U.S. authorities arrested and charged the founder of Bitzlato, a China-based cryptocurrency exchange accused of laundering $700 million worth of illicit funds.
The Department of Justice (DOJ) announced the apprehension of 40-year-old Russian national Anatoly Legkodymov during a live video conference Wednesday, where Deputy Attorney General Lisa Monaco referred to the arrest as a "significant blow to the crypto crime ecosystem." The FBI arrested Legkodymov in Miami Tuesday night, though he resides in the city of Shenzhen, China. He is being charged with conducting an unlicensed money transmitting business.
A press release by the DOJ revealed that Bitzlato "marketed itself as requiring minimal identification from its users," which allowed it to become a haven for criminal activity. The DOJ also claimed the exchange was significantly connected to ransomware payments and Hydra Market -- a Russian dark web marketplace once used for the sale of narcotics and stolen financial information, as well as money laundering services, before its takedown last year.
"Bitzlato's largest counterparty in cryptocurrency transactions was Hydra Market," the DOJ wrote in the press release. "Hydra users exchanged more than $700 million in cryptocurrency with Bitzlato, either directly or through intermediaries, until Hydra was shuttered by U.S. and German law enforcement in April 2022. Bitzlato also received more than $15 million in ransomware proceeds."
During ransomware attacks, groups routinely demand ransoms in cryptocurrency and have been known to launder payments through exchanges and "mixers." To deter this activity and make it harder for threat actors to hide illicit funds, the U.S. began issuing sanctions against certain cryptocurrency platforms last year. Now, U.S. companies that pay a ransom to a sanctioned exchange could face consequences.
The DOJ said Bitzlato claimed it did not accept U.S. users, though the complaint alleged it did "substantial business with U.S.-based customers, and its customer service representatives repeatedly advised users that they could transfer funds from U.S. financial institutions."
Legkodymov is also accused of conducting Bitzlato transactions from Miami in 2022 and 2023, and of receiving reports of "substantial traffic" to its website originating from U.S.-based IP addresses. That includes more than 250 million visits in July 2022, according to the DOJ.
"Moreover, Legkodymov and Bitzlato's other managers were aware that Bitzlato's accounts were rife with illicit activity and that many of its users were registered under others' identities," the press release read.
The U.S. Department of the Treasury's Financial Crimes Enforcement Network is working with French authorities on the case. If convicted, Legkodymov faces a maximum of five years in prison.
In addition to the arrest, authorities also took down Bitzlato's infrastructure, seized the cryptocurrency and identified the exchange as a "primary money laundering concern in connection with Russian illicit finance."