The head of Bitzlato Ltd., a cryptocurrency exchange, was arrested for allegedly processing $700 million in illicit funds with Hydra Market, a darknet market.
A Russian national who resides in Shenzhen, China, Anatoly Legkodymov was scheduled to be arraigned today in the U.S. District Court for the Southern District of Florida.
Legkodymov is the founder and majority shareholder of the crypto exchange and was arrested for his alleged operation of a business that transported and transmitted illicit funds that failed to meet U.S. anti-money laundering requirements.
He is charged with conducting an unlicensed money transmitting business and faces a maximum penalty of five years in prison upon a conviction. French authorities and the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) took concurrent enforcement actions.
Bitzlato also benefitted by receiving over $15 million in ransomware proceeds.
“Today the Department of Justice dealt a significant blow to the cryptocrime ecosystem,” said Deputy Attorney General Lisa Monaco in a press conference. "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 U.S. courtroom.”
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Exchange Failed to Implement Anti-Money Laundering Safeguards
Legkodymov, 40, is alleged to have taken part in running a cryptocurrency exchange that "failed to implement required anti-money laundering safeguards and enabled criminals to profit from their wrongdoing, including ransomware and drug trafficking,” said Assistant Attorney General Kenneth Polite, Jr. of the Justice Department’s Criminal Division.
Bitzlato advertised itself as a company that barely required identification from its users, specifying that “neither selfies nor passports [are] required," skipping over know-your-customer (KYC) procedures that financial institutions must follow.
The crypto exchange told its users they could provide information belonging to “straw man” registrants, according to the Department of Justice.
Bitzlato Sold as No Questions Asked Crypto Exchange
“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," said U.S. Attorney Breon Peace for the Eastern District of New York.
The users of Hydra exchanged over $700 million in cryptocurrency with Bitzlato, either directly or through intermediaries. Hydra was closed by U.S. and German law enforcement in April 2022.
Bitzlato allegedly allowed its customers to routinely use its customer service portal to "request support for transactions with Hydra, which Bitzlato often provided, and admitted in chats with Bitzlato personnel that they were trading under assumed identities," according to the criminal complaint.
Legkodymov and Bitzlato’s other managers allegedly knew that the company's accounts included a large percentage of illicit activity and that many users registered under other people's’ identities.
Legkodymov on May 29, 2019 said via Bitzlato’s internal chat system to another co-worker that the exchange's customers are “known to be crooks,” using others’ identity documents to register their accounts.
Bitzlato claimed it did not accept U.S. customers, but it did conduct "substanial" business with U.S. users, according to the complaint.
Customer service employees at Bitzlato told users they could fund their accounts from U.S. financial institutions.
French authorities worked with Europol and law enforcement partners in Spain, Portugal, and Cyprus, to dismantle Bitzlato’s digital infrastructure and seized Bitzlato’s cryptocurrency.
The Treasury Department’s FinCEN identified Bitzlato as a “primary money laundering concern” in connection to Russian illicit finance.
