Anatoly Legkodymov, founder and majority owner of cryptocurrency exchange Bitzlato Ltd, was arrested Tuesday 17 January 2023; charged with conducting an unlicensed money-transmitting business.
Prosecutors allege that Legkodymov was running a money-transmitting business that transported illicit funds. Bitzlato failed to meet US regulatory safeguards, particularly failing to comply with anti-money laundering (AML) rules. If convicted, Legkodymov faces a maximum penalty of five years imprisonment.
The US department of justice said Bitzlato processed more than $700million in illicit funds. Overall, since 2018, the exchange processed around $4.5billion worth of cryptocurrency transactions.
Bitzlato is accused of not implementing the required AML safeguards and did not request sufficient identification from its users. While also requiring minimal identification from users, the exchange permitted them to supply information belonging to “straw man registrants”. These registrants hide the identity of the actual owner, allegedly helping the exchange to become popular amongst criminals.
US attorney Breon Peace for the Eastern District of New York discussed the shady goings-on of Bitzlato. Peace explained: “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.”
Catering to cybercrime?
Because of a lack of compliance with KYC regulations, Bitzlato allegedly became a haven for criminal activity. Some sources have suggested that the crypto exchange posted adverts on Russian-language sites suggesting users could open an account without a passport or photo, requiring only an email address.
Deputy attorney general Lisa O. Monaco issued a warning to those involved in illegal financial activity globally. Monaco said: “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 crypto crime, and to arrest its founder, Russian national Anatoly Legkodymov. Today’s actions send a 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.”
A statement published by the US department of justice explained that Bitzlato was strongly connected to Hydra Market. Hydra was an anonymous, illegal online marketplace for drugs, stolen financial information, fraudulent identification documents, and money laundering services. The department suggests that Hydra was the largest and longest-running darknet market in the world.
Hydra users exchanged more than $700million in cryptocurrency via Bitzlato, either directly or through intermediaries. This activity continued until April 2022, when Hydra was halted by US and German law enforcement.