United States Charged Hong Kong Crypto Exchange Bitzlato Russian Founder Anatoly Legkodymov for Breaching Regulations & Money Laundering, Allow Criminals to Setup with No Passport Required & Largest Counterpart Hydra Market Transacted $700 Million
26th January 2023 | Hong Kong
The United States Department of Justice (Eastern District of New York) has charged Hong Kong crypto exchange Bitzlato Russian founder Anatoly Legkodymov for breaching regulatory safeguards & money laundering requirements, allowing criminals with minimal identification and no passport required to setup and use Bitzlato with the largest counterpart Hydra Market transacting more than $700 million in cryptocurrency transactions. United States Department of Justice: “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. Bitzlato’s largest counterparty in cryptocurrency transactions was Hydra Market, an anonymous, illicit online marketplace for narcotics, stolen financial information, fraudulent identification documents, and money laundering services that was the largest and longest running darknet market in the world. Hydra Market users exchanged more than $700 million in cryptocurrency with Bitzlato, either directly or through intermediaries, until Hydra Market was shuttered by U.S. and German law enforcement in April 2022. Bitzlato also received more than $15 million in ransomware proceeds.” Bitzlato Russian founder Anatoly Legkodymov was arrested in Miami (United States). His residences are Shenzen (China) and Russia. See United States Department of Justice Statement statement below. In a separate statement by European Union Agency for Law Enforcement Cooperation, “Almost half of all Bitzlato transactions linked to criminal activities … … Platform infrastructure shut down in France for allegedly laundering criminal assets, with six people targeted in Cyprus, Spain, Portugal and the USA. See announcement below.
“ United States Charged Hong Kong Crypto Exchange Bitzlato Russian Founder Anatoly Legkodymov for Breaching Regulations & Money Laundering, Allow Criminals to Setup with No Passport Required & Largest Counterpart Hydra Market Transacted $700 Million “
United States Attorney Breon Peace: “Institutions that trade in cryptocurrency are not above the law and their owners are not beyond our reach. 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.”
United States Deputy Attorney General Monaco: “Overnight, the Department worked with key partners here and abroad to disrupt Bitzlato, the China-based money laundering engine that fueled a high-tech axis of cryptocrime, and to arrest its founder, Russian national Anatoly Legkodymov. Today’s 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 United States courtroom.”
United States Department of Justice Statement
Founder and Majority Owner of Bitzlato, a Cryptocurrency Exchange, Charged with Unlicensed Money Transmitting
- Bitzlato Ltd. Processed More than $700 Million Dollars’ Worth of Illicit Funds, Including Millions in Ransomware Proceeds
- Defendant Wrote on Bitzlato’s Internal Chat Room That its Users Were “Known to be Crooks”
18th Jan 2023 – A complaint was unsealed this morning in federal court in Brooklyn charging Anatoly Legkodymov, a Russian national and senior executive of Bitzlato Ltd. (Bitzlato), a Hong Kong-registered cryptocurrency exchange, with conducting a money transmitting business that transported and transmitted illicit funds and that failed to meet U.S. regulatory safeguards, including anti-money laundering requirements. Legkodymov was arrested last night in Miami and is scheduled to be arraigned this afternoon in the U.S. District Court for the Southern District of Florida. French authorities and the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) are taking concurrent enforcement actions.
Breon Peace, United States Attorney for the Eastern District of New York; Lisa O. Monaco, Deputy Attorney General for the Department of Justice; Kenneth A. Polite, Assistant Attorney General for the Department of Justice’s Criminal Division; Brian C. Turner, Associate Deputy Director, Federal Bureau of Investigation (FBI); and Michael J. Driscoll, Assistant Director-in-Charge, FBI, New York Field Office, announced the arrest and charge.
“Institutions that trade in cryptocurrency are not above the law and their owners are not beyond our reach,” stated U.S. Attorney Breon Peace. “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.”
“Today the Department of Justice dealt a significant blow to the cryptocrime ecosystem,” stated Deputy Attorney General Monaco. “Overnight, the Department worked with key partners here and abroad to disrupt Bitzlato, the China-based money laundering engine that fueled a high-tech axis of cryptocrime, and to arrest its founder, Russian national Anatoly Legkodymov. Today’s 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 United States courtroom.”
“As alleged, the defendant helped operate a cryptocurrency exchange that failed to implement anti-money laundering safeguards and enabled criminals to profit from their wrongdoing, including ransomware and drug trafficking,” stated Assistant Attorney General Polite. “The National Cryptocurrency Enforcement Team’s tremendous efforts to disrupt Bitzlato and arrest the defendant demonstrate that we will continue to work with our partners – both foreign and domestic – to combat cryptocurrency-fueled crimes, even if they transcend international borders.”
