Anatoly Legkodymov, former CEO of Hong Kong-based cryptocurrency exchange Bitzlato, has pleaded guilty to operating an unlicensed money-transmitting business and facilitating the laundering of illicit funds up to $700 million.
The Russian national admitted in a Brooklyn court before Judge Eric Vitaliano to overseeing a crypto exchange facilitating dark market transactions and sheltering ransomware criminals.
Legkodymov was arrested in Miami in January this year following criminal charges filed by the United States Department of Justice (DOJ). His confession came after 11 months in custody, according to a Wednesday press release from the U.S. Attorney’s Office for the Eastern District of New York.
Legkodymov was denied bail in March during a court hearing. The judge presiding over the case cited two primary reasons for refusing to release Legkodymov on bail. The first is the risk of him attempting to flee the country and evade prosecution, as he is on a U.S. visa. The second one is his “access” to crypto assets, which could enable him to tamper with evidence or finance potential criminal activity.
“We are dismantling and disrupting the crypto crime ecosystem using all tools available — including criminal prosecution,” Deputy Attorney General Lisa Monaco said in a press release.
“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.”
The DOJ also accused Bitzlato of servicing U.S. customers and aiding them in transferring funds from U.S.-registered crypto companies without proper authorization, raising concerns about regulatory compliance and potential risk exposure.
— Enter Crypto 🎙️🔥 (@EnterCryptoYT) December 10, 2023
More details on case
The DOJ’s initial announcement concerning Bitzlato surprised the crypto community, with some writing on X that they were unfamiliar with the exchange mentioned.
Bitzlato prided itself on minimal identification requirements, boasting that users could operate without submitting “selfies or passports.” However, despite occasional requests for identity verification, Bitzlato allowed users to openly provide false information belonging to “straw man” registrants.
This lack of due diligence on know-your-customer (KYC) procedures transformed Bitzlato into a haven for criminal proceeds as well as illicit funds and transactions.
Bitzlato’s largest customer was Hydra Market, an online marketplace operating on the dark web. This marketplace, considered the world’s largest and longest-running of its kind, facilitated the sale of illegal goods and services, including narcotics, stolen financial information, fraudulent identification documents, and money laundering services.
By its shutdown in April 2022 by U.S. and German law enforcement, Hydra Market users had exchanged over $700 million worth of cryptocurrency through Bitzlato, either directly or through intermediaries. This staggering figure highlights the significant role Bitzlato played in facilitating illicit transactions on the dark web.
Before its demise, Hydra Market had allegedly controlled a significant portion of the global darknet market’s crypto transactions, with the DOJ claiming it accounted for up to 80 percent in 2021.
Beyond its ties to the Hydra Market, Bitzlato also facilitated the transfer of millions of dollars of ransomware proceeds. It even collected over $15 million in ransomware proceeds from cybercriminals.
Despite repeated warnings that the cryptocurrency routed through its platform stemmed from criminal activity, Bitzlato continued to operate with minimal oversight, potentially enabling further illicit transactions.
“Moreover, Legkodymov and Bitzlato’s other managers were aware that Bitzlato’s accounts were rife with illicit activity and that many of its users were registered under others’ identities,” the DOJ complaint read.
Legkodymov has agreed to dissolve Bitzlato and relinquish any rights to around $23 million in seized Bitzlato assets as part of his plea deal. The date for his sentencing is still pending.
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