On Wednesday, January 18, 2013, the U.S. Division of Justice (“DOJ”) unsealed a criminal complaint in the Eastern District of New York charging Russian-national Anatoly Legkodymov, a senior government at Bitzlato Ltd. (“Bitzlato”), a cryptocurrency alternate registered in Hong Kong. Legkodymov—often known as “Gandalf” and “Tolik”—is charged with conducting an unlicensed cash transmitting enterprise that did not adjust to required controls, such as anti-money laundering requirements, and for processing and transmitting funds derived from illicit means. Legkodymov was arrested in Miami on January 17th. If convicted, Legkodymov faces a most of 5 (5) years in jail.
Establishments that commerce in cryptocurrency should not above the regulation and their house owners should not past our attain. As alleged, Bitzlato offered itself to criminals as a no-questions-asked cryptocurrency alternate, and reaped a whole lot of thousands and thousands of {dollars}’ price of deposits consequently. The defendant is now paying the worth for the malign position that his firm performed within the cryptocurrency ecosystem.
Breon Peace, U.S. Lawyer
Bitzlato was a hotbed for illicit cryptocurrency. That was the alternate’s enterprise mannequin. It marketed itself based mostly on its lax know-your-customer (“KYC”) necessities – “Easy Registration with out KYC. Neither selfies nor passports required. Solely your e mail wanted.” Bitzlato even maintained an inner administration folder that included a doc that listed the professionals and cons of the alternate. The doc states, I quote, “Positives: No KYC. . . . Negatives: Soiled cash. . . .” Even when it applied “required” verification for brand new customers (and I exploit that time period loosely), Bitzlato assured current customers that the brand new controls didn’t apply to them. Even when Bitzlato did request and obtain figuring out info on its customers, it knowingly accepted false “straw man” info – principally, cast or stolen info. Fairly the enterprise mannequin.
The DOJ alleged that Bitzlato maintained a reciprocal relationship with the Hydra darknet marketplace, which was sanctioned in April 2022. Whereas Hydra was energetic, its customers exchanged roughly $700 million in cryptocurrency with Bitzlato, typically not directly by means of mixers or different intermediaries, however oftentimes immediately with the alternate. Bitzlato was effectively conscious of this relationship, as its customers continuously used the client assist chats to request assist with their Hydra transactions. Customers would continuously admit they have been utilizing the alternate for illicit functions in these chats and assist simply didn’t bat a watch. Legkodymov himself said in inner company chat logs that he understood most of Bitzlato’s consumer base have been “addicts” and “drug traffickers” however he and different senior leaders urged the corporate to look the opposite approach in order to not harm revenues. A current Chainalysis report indicated that between 2019 and 2021, almost $1 billion in cryptocurrency acquired by the exchanged was thought of “illicit and dangerous,” which represents 48% of all worth of cryptocurrency on the alternate.
Moreover, Bitzlato maintained a major variety of U.S. clients. Whereas the alternate claimed that they didn’t service U.S. clients, proof reveals in any other case. Legkodymov immediately acquired studies that steered U.S. customers have been visiting the positioning, together with 250 million visits from U.S. IP addresses in July 2022 alone. Moreover, Bitzlato’s buyer assist repeatedly suggested its customers that they might switch funds to and from U.S. monetary establishments.
This investigation stands out for its worldwide coordination. Cybercrime is notoriously troublesome for regulation enforcement as a result of it operates in a realm that doesn’t essentially adhere to conventional jurisdictional traces. Many cybercriminals inevitably commit crimes everywhere in the world, hiding and obfuscating their precise location utilizing varied instruments, whereas nonetheless taking harbor in jurisdictions that lack extradition treaties with the US (usually, Russia). For this reason Bitzlato may so flagrantly flout KYC legal guidelines for some time, they thought they have been untouchable working in Russia and China. All of the whereas, the regulation should play in the usual bounds of sovereign jurisdiction. This requires actual time coordination that may be troublesome if any stage of forms will get in the best way. On the U.S. facet, the case was collectively prosecuted by the Nationwide Safety and Cybercrime Part of the EDNY and the Nationwide Cryptocurrency Enforcement Staff (“NCET”). Worldwide companies embrace the Cyber Division of the Paris Prosecution Workplace, France’s Gendarmerie Nationale Our on-line world Command, EUROPOL, and Dutch and Belgian authorities.
Humorous sufficient, there was some blowback with out the cryptocurrency neighborhood following the announcement. The morning of January 18th, the DOJ launched an announcement that they might be asserting “a significant, worldwide cryptocurrency enforcement motion.” That announcement sparked a furor of rumors throughout the web, believing that the motion could be catastrophic for the business and that it have to be some well-known alternate or key infrastructure, resembling a significant stablecoin. As a substitute, most realized the identify Bitzlato for the primary time once they listened attentively to the dwell protection later that afternoon. The announcement initially induced crypto costs to dip throughout the board, although most recovered rapidly following the reveal.
Regardless of the preliminary eye rolls from the neighborhood, this cost is clearly utterly warranted, and the DOJ ought to be counseled for the work they did in taking down the unhealthy actors right here. Chasing down cybercriminals may be brutally troublesome work and this case is very spectacular contemplating the worldwide coordination required. And by the best way, in the event you’re working a Russian cryptocurrency alternate that makes a speciality of cash laundering and caters to darknet markets, ransomware, and cybercriminals—I’m not your lawyer and this isn’t essentially authorized recommendation—nevertheless it simply looks like a foul thought to return occasion in the US and proceed working your unlawful alternate, the place you’re inside jurisdiction of U.S. regulation enforcement. That mentioned, please proceed to take action, completely happy to see you behind bars.