“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,” stated FBI Assistant Deputy Director Turner. “We, along with our federal and international partners, will work relentlessly to disrupt and dismantle these types of criminal enterprises. Today’s arrest should serve as a reminder the FBI will impose risk and consequences upon those who engage in these activities.”
“As alleged today, Legkodymov knowingly allowed Bitzlato to become a perceived safe haven for funds used for and resulting from a variety of criminal activities. The FBI and our partners remain steadfast in our commitment to keeping cryptocurrency markets – as with any financial market – free from illicit activity. Today’s action should serve as an example of this commitment as Legkodymov will now face the consequences of his actions in our criminal justice system,” stated FBI Assistant Director-in-Charge Driscoll.
According to court documents, Legkodymov is a senior executive and the majority shareholder of Bitzlato Ltd. (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. Bitzlato’s largest counterparty in cryptocurrency transactions was Hydra Market, an anonymous, illicit online marketplace for narcotics, stolen financial information, fraudulent identification documents, and money laundering services that was the largest and longest running darknet market in the world. Hydra Market users exchanged more than $700 million in cryptocurrency with Bitzlato, either directly or through intermediaries, until Hydra Market was shuttered by U.S. and German law enforcement in April 2022. Bitzlato also received more than $15 million in ransomware proceeds.
As alleged in the complaint, Bitzlato’s customers routinely used the company’s customer service portal to request support for transactions with Hydra, which Bitzlato often provided, and admitted in chats with Bitzlato personnel that they were trading under assumed identities. 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. For instance, on May 29, 2019, Legkodymov used Bitzlato’s internal chat system to write to a colleague that Bitzlato’s users were “known to be crooks,” using others’ identity documents to register their accounts. Legkodymov was repeatedly warned by colleagues that Bitzlato’s customer base consisted of “addicts who buy drugs at [] Hydra” and “drug traffickers,” with one senior executive even stressing that Bitzlato should combat drug dealers only “nominally,” to avoid hurting the company’s bottom line. An internal spreadsheet saved in Bitzlato’s shared management folder encapsulated the company’s view of itself: “Positives: No KYC. . . . Negatives: Dirty money. . . .”
As alleged in the complaint, although Bitzlato claimed not to accept users from the United States, 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. Moreover, Legkodymov – who himself administered Bitzlato from Miami in 2022 and 2023 – received reports reflecting substantial traffic to Bitzlato’s website from U.S.-based Internet Protocol addresses, including over 250 million such visits in July 2022.
The charge in the complaint is an allegation and the defendant is presumed innocent unless and until proven guilty. If convicted of operating an illegal money transmitting business, he faces a maximum penalty of five years in prison.
Concurrent with the arrest announced today, French authorities, working with Europol and partners in Spain, Portugal, and Cyprus, dismantled Bitzlato’s digital infrastructure and took enforcement actions.
The investigation is being jointly prosecuted by the National Security and Cybercrime Section of the United States Attorney’s Office for the Eastern District of New York and the National Cryptocurrency Enforcement Team (NCET). NCET Trial Attorneys Alexander Mindlin, Scott Meisler, and Matthew Blackwood of the Justice Department’s Criminal Division and Assistant U.S. Attorney Artie McConnell of the Eastern District of New York are prosecuting the case, with assistance from Paralegal Specialist Mary Clare McMahon.
The Justice Department investigated this case in close coordination with French law enforcement authorities and the Treasury Department’s FinCEN, both of which took separate actions today under their respective authorities. The Justice Department’s Office of International Affairs and the FBI’s Legal Attaché in France provided critical assistance in this case, with significant support from the department’s Cyber Operations International Liaison.
The NCET and U.S. Attorney’s Office for the Eastern District of New York also extend their appreciation to the Cyber Division of the Paris Prosecution Office and to France’s Gendarmerie Nationale Cyberspace Command (Cyber Crime Investigation Unit / C3N). Assistance was also provided by the Customs and Border Protection, the Transportation Safety Administration, and the New York City Police Department. EUROPOL and Dutch and Belgian authorities have contributed to the overall investigation with respect to operational expertise, coordination, and information-sharing.
The NCET was created in October 2021 to combat the growing illicit use of cryptocurrencies and digital assets. Under the supervision of the Criminal Division, the NCET conducts and supports investigations into individuals and entities that enable the use of digital assets to commit and facilitate a variety of crimes, with a particular focus on virtual currency exchanges, mixing and tumbling services, and infrastructure providers. The NCET also sets strategic priorities regarding digital asset technologies, identifies areas for increased investigative and prosecutorial focus, and leads the department’s efforts to collaborate with domestic and foreign government agencies as well as the private sector to aggressively investigate and prosecute crimes involving cryptocurrency and digital assets.
