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Bitzlato, a Hong Kong-registered cryptocurrency exchange, has gone largely unnoticed since its inception in 2016. The exchange avoided significant media exposure and kept a low profile except for brief information. Mention In the 2022 Chainalysis report.
By January 18, 2023, the U.S. Department of Justice (DOJ) announced High-profile enforcement actions against exchanges. On the same day, founder Anatoly Legkodimov was arrested in Miami and charged with operating an unregistered money transfer service.
The mainstream media were quickly flooded with news about the scale and scope of Bitzlato’s illegal activities. Reports of the exchange’s deep ties to Russian hacker groups and darknet markets surfaced, leaving many wondering about the implications of this enforcement action for the industry.
If the allegations against Bitzlato are correct, the exchange and its owners could be charged with laundering over $1 billion in cryptocurrency. And while the scope of Bitzlato’s crime may be significant, the exchange’s impact on the broader cryptocurrency market is likely to be minimal.
Russia’s invasion of Ukraine sparked an unprecedented enforcement effort against the country. Russia has been subject to the most aggressive economic sanctions ever, with banks, businesses and citizens’ funds seized or frozen. Russia’s central bank has stuck all of her $630 billion in reserves held in the US, pushing inflation to historic highs.
As regulations tightened, law enforcement agencies around the world began to worry that Russia could use cryptocurrencies to evade sanctions. According to a 2022 Chainalysis report, Russia has a large share of the crypto-based crime disparity and was believed to be home to many crypto services suspected of laundering money.
However, an analysis of cryptocurrency transfers to and from Russia found no evidence of large-scale money laundering. A significant amount of cryptocurrency was transferred from Russia to various crypto platforms abroad, but research indicated that the transfers were small and ultimately insignificant.
Bitzlato was briefly mentioned in a Chainalysis report as one of the few risky exchanges to receive large remittances from Russian-based users in 2022. He reportedly received more than $1.5 billion in remittances from Russian users.
The report, published on March 28, 2022, was one of the last times the exchange received major coverage until news surfaced that its founder was arrested on January 17, 2023. .
U.S. Department of Justice (DOJ) announced Arrested Biturat co-founder and senior manager Anatoly Legkodimov. The 40-year-old Russian national is a majority shareholder in the company and has been accused of operating an unlicensed money transfer business.
At the same time, DOJ announced a large-scale enforcement action against Bitzlato. DOJ’s execution letter points out that the exchange is one of the largest counterparties to darknet marketplace Hydra. Bitzlato was also accused of acting as a major money laundering route for Russian ransomware groups.
Bitzlato plays a key role in facilitating transactions for the Conti ransomware group and other global ransomware actors, including those operating outside Russia, DOJ said in its enforcement notice.
Besides the infamous Conti group, Bitzlato has reportedly been involved with Chatex, DarkSlide, and Phobos. These are all well-known ransomware groups believed to be based in Russia.
In addition to the receipt of ransomware proceeds, Bitzlato’s inbound and outbound trading activity has significant exposure with counterparties related to darknet markets and other suspected illegal activities, including scams linked to and operating in Russia. It shows a connection.”
About two-thirds of Bitzlato’s top recipients and senders were involved in darknet markets or scams, according to DOJ research.From May 2018 to September 2022 The exchange’s top three receiving counterparties until September 2022 were Binance, Hydra, a darknet marketplace for Russian users, and TheFiniko, a Russian Ponzi scheme. The top three recipients were Hydra, LocalBitcoins, and TheFiniko.
FBI Research According to Legkodymov’s research, Hydra users sent approximately $170 million worth of cryptocurrency to Bitzlato between May 2018 and April 2022 when the darknet markets were shut down. I understand. A Hydra user said he withdrew $124.4 million from his Bitzlato account and another $191.9 million from sources funded by Bitzlato. The exchange also received more than $15 million worth of crypto from a ransomware group.
An FBI investigation revealed that Bitzlato employees were aware of and encouraged money transfers from Hydra. A recovered customer service chat found an employee laundering dirty tokens and giving clear instructions to users on how to replenish their wallets on Darknet Marketplace. Employees also noticed that users were opening accounts with someone else’s credentials.
Legkodimov and other senior management at the exchange knew that most of Biturat’s trading volume was criminally funded. A message recovered from an internal chat with Bitzrat executives indicated that the exchange decided that blocking users associated with drug trafficking would not be good for the exchange “from a business perspective.”
The FBI has been investigating Legkodimov and Bitzurat for over a year. The opening of sanctions against Russia accelerated the investigation, which soon discovered that the scope of Bitzrat’s crimes extended beyond Russia’s borders.
According to depositions from agents involved in the investigation, Bitzrath operated in a “substantial part” of the United States.in the United States
Following Legkodimov’s arrest in Miami on Jan. 17, the DOJ issued a statement that cryptocurrency companies and their owners are neither under the rule of law nor out of reach. .
Today, the Department of Justice delivered a significant blow to the cryptocrime ecosystem, said Deputy Attorney General Lisa Monaco.
“Today’s actions send a clear message: Whether you’re breaking laws from China or Europe, or exploiting the financial system from a tropical island, you can expect to answer crimes within U.S. courts.
Overnight, a once obscure exchange has become one of the biggest buzzwords in the cryptocurrency industry. The scope of Bitzlato’s alleged crimes has made it an easy target for US lawmakers fighting for tighter regulation of the market.
chain analysis report About 26% of all cryptocurrency received by Bitzlato between 2019 and 2023 was found to come from illicit sources, and another 27% from dangerous sources. The exchange has processed around $2.5 billion worth of cryptocurrency and has been charged with laundering at least $650 million.
Many argue that the high-profile enforcement action could hamper the development of the U.S. crypto industry.The country’s major industry players have been calling for regulatory clarification for some time. Still, they fear regulatory pressure could hit the market hard.
However, others believe Bitzlato will have limited impact on the broader cryptocurrency market. Although the volumes handled by the exchanges are substantial, they represent a fraction of the total market volume and are smaller than those found on other more highly regulated exchanges.
