Bitzlato Ltd. Processed More Than $700M Worth of Illicit Funds and Was Primary Counterparty of Notorious Drug Bazaar Hydra Market; Advertised Lax Identification Procedures
The founder and majority owner of Bitzlato Ltd. (Bitzlato), a cryptocurrency exchange that served as a primary conduit for dark market purchasers and sellers, as well as a safe haven for illicit transactions by ransomware criminals, pleaded guilty today to operating a money transmitting business that transmitted illicit funds.
In connection with his plea agreement, Anatoly Legkodymov, aka Anatolii Legkodymov, Gandalf, and Tolik, 41, who is a Russian national and resided in Shenzen, People’s Republic of China, agreed to dissolve Bitzlato and to release any claim over approximately $23 million in seized assets of Bitzlato.
“As alleged, Bitzlato advertised a safe haven for fraudsters, thieves, and other criminals to launder illicit proceeds — but their business model didn’t account for federal law enforcement,” said Deputy Attorney General Lisa O. Monaco. “We are dismantling and disrupting the cryptocrime ecosystem using all tools available — including criminal prosecution. In January, the Department and our partners took down Bitzlato’s infrastructure and seized its cryptocurrency. Today’s conviction of Bitzlato’s founder is the latest product of our efforts.”
“Legkodymov operated a cryptocurrency exchange that was open for business to money launderers and other criminals,” said Acting Assistant Attorney General Nicole M. Argentieri of the Justice Department’s Criminal Division. “He profited from catering to criminals, and now he must pay the price. Transacting in cryptocurrency does not put you beyond the reach of the law. Legkdoymov’s plea demonstrates the consequences for those who would offer a safe haven for criminals and their ill-gotten gains.”
According to court documents, Bitzlato, a Hong Kong-registered cryptocurrency exchange that operated globally, marketed itself as requiring minimal identification from its users, specifying that “neither selfies nor passports [are] required.” On occasions when Bitzlato did direct users to submit identifying information, it repeatedly allowed them to openly provide information belonging to “straw man” registrants. As a result of these deficient know-your-customer (KYC) procedures, Bitzlato allegedly became a haven for criminal proceeds and funds intended for use in criminal activity.
“Legkodymov’s guilty plea today confirms that he was well aware that Bitzlato, his cryptocurrency exchange, was being used like an open turnstile by criminals eager to take advantage of his lax controls over illicit money transactions,” said U.S. Attorney Breon Peace for the Eastern District of New York. “The defendant may have thought he was operating from a safe haven overseas for his ‘No Questions Asked’ clearinghouse, but this prosecution and conviction demonstrate otherwise.”
Bitzlato’s largest counterparty in cryptocurrency transactions was Hydra Market, an online marketplace for narcotics, stolen financial information, fraudulent identification documents, and money laundering services that was the largest and longest-running darknet market in the world. Hydra Market users exchanged more than $700 million worth of cryptocurrency with Bitzlato, either directly or through intermediaries, until Hydra Market was shut down because of seizures made by U.S. and German law enforcement in April 2022. Bitzlato also received millions of dollars’ worth of ransomware proceeds. Legkodymov was repeatedly advised that cryptocurrency routed through Bitzlato represented the proceeds of crime and/or was intended for use in illicit transactions.
Legkodymov faces a maximum penalty of five years in prison. A sentencing date has not yet been set. A federal judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.
The FBI is investigating the case.
The investigation was jointly prosecuted by the U.S. Attorney’s Office for the Eastern District of New York (EDNY) and the Criminal Division’s Computer Crime and Intellectual Property Section (CCIPS) and National Cryptocurrency Enforcement Team (NCET), which was established to combat the growing illicit use of cryptocurrencies and digital assets. NCET conducts and supports investigations into individuals and entities that are enabling the use of digital assets to commit and facilitate a variety of crimes, with a particular focus on virtual currency exchanges, mixing and tumbling services, and infrastructure providers. The NCET also works to set strategic priorities regarding digital asset technologies, identify areas for increased investigative and prosecutorial focus, and lead the Department’s efforts to collaborate with domestic and foreign government agencies as well as the private sector to aggressively investigate and prosecute crimes involving cryptocurrency and digital assets.
CCIPS/NCET Trial Attorney and EDNY Assistant U.S. Attorney Alexander Mindlin, CCIPS/NCET Trial Attorney Sarah Wolfe, and EDNY Assistant U.S. Attorney Artie McConnell are prosecuting the case, with substantial assistance from former NCET Trial Attorneys Scott Meisler and Matthew Blackwood.
The Justice Department’s Office of International Affairs and the FBI’s Legal Attaché in France provided critical assistance in the case, with support from the Department’s Cyber Operations International Liaison. The Department also thanks the Cyber Division of the Paris Prosecution Office and France’s Gendarmerie Nationale Cyberspace Command (Cyber Crime Investigation Unit / C3N).
Source: U.S. Department of Justice