European Union Agency for Law Enforcement Cooperation Statement
- Bitzlato: senior management arrested
- Platform infrastructure shut down in France for allegedly laundering criminal assets, with six people targeted in Cyprus, Spain, Portugal and the USA
23rd Jan 2023 – An operation led by French and US authorities, and strongly supported by Europol, has targeted the crypto exchange platform Bitzlato. The globally operating Hong Kong-registered cryptocurrency exchange is suspected of facilitating the laundering of large amounts of criminal proceeds and converting them into roubles. Law enforcement authorities took down the digital infrastructure of the service, based in France, and interrogated leading members of the platform’s management. The operation also involved law enforcement and judicial authorities from Belgium, Cyprus, Portugal, Spain and the Netherlands.
Almost half of all Bitzlato transactions linked to criminal activities
Targeting crucial crime facilitators such as crypto exchanges is becoming a key priority in the battle against cybercrime. Bitzlato allowed the rapid conversion of various crypto-assets such as bitcoin, ethereum, litecoin, bitcoin cash, dash, dogecoin and USDT into Russian roubles. It is estimated that the crypto exchange platform has received a total of assets worth EUR 2.1 billion (BTC 119 000).
While the conversions of crypto-assets into fiat currencies is not illegal, investigations into the cybercriminal operators indicated that large volumes of criminal assets were going through the platform. The analysis indicated that about 46 % of the assets exchanged through Bitzlato, worth roughly EUR 1 billion, had links to criminal activities.
Cryptanalysis uncovered that the majority of suspicious transactions are linked to entities sanctioned by the Office of Foreign Assets Control (OFAC), with others linked to cyber scams, money laundering, ransomware and child abuse material. For example, investigations showed that 1.5 million BTC transactions have been made directly between Bitzlato users and the Hydramarket, taken down in April 2022.
This exchange platform, available both in Russian and English language, rented dedicated servers from a hosting company in France. The coordinated action of the judicial and law enforcement authorities from the different involved countries led to the takedown of the platform, seizures of present financial assets, and further technical analysis.
Overall results
- 5 individuals arrested so far (1 in Cyprus, 3 in Spain and 1 in the US);
- 1 individual questioned in Portugal;
- The main administrator arrested in the US;
- CEO, Financial director and Marketing director arrested in Spain;
- 8 house searches (4 in Spain, 1 in Cyprus, 2 in Portugal, 1 in US);
- Takedown of the digital infrastructure of the service, enabling further analysis and investigation;
- Seizures include crypto wallets worth about EUR 18 million in cryptocurrency at the time of writing, vehicles and electronic equipment;
- 100+ accounts at other crypto exchange frozen, involving a total of EUR 50 million.
Cryptoanalysis and international coordination to uncover links
During the first phases of the investigative activities, Europol facilitated the information exchange, provided analytical support linking available data to various criminal cases within and outside the EU, and supported the investigation through the analysis of millions of cryptocurrency transactions.
On the action day, Europol deployed 13 of its experts on the spot (10 in France, 1 in Cyprus, 1 in Spain and 1 in Portugal) and supported the deployment of national investigators in other countries taking part in the operational activities. Europol supported the law enforcement authorities involved with coordination related to cryptocurrency analysis, cross checking of operational information against Europol’s databases, and operational analysis. At this moment, already over 3 500 bitcoin addresses and over a 1 000 Bitzlato user details showed links with various criminal cases reported in Europol’s systems. Analysis of this data and other related cases is expected to trigger further investigative activities.
Law enforcement authorities involved
- Cyprus: Cyprus Police
- Belgium: Federal Police (Federale Politie/Police Fédérale)
- France: National Gendarmerie (Gendarmerie Nationale)
- United States: Federal Bureau of Investigation
- Spain: Civil Guard (Guardia Civil)
- Netherlands: National Police (Politie) and the Fiscal Information and Investigation Service (FIOD)
- Portugal: Judicial Police (Policia Judiciaria)
Judicial authorities involved
- Belgium: Federal prosecutor office (Parquet fédéral)
- France: Paris Prosecutor / JUNALCO (Parquet de Paris / JUNALCO)
- United States: United States Department of Justice (US DOJ)
Headquartered in The Hague, the Netherlands, Europol supports the 27 EU Member States in their fight against terrorism, cybercrime, and other serious and organized crime forms. Europol also works with many non-EU partner states and international organisations. From its various threat assessments to its intelligence-gathering and operational activities, Europol has the tools and resources it needs to do its part in making Europe safer.
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