US federal authorities on Wednesday arrested the founder of Bitzlato, a cryptocurrency exchange they said was a financial haven for criminals involved in ransomware and the sale of illicit drugs on the dark web.
Anatoly Legkodymov, a 40-year-old Russian citizen residing in Shenzhen, China, was arrested in Miami on Wednesday, US prosecutors said, as part of a major crackdown jointly announced by Washington and Paris.
Prosecutors said that under Legkodymov’s watch, Bitzlato processed approximately $4.58 billion worth of cryptocurrency transactions and that a substantial portion of those transactions constitute proceeds of crime, as well as funds intended for use in transactions criminals. Bitzlato is known as a Virtual Asset Service Provider (VASP).
On Wednesday 18 January, the American judicial authorities announced the arrest of Anatoly Legkodymov, a Russian resident in China suspected of being the founder of Bitzlato. This cryptocurrency exchange is suspected to be one of the money launderers from cyber crime activities.
According to court documents, Legkodymov is a senior executive and the majority shareholder of Bitzlato Ltd. (Bitzlato), which is registered in Hong Kong and operates worldwide. Bitzlato came forward demanding minimal identification from its users, stating no selfies or passports [ne sont] necessary . On some occasions, when Bitzlato has asked users to submit credentials, it has repeatedly allowed them to submit information belonging to straw registrants.
Due to these deficient know-your-customer (KYC) procedures, Bitzlato has reportedly become a haven for proceeds of crime and funds intended to be used in criminal activity. Bitzlato’s largest cryptocurrency trading counterparty was Hydra Market, an anonymous and illicit online marketplace for narcotics, stolen financial information, fraudulent identity documents, and money laundering services that was the largest and oldest darknet market in the world. Hydra Market users traded over $700 million in cryptocurrency with Bitzlato, either directly or through intermediaries, until Hydra Market was shut down by US and German law enforcement in April 2022. Bitzlato also received over $15 million proceeds from ransomware.
Hydra had been in business since at least 2015 and has seen a meteoric rise since then. In 2020, it had annual revenues of more than $1.37 billion, according to a 2021 report released jointly by security firm Flashpoint and blockchain analytics firm Chainalysis. In 2016, the companies said Hydra had revenues of just $9.4 million. The German authorities have confirmed this the site had 17 million customers and over 19,000 registered seller accounts.
As alleged in the complaint, Bitzlato’s customers routinely used the company’s customer service portal to request assistance with transactions with Hydra, which Bitzlato provided frequently, and admitted in conversations with Bitzlato personnel that they had transacted using nominees. In addition, Legkodymov and other Bitzlato officials knew that Bitzlato’s accounts were riddled with illegal activity and that many of its users were registered under other people’s identities. For example, on May 29, 2019, Legkodymov used Bitzlato’s internal chat system to write to a colleague that Bitzlato users were known to be scammers, using other people’s identification documents to register their accounts. Legkodymov was repeatedly warned by colleagues that Bitzlato’s clientele consisted of Hydra drug-buying addicts and drug traffickers, with one senior manager even pointing out that Bitzlato should only fight drug traffickers in name, to avoid hurting bottom line. of the company. An internal spreadsheet stored in Bitzlato’s shared management folder summarizes the company’s view of itself: Pros: No KYC… Negatives: Dirty money… .
Five other men, mainly of Russian and Ukrainian nationality, were arrested in Spain, Portugal and Cyprus, as part of an operation led by French gendarmes. Another suspect should be quickly arrested and a last one has fled, according to a source close to the investigation, opened in September 2022 by the French justice.
All are suspected of having participated in the creation and development of the Russian platform Bitzlato, which allows the rapid conversion into rubles of crypto-assets such as bitcoin, ethereum, litecoin, bitcoin cash, dash, dogecoin and tether USD, the Paris prosecutor specified Laure Beccuau in a press release.
We also note the judicial seizure of the site and 16 million euros of criminal assets in France. Bitzlato has used at least one host in France from which the company has rented dedicated servers, explains the Paris prosecutor’s office in a statement.
250 agents took part in this operation according to a press release from the Interior Ministry
This is the story of an investigation that goes far beyond the borders of France and plunges us into the darkest corners of digital technology. A year ago, as part of the European EMPACT action, the Operational Division of the Gendarmerie Command in Cyberspace (ComCyberGend) targeted a criminal organization suspected of offering, since 2018, digital financial services facilitating crypto-asset transactions of various kinds and their conversion into rubles.
