A Russian was charged with money laundering through a cryptocurrency exchange that allegedly masked the proceeds of illegal gambling and drug deals valued at more than $700 million, as the U.S. goes after criminal suspects in the digital space.
Anatoly Legkodymov, founder of the crypto exchange Bitzlato, was arrested Tuesday in Miami, the Justice Department said at a press conference Wednesday. Hong Kong-registered Bitzlato was a "critical financial resource" for the Hydra dark web market, the largest and longest-running such marketplace, Deputy Attorney General Lisa Monaco said at the conference. The dark web traffics in illicit goods and services.
Bitzlato processed illegal funds including millions of dollars in ransomware gains, according to a Justice Department statement. Legkodymov, 40, who lives in Shenzhen, China, and in Russia, posted on an internal chat that Bitzlato users were "known to be crooks," according to the U.S.
"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," Monaco said, in an apparent reference to the activities of FTX co-founder Sam Bankman-Fried. He ran his crypto empire from the Bahamas and is now fighting federal fraud charges over its implosion.
Legkodymov was scheduled to appear in court Wednesday afternoon in the Southern District of Florida. Joel DeFabio, a Miami-based lawyer representing Legkodymov at the appearance, didn't immediately respond to a voice mail and an email seeking comment on the case.
Monaco summed up the Bitzlato-Hydra connection.
The two "formed a high-tech axis of cryptocrime," she said. "Hydra buyers funded illicit purchases - of illegal drugs, stolen financial information, and hacking services - from crypto accounts hosted at Bitzlato, and sellers of these illegal goods and services at Hydra sent criminal proceeds to accounts at Bitzlato."
Allowing users to open accounts with minimal information, Bitzlato "became a safe haven for criminals," Breon Peace said at the conference. Peace is the U.S. attorney in Brooklyn, New York, the office prosecuting the case.
Legkodymov, who the U.S. says also goes by Gandalf, perhaps after the Tolkien character, has an usually scant web presence for a crypto figure. Bankman-Fried, for example, has been a fixture on social media.
But the Bitzlato founder posted on his exchange's own chat forum. In a criminal complaint filed in federal court in Brooklyn against Legkodymov, the government cites an array of messages by him and others. In one, a user writes to the customer service portal.
"I buy opiates in Hydra ... but I did not get the address," the user says.
A Bitzlato employee helpfully responds: "Thank you for contacting us! Please provide the transaction number."
In an exchange on or about May 5, 2021, that the U.S. points to, a user asks whether he could "exchange dirty bitcoin," making "an apparent reference" to a Russian bank, "without problems here."
A Bitzlato representative asks the user to clarify the question, the user responds, and the rep says that "in this case there are no limitations from the service," according to the charging document.
Bitzlato ads posted on Russian-language sites suggest users could open accounts on the exchange without a passport or a photo, using only an email address. The exchange also allowed them to buy crypto with cash, all for fairly low fees. On the other hand, it has gotten mixed reviews online, with one claiming it makes it easy to put crypto in but not so easy to take it out.
Bitzlato has facilitated about $1 billion in crypto money laundering since 2019, according to Chainalysis, which specializes in tracking crypto transactions.
The U.S. charges follow the establishment of the National Cryptocurrency Enforcement Team, a Justice Department squad created to fight the criminal use of crypto and recover the proceeds of those crimes. Monaco announced the formation of the team in October 2021 to probe and prosecute crypto cases, develop strategies for such investigations and identify areas to focus on, including professional money launderers and ransomware schemes.
Veteran cybersecurity prosecutor Eun Young Choi, who led the successful prosecution of the 2014 hack against JPMorgan Chase, was named to lead the squad in February 2022. That crime saw hundreds of millions of dollars stolen by hackers and conspirators in more than a dozen countries.
Choi also argued the appeal in the case against Ross Ulbricht, the founder and chief administrator of the now-shuttered Silk Road underground virtual drug bazaar.
Now, Deputy Treasury Secretary Wally Adeyemo said at Wednesday's news conference, identifying Bitzlato as a money-laundering operation makes it "an international pariah."
The case is U.S. v. Anatoly Legkodymov, 23-m-17, U.S. District Court, Eastern District of New York (Brooklyn).
WASHINGTON POST