POLITICS

China-based crypto exchange founder arrested in $700M money laundering operation

WASHINGTON – The founder of the Hong Kong-based cryptocurrency exchange Bitzlato was arrested early Wednesday in Miami in connection with a vast money laundering operation, accused of transmitting more than $700 million in illicit funds in the past four years.

Deputy Attorney General Lisa Monaco said Anatoly Legkodymov, 40, a Russian national, oversaw a major "high-tech financial hub that catered to known crooks," including cybercriminals and drug dealers seeking to process dirty money. 

“Today the Department of Justice dealt a significant blow to the cryptocrime ecosystem,” Monaco said. "Bitzlato facilitated the transmission of hundreds of millions of dollars in illicit funds, fueling darknet marketplaces and laundering the proceeds of ransomware attacks," Monaco said.

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Federal officials declined to say why Legkodymov, who has been living in Shenzhen, China, was in Florida and how he was taken into custody, except to indicate he was running the business from Miami last year and early this year.

A Friday detention hearing has been set for Legkodymov who remains in federal custody and faces transfer to the Eastern District of New York in Brooklyn where the case was brought. 

Monaco said Bitzlato had served as a financial partner for the darknet marketplace known as Hydra, which was shuttered by U.S. and German authorities last year.

"Hydra and Bitzlato formed a high-tech axis of cryptocrime," Monaco said, adding that the darknet pushed money linked to drug transactions, stolen financial information and hacking operations to accounts at Bitzlato.

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At the time Legkodymov was taken into custody, the deputy attorney general said federal authorities and international partners engaged in related enforcement actions, including the seizure of Bitzlato's servers.

Federal officials said Legkodymov and other Bitzlato managers were aware that the exchange's accounts "were rife with illicit activity and that many of its users were registered under others’ identities."

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On May 29, 2019, according to court documents, Legkodymov used the exchange's internal chat system to message a colleague, saying Bitzlato’s users were “known to be crooks."

While Bitzlato claimed not to do business with U.S., customers, federal authorities said the exchange did the opposite: advising U.S.-based clients that they could transfer funds from U.S. financial institutions.

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Legkodymov is charged with conducting an unlicensed money transmitting business. If convicted, he faces a maximum penalty of five years in prison.

The Bitzlato case is separate from last month's arrest of Sam Bankman-Fried, founder of the failed cryptocurrency exchange FTX, accused of misappropriating billions of dollars in customer funds in one of the largest fraud schemes in U.S. history.

While Monaco did not address the FTX fraud case Wednesday, she suggested that law enforcement scrutiny would be applied equally to suspected offenders like Bankman-Fried who was extradited last month after being arrested in the Bahamas. 

"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," the deputy attorney general said.

Bank-Fried was released on a $250 million bond following his first appearance in federal court last month.

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