The US Department of Justice (DOJ) announced a successful clampdown on Bitzlato, a major money laundering crypto exchange. Speaking at a press conference, US Attorney General Lisa Monaco confirmed the operation, adding that the exchange’s majority co-founder, Anatoly Legkodymov, was equally arrested in Miami by agents of the FBI.

40-year-old Legkodymov, who operates Bitzlato from his Shenzen residence in China, is due to be arraigned in Florida District Court this afternoon. Since the news of the arrest, the total number of wallets linked to Bitzlato shrunk from over 6 million to less than 12,000.

According to the US DOJ, Bitzlato is directly responsible for laundering over $700 million in illegal transactions from Hydra, the now-defunct darknet mega-market, over the last three years.

But analysis from crypto’s crime watchdog, Chainalysis, probes further into the activities of Bitzlato over the last four years, tracing over $2.5 billion to the exchange.

How Sinister was Bitzlato?

Bitzlato was set from the outset to welcome all kinds of fraud for an exchange that excludes face ID recognition in its KYC process. Its founder, Legkodymov, was also quoted as saying the exchange’s users were “known to be crooks,” per a DOJ report.  In three years, its transaction volume grew to over $2.5 billion, with 53% of that figure directly linked to risky and illegal sources. Chainalysis observed that its top 20 transaction partners comprise underdog companies and Ransomware strains like QubitTech, Chatex, Phobos, Dharma, Astrolocker, MG555, Guarantee, Finiko etc.—all darknet-based businesses.

Close to $33,000 was traced from the Hong-Kong-based exchange to over six pro-Russian paramilitary groups operating in the highly volatile Donbas region, further exacerbating the war in Ukraine through the proliferation of small arms.

Money Laundering and Crypto

In its official statement, the DOJ declared that “institutions that trade in crypto are not above the law. ” Referencing a growing case of sloppy due diligence and KYC shortcomings in the crypto space, US Attorney Breon Peace added that “Bitzlato sold itself to criminals as a no-questions-asked cryptocurrency exchange, and reaped millions of dollars worth of deposits. The defendant is now paying the price for the margin role that his company played in the cryptocurrency ecosystem.”

Bitzlato and FTX

While the crypto community lauded the efforts of the US DOJ, a section of observers compared Bitzlato and FTX. FTX founder Sam Bankman-Fried blew away approximately $40 billion of personal and investor funds with the fall of FTX. Both companies appear to have upheld gravely illegal practices contrary to the US FinCEN law, leading to their demise. Still, the US-based founder is hopeful of a softer landing amidst slim chances of pardon.

---

Filed under: Bitcoin - @ January 28, 2023 6:44 pm