Monaco. “The Department of Justice has dealt a significant blow to the crypto crime ecosystem and busted the business model of the cyber criminals that Bitzlato supported.”
While most people are not peddling drugs on the dark net, the DOJ says criminal activities using cryptocurrency affect everyone in the US financial system. “Malicious actors are exploiting crypto markets and flouting the regulations that guard the integrity of our financial systems, and along with it the investments of law abiding Americans,” says Monaco.
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Legkodymov is facing up to five years in prison if he is convicted of his charge of conducting an unlicensed money transmitting business. While he is just one individual, the DOJ is using his arrest to send a message to all who use crypto currency to operate beyond the reach of the law.
“We have a clear message,” says Monaco. “We are also unleashing the full force of the DOJ on the actors that support cyber criminals, like Legkodymov and Bitzlato. Operating offshore or moving your servers out of the continental US will not shield you. Whether you break our laws from China or Europe, or from a tropical island, you can expect to answer for your crimes inside a United States courtroom.”
The US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN(Opens in a new window)), will continue to lead these investigations going forward.
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