Bitzlato Crypto Exchange Founder Into Custody For Money Laundering Case

    Pathik Bhattacharya
    Pathik Bhattacharya

    Updated on January 31, 2023 02:01 PM

    Published on January 31, 2023 07:24 AM

    The majority shareholder and cofounder of Hong Kong-registered virtual currency exchange Bitzlato Ltd were arrested on Wednesday by US authorities for allegedly processing $700 million in illicit funds.

    Bitzlato Crypto Exchange Founder
    Source: Unsplash

    The US Department of Justice charged Anatoly Legkodymov, a Russian national living in China, with running a firm that catered to what he once called "crooks".

    They said Bitzlato processed more than $700 million (£567 million) in unlawful funds, in violation of money-laundering regulations.

    The Russian national, 40, was arrested in Miami and charged in a federal court in the United States with "conducting a money transmitting business that transported and transmitted illicit funds and failed to meet U.S. regulatory safeguards, including anti-money laundering requirements," according to the Department of Justice.

    According to court documents, Bitzlato promoted itself as a virtual currency exchange with minimum identification requirements for its users, in violation of the rules requiring consumer screening.

    Related Read: Crypto monitoring tools and blockchain analysis help to avoid cryptocurrency fraud

    Bitzlato CEO Arrested in Miami

    In Miami, Mr. Legkodymov was apprehended.

    "Institutions that trade in cryptocurrency are not above the law, and their owners are not beyond our grasp," US Attorney Breon Peace said in a press conference announcing the arrest on Wednesday.

    "As alleged, Bitzlato sold itself to criminals as a no-questions-asked cryptocurrency exchange and reaped hundreds of millions of dollars worth of deposits as a result. The defendant is now paying the price for the malign role that his company played in the cryptocurrency ecosystem."

    Furthermore, Legkodymov and other top officials have been accused of turning a blind eye to illegal behavior on the site despite knowing that its customers were "known crooks" who registered accounts using stolen identity documents.

    "An internal spreadsheet saved in Bitzlato's shared management folder summarized the company's vision of itself: 'Positives: No KYC. Negatives: Dirty money," the DoJ said.

    Also Read: Top cryptocurrency crashes of 2022

    Entry of FinCEN in Bitzlato Case

    The Financial Crimes Enforcement Network (FinCEN) of the United States Treasury Department classified Bitzlato as a "major money laundering problem" that enabled ransomware offenders like Conti to launder their ill-gotten earnings.

    Concurrent with the arrest, authorities in France, Spain, Portugal, and Cyprus confiscated and dismantled Bitzlato's digital infrastructure as part of an international Europol-led effort.

    "As alleged, Bitzlato pitched itself to criminals as a no-questions-asked cryptocurrency exchange, resulting in hundreds of millions of dollars in deposits," stated U.S. Attorney Breon Peace.

    In February 2022, the blockchain analytics firm Chainalysis disclosed that Bitzlato "earned $206 million through darknet markets, $224.5 million from frauds, and $9 million from ransomware perpetrators."

    Following last year's Russo-Ukrainian war, the high-risk exchange became a "cashout destination" for Project Terricon, a terrorist outfit collecting bitcoin donations to help paramilitary entities in the Donbas region, according to the business.

    Between 2019 and 2023, Bitzlato is predicted to have received $2.5 billion in bitcoin, 53% of which came from illegal and dangerous sources.

    "If cybercriminals can't reliably convert the bitcoin created by their actions into cash, the incentives to commit those crimes fall," Chainalysis said, adding that the shutdown "represents yet another disruption of a crucial money laundering business."

    The news comes only a week after Europol busted a network of call centres in Bulgaria, Cyprus, Germany, and Serbia for duping victims into spending enormous sums of money in bogus cryptocurrency schemes, resulting in millions of dollars in damages.

    Growing Money Laundering Cases in Crypto Space

    Money laundering is one of the most common crimes in the cryptocurrency business, with occurrences increasing roughly 30% between 2020 and 2021, according to Chainalysis's 2022 Crypto Crime Report. According to the same report, fraudsters will launder $8.6 billion in cryptocurrencies in 2021. 

    In 2020, this figure was $6.6 billion. Between 2017 and 2021, the year 2019 saw the largest amount in laundering at $10.9 billion. According to the study, revenues from darknet market sales or ransomware assaults are almost exclusively derived in bitcoin rather than fiat currency these days, which contributes significantly to the surge.

    Chainalysis was also able to detect changes in criminal behavior.

    According to the report, so-called "decentralized finance" (DeFi) protocols have become more essential to criminals attempting to conceal cash, getting 17% of all monies received from unlawful wallets in 2021, up from 2% the previous year.

    According to Chainalysis, several of these DeFi protocols allow for rapid changes between different forms of cryptocurrencies, which is appealing to launderers.

    They were commonly utilized, for example, by North Korean-affiliated hackers responsible for $400 million in bitcoin hacks last year, according to the firm.

    Cryptocurrency FAQs

    How is Cryptocurrency used for money laundering?

    Money launderers using cryptocurrency may transit illicit monies via hundreds of wallets before depositing and cashing out the funds at a crypto exchange. Unlike bank accounts, thousands of wallets may be opened in seconds without any verification of identity.

    Is money laundering easy in cryptocurrency?

    Bitcoin is an appealing alternative for money launderers partly because it is easier to launder money using cryptocurrencies than other techniques. Criminals in movies frequently move illicit money across borders using duffel bags or suitcases to avoid detection; however, this is not feasible in real life.

    Do cryptocurrencies have a high risk of money laundering?

    Because of their inherent secrecy, cross-border nature, and lack of centralized monitoring, cryptocurrency transactions may pose a heightened risk for money laundering. Identity verification, risk assessments, and transaction monitoring are all part of cryptocurrency KYC.