U.S. law enforcement officials have arrested the Russian owner of a cryptocurrency exchange for allegedly failing to implement required anti-money laundering safeguards, enabling criminals who used the platform to traffic drugs and steal people’s money and identities, the Justice Department said.
Anatoly Legkodymov — the 40-year-old majority owner of Bitzlato Ltd. — was arrested in Miami Tuesday evening and has been charged with conducting an unlicensed money transmitting business. Legkodymov, who lives in China, is expected to be arraigned Wednesday afternoon in a Florida federal courthouse, the Justice Department said. His company allegedly processed more than $700 million of illicit funds from 2018 to 2022.
The Justice Department said Bitzlato told its customers and would-be customers that it had lax identification requirements for users and did not ask anyone to submit passports or photos of themselves to participate in the cryptocurrency exchange.
That allegedly made Bitzlato a “haven” for criminals, according to officials. The company frequently did transactions with Hydra Market, the world’s largest dark net marketplace, which was accused of selling hacked personal information, drugs and hacking services. U.S. and German law enforcement agencies shut down Hydra Market in April 2022.
“Institutions that trade in cryptocurrency are not above the law and their owners are not beyond our reach,” Breon Peace, the U.S. Attorney for the Eastern District of New York, said in a news release. “As alleged, Bitzlato sold itself to criminals as a no-questions-asked cryptocurrency exchange, and reaped hundreds of millions of dollars’ worth of deposits as a result.”
An attorney for Legkodymov did not respond to a request seeking comment.
Global regulators are freshly scrutinizing cryptocurrency exchanges — the freewheeling, largely unregulated online marketplaces where digital assets are bought and sold — following the recent implosion of FTX, a popular trading platform that authorities say was a years-long scheme to defraud investors.
In recent months, Justice Department investigators also sent subpoenas to American investors as part of a long-running investigation into potential violations of money-laundering rules at Binance, the world’s largest crypto exchange, The Washington Post reported earlier this month.
Scott Garland, a former cybercrime prosecutor, said the action against Bitzlato shows the United States is using all of its available tools to hold crypto companies accountable. The Justice Department said it worked with French investigators, and relied on information from a confidential source to build its case.
“What is clear is that DOJ is very serious about going after the types of companies, people and organizations who are running crypto exchanges for the purpose of — or with the knowledge of — facilitating crime,” Garland said.
One question surrounding the U.S. investigation of Binance is whether the company is subject to American laws. Since 2019, Binance has said it bars Americans from accessing its main offshore exchange where derivatives can be bought and sold; however, some Americans claim they can bypass these restrictions. Binance was founded in China, but since 2020, the company has claimed it has no singular headquarters.
Prosecutors emphasized on Wednesday that Bitzlato was subject to U.S. money-laundering rules even though it was based in China and run by a Russian national. Although the company claimed that it did not allow U.S. users, prosecutors allege the company did “substantial” business with U.S.-based customers.
“Today’s actions send the clear message: 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 O. Monaco said in a news release announcing the arrest.
If convicted, Legkodymov faces up to five years in prison.
Bizlato’s main website had been shut down by midday Wednesday. On the landing page was a formal notice saying that it had been seized by French authorities “as part of a coordinated international enforcement action.”
The Justice and Treasury Departments have previously gone after larger exchanges they said marketed themselves to criminals looking to avoid identification. In the best-known criminal case, prosecutors charged the founder of BTC-E, a major exchange in Eastern Europe favored by ransomware gangs, with money-laundering. Originally arrested on a Greek beach holiday, Alexander Vinnick was extradited to the United States last year.
Russia is considered a capital of ransomware attacks, particularly those involving cryptocurrency. The independent data-firm Chainalysis found that in 2021, 74 percent of all crypto obtained via ransomware attacks went to venues that are “highly likely to be affiliated with Russia in some way.”
In 2021, the Treasury Department sanctioned the exchange SUEX after estimating that 40 percent of its volume was for illicit actors, including eight ransomware gangs.
Joseph Menn and Steven Zeitchik contributed to this report.