Crypto Money Laundering for the Dark Web: Arrests in Europe and the US

Authorities on both sides of the Atlantic report 6 arrests, including the operator of the crypto exchange Bitzlato. Bitzlato allegedly laundered drugs and ransom.

The Bitzlato crypto exchange from Hong Kong is said to have enabled money laundering with cryptocurrencies for years, which is said to have been used in particular for ransomware ransoms and illegal drug trafficking in the Hydra Market. US authorities are making this accusation against Anatoly L. (Anatoly L. in US documents), who is Bitzlatos’ boss and majority owner. The Russian was arrested in Miami on Wednesday and is due to appear in court in New York. The BKA shut down the illegal Darknet marketplace Hydra Market in April.

Authorities in Europe also struck on Wednesday. In France, the Bitzlato domain was confiscated, and apparently the technical infrastructure of the service. Three people were arrested in Spain, one each in Portugal and Cyprus. The US Treasury Department bans financial transactions with Bitzlato effective February 1.

According to the authorities, Bitzlato was set up in Hong Kong in 2016. The service offered buying and to sell cryptocurrencies for money as well as against other cryptocurrencies, including transferring cryptocurrencies to wallets of all kinds. For the Hydra Market, Bitzlato is said to have been the second most important opponent; Conversely, the Hydra Market was the largest transaction partner for Bitzlato.

The US Treasury Department lists Bitcoin, Ether, Bitcoin Cash, Litecoin, Dash, Tether, Monolith Ruble, and Dogecoin as traded cryptocurrencies. Monero should also have been on offer.

Citing unspecified blockchain data, the US indictment document released Wednesday states that Bitzlato traded $4.58 billion worth of cryptocurrencies in the period beginning in May 2018 alone. Bitzlato is said to have advertised for years that customers do not have to identify themselves. It was not until the end of February of the previous year that Bitzlato demanded ID cards from new customers, but is said to have knowingly tolerated straw man accounts.

The co-founder, leading manager, and majority owner of Bitzlatos are said to be the Russian L. (alias Gandalf), residing in Shenzhen in the People’s Republic of China. L. is said to have been in the USA since October and continued to manage the business from there. Despite publicly claiming not to serve US customers, his company knowingly had many US customers and also used US servers. The latter has now been confiscated.

The indictment document quotes from chat logs that the investigators got hold of. This shows that Bitzlato customer service knew the customers were dealing illegal drugs, transferring ransomware ransoms, and/or using straw man accounts. There are also incriminating quotes from chats between L. and his co-founder who is not named. They are intended to show that the operators only wanted to appear to be taking action against drug dealers, that they knew very well that their customers were largely drug addicts, and that they assumed that 90 percent of customers were dealing under false identities.

The criminal case is pending in the United States District Court for Eastern New York under Case 1:23-MJ-000017 and is named USA v. Anatoly Legkodymov. The accused, for whom the presumption of innocence applies, faces five years in prison. His partner is not named in the current publicly available court record; this part could be under lock and key for reasons of manhunt tactics.

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