On January 18th, the Department of Justice, US Attorney’s Office Eastern District of New York published a press release that stated that Anatoly Legkodymov was arrested on January 17th in Miami, Florida.  Assistant Attorney General Polite stated, “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.”  Legkodymov is the majority shareholder and cofounder of Hong Kong-registered virtual currency exchange Bitzlato Ltd.  Prosecutors said Bitzlato exchanged more than $700 million in illicit funds.  There was also a notable connection to Hydramarket, an illicit online marketplace for narcotics, stolen financial information, fraudulent identification documents, and money laundering services, which German and US law enforcement shut down in April 2022.  US agencies cooperated with international law enforcement agencies, including but not limited to EUROPOL, France, Netherlands, and Belgium, for the takedown of Bitzlato and arrest of Legkodymov and several other related persons in Europe. The press release [FBI Assistant Deputy Director Turner] also stated, “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”.

FinCEN also released an order identifying Bitzlato as a “primary money laundering concern” on January 18th pursuant to section 9714(a) of the Combatting Russian Money Laundering Act.  Within their press release FinCEN stated, “Bitzlato is a financial institution operating outside of the United States that is of primary money laundering concern in connection with Russian illicit finance. Bitzlato plays a critical role in laundering Convertible Virtual Currency (CVC) by facilitating illicit transactions for ransomware actors”.  If you might be wondering what this means, FinCEN also published an FAQ document on January 18th, which highlights the similar nature to a 311 action.  Specifically, covered financial institutions should : “(1) cease any and all transmittals of funds, including CVC, from or to Bitzlato, or from or to any account or CVC address administered by Bitzlato, except as otherwise set forth in the Order; and (2) incorporate the determination that Bitzlato is of primary money laundering concern into their Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) compliance programs.”

Clients of CipherTrace Armada were previously alerted to this activity, with Bitzlato’s attributed interactions showing significant send-and-receive activity with dark markets and high-risk exchanges.  Bitzlato might not have had much relevance to those traditionally involved in crypto, but it’s been on our radar for many years stemming from investigations into dark market and ransomware activity.  It’s also been a regular example pointed out in our training program, particularly our Certified Cryptocurrency Risk Specialist course.

Events such as this continue to highlight the importance of anti-money laundering/combatting the financing of terrorism (AML/CFT) compliance programs, as well as the underlying tools that support AML/CFT compliance programs in a risk-based manner.  Blockchain analytic tools, such as CipherTrace’s Armada, when properly integrated into nonbank financial institution and financial institution compliance frameworks, would alert other exchanges and financial institutions to concerning activity to/from entities such as Bitzlato.  This type of monitoring would undoubtedly lead to high volumes of suspicious activity/transaction reports finding their way to financial intelligence units and law enforcement in many countries.  Counterparty risk is critical within the virtual asset ecosystem to weed out the questionable actors along with blatant criminal supporting parties such as Bitzlato and Garantex (previously sanctioned by the Office of Foreign Assets Control on April 5, 2022).

The post U.S. arrests Bitzlato cofounder, alleges $700M illicit funds processed appeared first on CipherTrace.

---

Filed under: Bitcoin - @ January 20, 2023 12:18 am