A particularly technical mechanism that requires different skills. We have established a national investigation unit composed of 50 gendarmes with investigators from ComCyberGend and various gendarmerie regions, experts from the technical division of ComCyberGend, analysts from the Central Criminal Intelligence Service of the National Gendarmerie (SCRC), or even cyber investigators specialized in crypto -assets (FINTECH), lists Major General Marc Boget, head of ComCyberGend.
Through complex investigations conducted with the support of EUROPOL, this shock team manages to decipher the workings of what turns out to be a huge digital recycling machine. Bitzlato is an exchange platform, unscrupulous about the identity of the customers and the origin of the funds, which allows criminals to launder crypto-assets deriving from various criminal activities (paedocrimes, ranongware, drug trafficking, etc.) for a fee. And this online laundry is especially lucrative as transactions are estimated at more than $2 billion since 2018.
As part of the preliminary investigation carried out by the National Jurisdiction for the fight against organized crime (JUNALCO) since last September, a judicial operation was launched this Wednesday January 18, coordinated by the French cybergendarmes and EUROPOL. It is aimed in particular at the creator of the platform and his accomplices implicated for acts of participation in a criminal association, money laundering in an organized gang, complicity in extortion in an organized gang and complicity in attacks on automated data processing systems data.
Six people were thus arrested, in Europe and the United States, thanks to the mobilization of forces from EUROPOL (AP CYBORG, EC3 FORENSIC, CYBER INTELLIGENCE TEAM), United States (FBI branches in New York and Miami), Spain (Guardia Civil ) , Portugal (PJ), Cyprus (Cybercrime Division and Digital Forensic Laboratory) and the Netherlands (Cybercrimeteam Oost-Nederland).
A total of 250 officers took part in this extraordinary operation. The service offered by the Bitzlato company was immediately put out of use. Furthermore, in agreement with the Public Prosecutor’s Office and the Agency for the Management and Recovery of Seized and Confiscated Assets (AGRASC), the investigators seized the domain name, over 16 million euros in the form of crypto-assets, the sums of 27,000 euros and 31,000 dollars, as well as three vehicles. This operation is a major blow to the cryptocriminal ecosystem and responds to the crisis of confidence in the cryptocurrency markets, said US Deputy Attorney General Lisa Monaco. In fact, if it is a first time in Europe, as underlined by General Boget, the cyber investigators do not intend to stop there.
Comments on the American side
Institutions trading in cryptocurrencies are not above the law and their owners are not beyond our reach,” said US Attorney Breon Peace. As stated, Bitzlato has sold itself to criminals as a crypto trading platform cryptocurrency who asks no questions and has raised hundreds of millions of dollars in deposits in the process.The defendant is now paying the price for the harmful role his company has played in the cryptocurrency ecosystem.
Today, the Minister of Justice has dealt a major blow to the cryptocrime ecosystem, said Lisa O. Monaco, Deputy Attorney General of the Department of Justice. Overnight, the minister worked with key partners at home and abroad to shut down the operations of Bitzlato, the China-based money laundering engine powering a high-tech crypto-crime hub, and to shut down the its founder, the Russian citizen Anatoly Legkodymov. Today’s actions send a clear message*: whether you’re breaking our laws from China or Europe, or abusing our financial system from a tropical island, you can expect to be held accountable for your crimes in court.
As alleged, the accused helped operate a cryptocurrency trading platform which failed to implement anti-money laundering safeguards and allowed criminals to profit from their wrongdoings, including ransom and drug trafficking,” he said. Deputy Attorney General Polite The National Cryptocurrency Enforcement Team’s sweeping efforts to disrupt Bitzlato and arrest the accused demonstrate that we will continue to work with our partners — foreign and domestic — to fight cryptocurrency-fueled crimes, even if they “cross borders international”.
The FBI will continue to prosecute actors who attempt to hide their criminal activity behind keyboards and use means such as cryptocurrency to evade law enforcement,” FBI Deputy Director Turner said. We, along with our federal partners and international organizations, we will work tirelessly to disrupt and dismantle these types of criminal enterprises.Today’s shutdown should remind us that the FBI will impose risks and consequences on those who engage in these activities.