Bitzlato co-founder arrested by US authorities for allegedly handling $700 million in illicit funds

US authorities announced on Wednesday that they have arrested the majority shareholder and co-founder of Bitzlato Ltd, a Hong Kong-registered virtual currency exchange, for allegedly handling $700 million (about Rs 5,700 crore) in illicit funds.

Anatoly Legkodymov, a Russian national living in China, was arrested Tuesday in Miami for operating the exchange as an unlicensed foreign exchange business that “in his own words, catered to ‘known scammers,’” a said a senior Justice Department official. .

Prosecutors said Bitzlato traded more than $700 million (about Rs 5,700 crore) in cryptocurrency with Hydra Market, which they described as an illicit online market for narcotics, stolen financial information, fraudulent identity documents and money laundering services shut down by US and German law enforcement. down in April 2022.

“Whether you’re 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,” Deputy Attorney General Lisa Monaco said. to journalists during a press conference at the Ministry of Justice. .

Bitzlato also received more than $15 million (about Rs 122 crore) in ransomware proceeds, prosecutors said. It was not immediately possible to contact Hydra Market for comment.

“Although it’s a small name, it carries a lot of weight,” said Chen Arad, chief operating officer at Solidus Labs, a crypto market monitoring firm.

“Small players are insecure and they carry as much risk as any big name (or) exchange,” he said.

Authorities described Legkodymov as the co-founder of the cryptocurrency exchange, saying the 40-year-old Russian helped run the company from the Chinese city of Shenzhen. Legkodymov did not immediately respond to an email with questions, and messages left on Bitzlato’s automated Telegram support chat service received the phrase “Oops, sorry.”

Bitzlato has processed $4.58 billion (roughly Rs. 37,300 crore) in cryptocurrency transactions since May 3, 2018, prosecutors said, adding that a substantial part constitutes “proceeds of crime”.

He also breached rules requiring heavy screening of customers and failed to meet requirements aimed at preventing money laundering, authorities said. Archived versions of Bitzlato’s website stated that site customers could sign up using “only your email address”.

Prosecutors said Bitzlato knowingly served US customers and transacted with US-based exchanges using US online infrastructure. For at least some time it was run by the defendant while in the United States, they said.

The charges were filed in conjunction with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN), which said it barred certain funds transmissions involving Bitzlato by any covered financial institution after calling Bitzlato Ltd a “primary security concern.” money laundering” linked to Russian illicit activities. finance.

“Identifying Bitzlato as a primary money laundering concern effectively makes the exchange an international pariah,” Deputy Treasury Secretary Wally Adeyemo said at the press conference.

Adeyemo said Bitzlato has repeatedly facilitated transactions for Russian-affiliated ransomware groups, including the gang behind Conti, which he says has ties to the Russian government and Russian-connected darknet markets. .

Cari Stinebower, a former Treasury Department official now a partner at law firm Winston & Strawn, said the sanctions imposed are akin to those in Section 311 of the US Patriot Act and will make Bitzlato untouchable by US banks and foreign.

“None of the traditional financial institutions will deal with an entity identified as a major money laundering concern,” she said.

“While US financial institutions will refuse to do business with Bitzlato, (one would expect) other financial institutions to follow suit,” she added. “The impact will be to freeze Bitzlato from the global financial sector almost immediately.”

At noon on Wednesday, Bitzlato’s website was replaced with a notice that the service had been seized by French authorities “as part of a coordinated international law enforcement action.”

© Thomson Reuters 2023

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