US Arrests Russian Founder of China-Based Crypto Exchange

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Washington

Law enforcement officials in the United States said on Wednesday they had arrested the Russian founder of a China-based cryptocurrency exchange, disrupting an online platform used by criminals on the darknet.

Anatoly Legkodymov, 40, the majority owner of Hong Kong-registered Bitzlato, was arrested Tuesday night in Miami, Florida, and charged with running an unlicensed money transfer business, officials said at a press conference at the Ministry of Justice.

Meanwhile, French authorities working with Europol and other European law enforcement agencies have taken down Bitzlatos’ digital infrastructure and seized its cryptocurrency, officials said.

Legkodymov was scheduled to make his first appearance in Florida court on Wednesday. His lawyers did not respond to questions seeking to confirm his indictment in time for publication. If found guilty, he faces a maximum of five years in prison.

“A high-tech axis of cryptocrime”

Cybercriminals often operate in the shadows and are rarely caught. Asked why Legkodymov was in Miami at the time of his arrest, Deputy Attorney General Lisa Monaco declined to answer.

The charges allege Legkodymov operated Bitzlato as a high-tech financial center which, in his own words, catered to known scam artists, Monaco said.

Bitzlato has openly bragged about its lax ID requirements, telling its users that neither selfies nor passports [are] necessary, the Justice Department said.

The company’s biggest counterpart in crypto transactions was Hydra Market, a notorious darknet market that sold drugs and stole financial information before it was shut down by US and German authorities last year.

Prosecutors say Bitzlato traded over $700 million in cryptocurrency for Hydra Market users between 2018 and 2022. Bitzlato is also accused of receiving over $15 million in ransomware proceeds.

Hydra and Bitzlato have formed a high-tech cryptocurrency axis, Monaco said. Buyers in Hydra 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 in Hydra sent criminal proceeds to accounts at Bitzlato.

A lawyer for Legkodymov did not immediately respond to a VOA request for comment.

Deputy Treasury Secretary Wally Adeyemo said nearly half of all known Bitzlato transactions between 2019 and 2021 involved Russian illicit funding or otherwise risky sources.

Darknet marketplaces almost always require virtual currency, according to the Treasury Department.

Bitzlato is particularly active in facilitating illicit activities, but he is ultimately part of a larger ecosystem of cybercriminals allowed to operate with impunity in Russia, Adeyemo said.

In a rare move, the US Treasury Department has named Bitzlato as a top money laundering problem in relation to illicit Russian funds.

Crypto Crackdown

The charges come as US authorities have stepped up a crackdown on cryptocurrency exchanges used by cybercriminals.

Illicit cryptocurrency transactions hit a new high of $20 billion in 2022, up from $18 billion in 2021 and $5 billion in 2017, according to Chainalysis.

US officials say Russia has become a haven for ransomware actors and other cybercriminals in recent years, with Moscow sometimes hiring private hacking groups to carry out international cyberattacks.

Adeyemo said most ransomware incidents reported to the Treasury Department’s Financial Crimes Enforcement Network in the second half of 2021 were driven by Russian-linked ransomware variants.

At a time when Russia is waging a brutal and unjust war in Ukraine, and as it seeks to circumvent sanctions and governance checks to fill its coffers and maintain its violence, we have no tolerance for criminal enterprises enriching Russia’s malign interests, Adeyemo said.

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