Authorities in the United States and France have disrupted the operations of Bitzlato, a major cryptocurrency exchange associated with the now-defunct Hydra darknet marketplace known for processing ransomware payments, and arrested the alleged operator of the marketplace, a Russian national who lived in China.
The alleged operator is Anatoly Legkodymov, who the FBI arrested Tuesday in Miami and the Department of Justice alleges ran Bitzlato in a manner specifically designed to avoid financial regulations in the U.S. and elsewhere and bragged about washing dirty money through Bitzlato. The exchange operated from Hong Kong and U.S. authorities allege that Bitzlato handled more than $15 million in ransomware payments and exchanged more than $700 million in cryptocurrency with users of Hydra. U.S. and German authorities took down the Hydra Market in April 2022, ending the market’s run as one of the more successful and longer-lasting darknet marketplaces in history.
“This will put all of those who seek to exploit the cryptocurrency ecosystem on notice that the Department of Justice will use every tool that we have to attack criminal use of the darknet and cryptocurrency,” said Deputy Attorney General Lisa Monaco in a press conference Wednesday.
“We will not only target hackers, fraudsters and criminals that mask their profits in cryptocurrency, we are also unleashing the full force of the Department of Justice on the crypto ecosystem that supports them. Moving servers offshore will not shield you.”
“It is well known that Russia is a haven for cybercriminals. We will not tolerate criminal enterprises that enrich Russia’s malicious interests.”
In the court documents, the Department of Justice alleges that Legkodymov was the majority shareholder of Bitzlado and operated it in such a way that it allowed customers to avoid financial regulations and oversight. The exchange did not collect any information about users and “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 Breon Peace, U.S. attorney for the Eastern District of New York, where Legkodymov was charged. Bitzlato outwardly claimed not to do business with customers in the U.S., but had many U.S. customers.
The Department of Justice’s recently formed National Cryptocurrency Enforcement Team played a major role in the Bitzlato operation, and Monaco said this was the team’s biggest accomplishment so far.
“Our actions mark the most significant enforcement action against a cryptocurrency exchange by the National Cryptocurrency Enforcement Team,” she said.
Alongside the actions by the Department of Justice and authorities in France and other European countries, the Treasury Department’s FinCEN arm designated Bitzlato as a ‘primary money laundering concern” connected to the Russian government.
“It is well known that Russia is a haven for cybercriminals. We will not tolerate criminal enterprises that enrich Russia’s malicious interests,” said Brian Turner, associate deputy director of the FBI.
Legkodymov is charged with operating an unlicensed money transmission business.
