US arrests crypto exchange Bitzlato cofounder on charges of laundering $700 million illicit funds

USauthorities said on Wednesday that they have arrested the majority shareholder and cofounder of Hong Kong-registered virtual currency exchangeBitzlatoLtd for allegedly processing $700 million in illicit funds.Anatoly Legkodymov, a Russian national living in China, was arrested in Miami on Tuesday on charges that he operated the exchange as an unlicensed money exchange business that "in his own words, catered to 'known crooks'," a top Justice Department official said.

Prosecutors saidBitzlatoexchanged more than $700 million in cryptocurrency with Hydra Market, which they described as an illicit online marketplace for narcotics, stolen financial information, fraudulent identification documents and money laundering services that USand German law enforcement shut down in April 2022.

"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," Deputy Attorney General Lisa Monaco told reporters at a news conference at the Justice Department.

Bitzlatoalso received more than $15 million in ransomware proceeds, prosecutors said. It was not immediately possible to contact Hydra Market for comment.

“Despite it being a small name, it carries a lot of weight," said Chen Arad, the chief operating officer at Solidus Labs, a crypto market surveillance company.

"Small actors are not safe and they carry just as much risk as any big-name exchange (or) platform," he said.

Authorities described Legkodymov as the cryptocurrency exchange's cofounder, saying the 40-year-old Russian helped run the company from the Chinese city of Shenzhen. Legkodymov did not immediately respond to an email with questions, and messages left onBitzlato's automated Telegram support chat service were answered with the phrase, "Oops, sorry."

Bitzlatohas processed $4.58 billion worth of cryptocurrency transactions since May 3, 2018, prosecutors said, adding a substantial portion constitutes "the proceeds of crime".

It also broke rules requiring significant vetting of customers and failed to meet requirements aimed at preventing money laundering, authorities said. Archived versions ofBitzlato's website noted that the site's clients could register using "only your email".

Prosecutors saidBitzlatoknowingly serviced UScustomers and conducted transactions with U.S.-based exchanges using USonline infrastructure. For at least some period of time, it was being managed by the defendant while he was in the United States, they said.

The charges were filed in conjunction with the U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN), which said it has prohibited certain transmittals of funds involvingBitzlatoby any covered financial institution after labellingBitzlatoLtd a "primary money laundering concern" related to Russian illicit finance.

"IdentifyingBitzlatoas a primary money laundering concern effectively renders the exchange an international pariah," Deputy Treasury Secretary Wally Adeyemo said at the news conference.

Adeyemo saidBitzlatohas repeatedly facilitated transactions for Russian-affiliated ransomware groups, including the gang behind Conti, which he said has links to the Russian government and Russia-connected Dark Net markets.

Cari Stinebower, a former Treasury Department official now a partner at law firm Winston & Strawn, said the penalties imposed are akin to those under Section 311 of the USPatriot Act and will makeBitzlatountouchable by USand foreign banks.

"None of the mainstream financial institutions will deal with an entity identified as a primary money laundering concern," she said.

"While USfinancial institutions will refuse to engage in business withBitzlato, (one would expect that) other financial institutions will follow suit," she added. "The impact will be to freezeBitzlatoout of the global financial sector almost immediately."

By midday Wednesday,Bitzlato's website was replaced by a notice saying that the service had been seized by French authorities "as part of a coordinated international law enforcement action."

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