The US government on Tuesday arrested Anatoly Legkodymov, a Russian national and co-founder of Bitzlato, a Hong Kong-based crypto exchange, alleging the company was facilitating the flow of illicit funds.
The unsealed complaint accuses Bitzlato of allegedly running a money transfer business that facilitated the flow of illicit funds for purposes such as money laundering, which totaled over $700 million in proceeds for a range of cybercriminals.
“Institutions that trade in cryptocurrency are not above the law and their owners are not beyond our reach,” U.S. Attorney Breon Peace said.
“As alleged, Bitzlato sold itself to criminals as a cryptocurrency exchange with no questions asked, and thus reaped hundreds of millions of dollars in deposits. The accused is now paying the price for the evil role that his company played in the cryptocurrency ecosystem.”
The government alleges that Bitzlato was a crucial resource for the notorious darknet market Hydra, which the Justice Department previously shut down last year.
“Today, the Department of Justice delivered a massive blow to the cryptocurrency ecosystem,” Deputy Attorney General Lisa Monaco of the Department of Justice said during a joint press briefing.
“Whether you are breaking our laws from China or Europe – or abusing our financial system from a tropical island – you can expect to answer for your crimes in US court,” Monaco added.
Hydra buyers allegedly funded illicit purchases of illegal drugs, stolen financial information and hacking tools from Bitzlato crypto accounts while sellers of Hydra services sent criminal proceeds “to the tune of over $700 million” in direct and indirect transfers between 2018 and 2022, according to Monaco.
Federal law enforcement seized Bitzlato’s servers, which contain messages allegedly sent by the 40-year-old Legkodymov via the company’s internal chat system to colleagues who acknowledge that Bitzlato users were “known to be scammers”.
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 financing.
“The 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, terrorism or other illicit financing,” Deputy Treasury Secretary Wally Adeyemo said. in prepared remarks. “Nearly 50% of all known Bitzlato transactions during this period involved illicit Russian funding or otherwise risky sources.”
French authorities and the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) are taking simultaneous enforcement action.
Data released last week by blockchain analytics firm Chainalysis showed illicit crypto flows hit an all-time high of $20.1 billion last yearmainly due to the increase in sanctioned crypto addresses over the past year.
Another on-chain analysis report As of February last year, Bitzlato was added to its list of crypto exchanges known to facilitate money laundering, and included previously sanctioned exchanges Garantex and Suex.
Along with the arrest, French authorities, together with Europol and partners in Spain, Portugal and Cyprus, took down Bitzlato’s digital infrastructure and took enforcement action on Wednesday.
Legkodymov is presumed innocent until proven guilty. If convicted of operating an illegal money transmission business, he faces a maximum sentence of five years in prison, according to the Justice Department.