Feds Arrest Russian Founder Of Crypto Exchange Bitzlato

A Russian national who resides in China, has been arrested in Miami and charged with processing over $700 million of illicit funds.

The US Justice Department has charged Anatoly Legkodymov, aged 40, who is the founder and majority owner of the cryptocurrency exchange, Bitzlato Ltd.

According to US authorities, his alleged operation of a money transmitting business that transported and transmitted illicit funds and that failed to meet US regulatory safeguards, including anti-money laundering requirements.

Cryptocrime ecosystem?

“Today the Department of Justice dealt a significant blow to the cryptocrime ecosystem,” said Deputy Attorney General Lisa O. 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,” said O. Monaco.

“As alleged, the defendant helped operate a cryptocurrency exchange that failed to implement required anti-money laundering safeguards and enabled criminals to profit from their wrongdoing, including ransomware and drug trafficking,” added Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division.

According to court documents, Legkodymov is a senior executive and the majority shareholder of Bitzlato, a Hong Kong-registered cryptocurrency exchange that operates globally.

The US said 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.

Money laundering

“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,” said US Attorney Breon Peace for the Eastern District of New York. “The defendant is now paying the price for the malign role that his company played in the cryptocurrency ecosystem.”

According to US officials, 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 (Hydra), an anonymous, illicit online marketplace for drugs, stolen financial information, fraudulent identification documents, and money laundering services that was the largest and longest running darknet market in the world.

Hydra users exchanged more than $700 million in cryptocurrency with Bitzlato, either directly or through intermediaries, until Hydra was shuttered by U.S. and German law enforcement in April 2022. Bitzlato also received more than $15 million in ransomware proceeds, the US alleged.

Legkodymov is charged with conducting an unlicensed money transmitting business. If convicted, he faces a maximum penalty of five years in prison.

Meanwhile French authorities, working with Europol and partners in Spain, Portugal, and Cyprus, have dismantled Bitzlato’s digital infrastructure, seized Bitzlato’s cryptocurrency, and took other enforcement actions.