WASHINGTON – The US authorities said on Wednesday they have arrested the majority shareholder and co-founder of Hong Kong-registered virtual currency exchange Bitzlato for allegedly processing US$700 million (S$927 million) in illicit funds.
Anatoly Legkodymov, a Russian national living in China, was arrested in Miami on Tuesday on charges that he operated the exchange as an unlicensed money exchange business that “in his own words, catered to known crooks”, a top Justice Department official said.
Prosecutors said Bitzlato exchanged more than US$700 million in cryptocurrency with Hydra Market, which they described as an illicit online marketplace for narcotics, stolen financial information, fraudulent identification documents and money laundering services that US and German law enforcement agencies shut down in April 2022.
“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 United States courtroom,” Deputy Attorney-General Lisa Monaco told reporters at a news conference at the Justice Department.
Bitzlato also received more than US$15 million in ransomware proceeds, prosecutors said.
“Despite it being a small name, it carries a lot of weight,” said Mr Chen Arad, chief operating officer at Solidus Labs, a crypto market surveillance company.
“Small actors are not safe and they carry just as much risk as any big-name exchange (or) platform,” he said.
The authorities described Legkodymov as the crypto exchange’s co-founder, saying the 40-year-old Russian helped run the company from the Chinese city of Shenzhen.
Bitzlato has processed US$4.58 billion worth of cryptocurrency transactions since May 3, 2018, prosecutors said, adding that a substantial portion constitutes “the proceeds of crime”.
It also broke rules requiring significant vetting of customers and failed to meet requirements aimed at preventing money laundering, the authorities said. Archived versions of Bitzlato’s website noted that the site’s clients could register using “only your e-mail”.
Prosecutors said Bitzlato knowingly serviced US customers and conducted transactions with US-based exchanges using US online infrastructure. For at least some period of time, it was being managed by the defendant while he was in the US, they said.
The charges were filed in conjunction with the US Treasury Department’s Financial Crimes Enforcement Network, which said it has prohibited certain transfers of funds involving Bitzlato by any covered financial institution after labelling the exchange a “primary money laundering concern” related to Russian illicit finance.
“Identifying Bitzlato as a primary money laundering concern effectively renders the exchange an international pariah,” Deputy Treasury Secretary Wally Adeyemo said at the news conference.
Mr Adeyemo said Bitzlato has repeatedly facilitated transactions for Russian-affiliated ransomware groups, including the gang behind Conti, which he said has links to the Russian government and Russia-connected darknet markets.
By midday on Wednesday, Bitzlato’s website was replaced by a notice saying that the service had been seized by the French authorities “as part of a coordinated international law enforcement action”. REUTERS
