The US Department of Justice recently announced the arrest of Anatoly Legkodymov, a Russian national, residing in Shenzen, China, who serves as senior executive of Bitzlato Ltd, a Hong Kong-registered cryptocurrency exchange. Legkodymov has been charged with operating an unlicensed money transmitting business and failed to implement anti-money laundering (“AML”) safeguards required by the US Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”). FinCEN also issued notice of an order to prohibit certain transmittals of funds involving Bitzlato, effective February 1, 2023. The DOJ investigation of Biztlato was conducted in close coordination with French authorities, who have initiated a separate enforcement action. French authorities, with help from Europol and partners in the Netherlands, Belgium, Spain, Portugal and Cyprus, were also able to interrogate leading members of Bitzlato’s management team, and take down the platform’s digital infrastructure.
According to court documents, Legkodymov is founder and majority shareholder of Bitzlato, a global cryptocurrency exchange that did not demand photographs or passports as user identification, and allowed allowed users to provide information belonging to “straw man” registrants, enabling anonymous trading by unnamed users. Because of these practices, Bitzlato allegedly became a haven for criminal proceeds and funds intended for use in criminal activity, including more than $700 million in transactions by Hydra Market, one of the largest and longest running darknet marketplaces in the world. Based on blockchain analysis performed by the FBI, Bitzlato allegedly received more than $15 million in ransomware proceeds.
According to the complaint, which was unsealed on January 18, 2023, Bitzlato’s customers regularly requested support for transactions with Hydra and admitted to Bitzlato personnel that they were trading under assumed identities. While Biztlato claimed that it did not accept users from the US, federal prosecutors accuse the exchange of conducting a substantial amount of business with US-based customers, and allege that Bitzlato personnel frequently advised users that they could transfer funds from US financial institutions. The complaint also alleges that Legkodymov not only administered Bitzlato from a location in the US in 2022 and 2023 but also received reports reflecting more than 250 million visits to Bitzlat’s website from US-based IP addresses in July 2022 alone.