US authorities have arrested Anatoly Legkodymov, founder and majority owner of cryptocurrency exchange Bitzlato, for allegedly processing $700 million in illicit funds.

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Bitcoin and Crypto Fraud Friday, January 20, 2023 - 15:16

US authorities have arrested Anatoly Legkodymov, founder and majority owner of cryptocurrency exchange Bitzlato, for allegedly processing $700 million in illicit funds. He was arrested from the state of Miami for an alleged operation of a money transmitting business that transported and transmitted illicit funds and that failed to meet US regulatory safeguards, including anti-money laundering requirements.

"The actions send the clear message: whether you break 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," said Deputy Attorney General Lisa O. Monaco from the US Department of Justice.

The US Treasury Department's Financial Crimes Enforcement Network (FinCEN) has identified Bitzlato as a "primary money laundering concern" in connection with the Russian government.

"Bitzlato has repeatedly facilitated transactions for Russian-affiliated ransomware groups, including Conti, a Ransomware-as-a-Service group that has links to the Russian government and to Russian-connected darknet markets," said Deputy Secretary of the Treasury, Wally Adeyemo.

According to court documents, Legkodymov is a senior executive and the majority shareholder of Bitzlato, a Hong Kong-registered cryptocurrency exchange that operates globally.

Bitzlato has marketed itself as requiring minimal identification from its users, specifying that "neither selfies nor passports are required". On occasions when Bitzlato did direct users to submit identifying information, it repeatedly allowed them to provide information belonging to "straw man" registrants.

As a result of these deficient know-your-customer (KYC) procedures, Bitzlato allegedly became a haven for criminal proceeds and funds intended for use in criminal activity, the Justice Department said in a statement.

Bitzlato's largest counterparty in cryptocurrency transactions was Hydra Market (Hydra), an anonymous, illicit online marketplace for narcotics, stolen financial information, fraudulent identification documents, and money laundering services.

Hydra users exchanged more than $700 million in cryptocurrency with Bitzlato, either directly or through intermediaries, until Hydra was shuttered by US and German law enforcement in April 2022.

Bitzlato also received more than $15 million in ransomware proceeds.

"The FBI will continue to pursue actors who attempt to mask their criminal activity behind keyboards and use means such as cryptocurrency to evade law enforcement," said Associate Deputy Director Brian Turner of the FBI.

Legkodymov is charged with conducting an unlicensed money transmitting business. If convicted, he faces a maximum penalty of five years in prison.

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