The Russian has been accused by the US of running a $700 million crypto scheme

A Russian has been charged with money laundering through a cryptocurrency exchange that allegedly disguised the proceeds of more than $700 million worth of illegal gambling and drug deals as the US pursues criminal suspects in the digital space.

Anatoly Legkodymov, founder of cryptocurrency exchange Bitzlato, was arrested on Tuesday in Miami, the Department of Justice he said at a news conference Wednesday. Hong Kong-registered Bitzlato was a “critical financial asset” to Hydra’s dark web marketplace, the largest and longest-running marketplace of its type, Deputy Attorney General Lisa Monk said in conference. The dark web traffics in illicit goods and services.

Read more: US and German authorities shut down largest Darknet market

Bitzlato processed illegal funds including millions of dollars in ransomware earnings, according to a Justice Department statement. Legkodymov, 40, who lives in Shenzhen, China and Russia, posted in an internal chat that Bitzlato users were “known to be scammers,” according to the US.

Lisa Monaco speaks in Washington January 18 at a press conference on the Bitzlato case.

Photographer: Al Drago/Bloomberg

“Whether you violate 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 US courtroom,” Monaco said , in an apparent reference to the activities of FTP extension co-founder Sam Bankman-Fried. He ran his crypto empire out of the Bahamas and is now fighting federal fraud charges over his implosion.

Read more: The FTX executives who helped run the Bankman-Fried crypto empire

Legkodymov was scheduled to appear in court Wednesday afternoon in the Southern District of Florida. Joel DeFabio, a Miami-based attorney representing Legkodymov at the appearance, did not immediately respond to a voicemail and email asking for comment on the case.

Bitzlato-Hydra Nexus

Munich summed up the Bitzlato-Hydra connection.

The two “formed a high-tech axis of cryptocrime,” he said. “Buyers of Hydra funded illicit purchases — of illegal drugs, stolen financial information, and hacking services — from crypto accounts hosted on Bitzlato, and sellers of these illegal goods and services on Hydra sent criminal proceeds to Bitzlato accounts.”

By allowing users to open accounts with minimal information, Bitzlato “became a safe haven for criminals” Breon Pace said in conference. Peace is the United States Attorney in Brooklyn, New York, the office handling the case.

Read more: Fight to regulate cryptocurrencies at crossroads as Ripple ruling looms

Legkodymov, who the US says is also Gandalf, possibly after Tolkien’s character, has a usually meager web presence for a cryptographic figure. Bankman-Fried, for example, has been a fixture on social media.

But the founder of Bitzlato posted on his exchange’s chat forum. In a criminal complaint filed in Brooklyn federal court against Legkodymov, the government cites a number of messages written by him and others. In one, a user writes to the customer service portal.

“Dirty Bitcoin”

“I buy opiates in Hydra…but haven’t received the address,” says the user.

A Bitzlato employee replies helpfully: “Thank you for contacting us! Please provide the transaction number.

In an exchange circa May 5, 2021, reported by the United States, a user asks if he could “trade dirty bitcoin,” making “an apparent reference” to a Russian bank, “no problem here.”

A Bitzlato representative asks the user to clarify the question, the user responds, and the representative states that “there are no limitations from the service in this case,” according to the billing document.

Easy access

Bitzlato’s announcements posted on Russian-language sites suggest that users could open accounts on the exchange without a passport or photo, using only an email address. The exchange has also allowed them to buy cryptocurrencies with cash, all for fairly low fees. On the other hand, it has received mixed reviews online, with one stating that it makes it easy to insert cryptocurrencies but not so easy to remove them.

Bitzlato has facilitated around $1 billion in cryptocurrency laundering since 2019, according to Chainalysis, which specializes in tracing crypto transactions.

Read more: US Moves Closer to Bankman-Fried Inner Circle with Singh Probe

The US allegations follow the establishment of the National Cryptocurrency Enforcement Team, a Justice Department team created to combat the criminal use of cryptocurrencies and recover the proceeds of such crimes. Monaco announced the formation of the team in October 2021 to investigate and prosecute crypto cases, develop strategies for those investigations, and identify areas to focus on, including professional money launderers and ransomware schemes.

Cyber ​​security veteran

Veteran cybersecurity prosecutor Eun Young Choi, who led the successful 2014 hacking prosecution against JPMorgan Chase & Co.was named to lead the team in February 2022. That crime saw hundreds of millions of dollars stolen by hackers and conspirators in more than a dozen countries.

Choi also supported the appeal in the lawsuit against Ross Ulbrichtthe founder and chief administrator of the now closed Silk Road underground virtual drug bazaar.

Now, Deputy Secretary of the Treasury Wally Adeyemo he told a press conference Wednesday, identifying Bitzlato as a money laundering operation makes him “an international pariah.”

The case is US v. Anatoly Legkodymov, 23-m-17, United States District Court, Eastern District of New York (Brooklyn).

QuickTake: How the Crypto Troubles Changed the Regulatory Debate in the US

–With the assistance of Olga Charif.

To contact reporters about this story:
Chris Dolmetsch in Manhattan Federal Court at [email protected];
Patricia Urtado in Manhattan Federal Court at [email protected];
Chris Strom in Washington at [email protected]

To contact the editors responsible for this story:
Misyrlena Egkolfopoulou to [email protected]

Peter Jeffrey, Elizabeth Wasserman

© 2023 Bloomberg LP All rights reserved. Used with permission.

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