Bitzlato Founder Arrested
U.S. authorities have indicted Russian citizen Anatoly Legkodymov, the founder of small cryptocurrency exchange Bitzlato. He is suspected of conducting illicit fund transfer business and not complying with anti-money laundering requirements.
Legkodymov was arrested in Miami, Fla., on the 17th and will soon be arraigned in a federal district court.
Various agencies are involved in the investigation, including the U.S. Department of Justice, the U.S. Attorney’s Office for the Eastern District of New York, and the Federal Bureau of Investigation (FBI). The DOJ is also working with French law enforcement agencies and the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
French authorities, together with European police and authorities in Spain, Portugal and Cyprus, allegedly dismantled Bitzlato’s digital infrastructure and took enforcement action.
What is the Financial Crimes Enforcement Network (FinCEN)?
Secretariat belonging to the U.S. Treasury Department. Its mission is to protect the financial system from illicit exploitation, combat money laundering, and advance national security through the collection, analysis and dissemination of financial information and the strategic use of financial authorities.
According to the complaint, Legkodymov is an executive and major shareholder of Bitzlato, an international cryptocurrency exchange registered in Hong Kong. Bitzlato advertised that it rarely asks for ID from users, saying, “No selfies or passports required.”
In this way, Bitzlato became a hotbed for criminal funds due to lack of customer identification (KYC). Bitzlato’s biggest trading partner was the massive darknet market Hydra. Hydra is an illicit online marketplace for drugs, stolen personal data, money laundering services and more.
Hydra was shut down by U.S. and German law enforcement in April 2022, but by then had traded over ¥90 billion ($700 million) in cryptocurrencies through Bitzlato.
The complaint also points out that the exchange handled more than about ¥1.9 billion ($15 million) in ransomware revenue.
Relation: US Treasury Department sanctions cryptocurrency exchange “Garantex” Involved in darknet “Hydra” trading
What is ransomware
Malware that demands money in exchange for restoring the original state after hacking. Also known as ransomware. Once infected, it encrypts other people’s important documents and photo files without permission, locks the PC to restrict its use, and demands money.
Additionally, Legkodymov and other executives were aware that cheating was rampant at Bitzlato. For example, in 2019, Legkodymov sent a message to a colleague on the company’s internal chat system saying that “Bitzlato users are scammers registering accounts using someone else’s ID.”
It also did a sizeable amount of business with U.S.-based customers, while claiming it wasn’t accepting U.S. users.
U.S. officials say the charges described in the complaint are in the allegation stage and have not yet been proven guilty. If convicted of illegal money transfers, he could be sentenced to a maximum of five years in prison.
Investigation in cooperation with domestic and foreign authorities
At a press conference on the matter, Deputy Attorney General Kenneth A. Polite explained:
The National Crypto Enforcement Team (NCET) crackdown on Bitzlato and the arrest of the defendant shows that we can work together with domestic and international partners to tackle crypto-related crimes that transcend borders. It shows that
NCET is an organization created in October 2021 to prevent fraudulent use of cryptocurrencies, with a focus on cryptocurrency exchanges, mixing services and infrastructure providers, conducting and assisting investigations into related crimes.