Bitzlato Crypto Founder Faces Charges Over $700 Million Fraud

Updated: 19 January 2023

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The United States Department of Justice (DoJ) has charged Anatoly Legkodymov, the founder of the Bitzlato cryptocurrency exchanges, with failure to comply with regulatory safeguards, including anti-money laundering practices. The authorities said that Legkodymov’s exchange processed more than $700 million in illicit funds.

Bitzlato crypto founder faces charges over $700 million fraud

Bitzlato is a cryptocurrency exchange registered in Hong Kong. According to the DoJ, the Russian national was arrested in Miami for his role in the operations of Bitzlato. The exchange marketed itself as having few user identification processes.

US Attorney Breon Peace noted that the companies offering crypto trading services needed to operate within the law. Additionally, because of the exchange’s failure to have proper KYC measures, it attracted users who preferred to keep their identities hidden.

Peace added,

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. The defendant is now paying the price for the malign role that his company played in the cryptocurrency ecosystem.

The complaint has also said that since 2018, Bitzlato processed around $4.5 billion worth of cryptocurrencies. The exchange was also aware of the effects of its lax user identification procedures, with the DoJ citing an internal document that said the exchange handled “dirty money.”

Authorities also said that the exchange was affiliated with Hydra Market. The latter is a darknet marketplace used to trade drugs, launder money and sell stolen financial information. The marketplace was shut down in 2022.

The Bitzlato exchange claimed that it does not accept any users based in the US. However, according to the prosecutors, the exchange has a significant number of US customers. Authorities in the US worked with French law enforcement for the operation.

US authorities turn their attention to the crypto industry

US authorities have turned their attention toward the fast-growing cryptocurrency industry. In 2022, the US Treasury imposed sanctions on two crypto-mixing tools used to launder crypto assets for threat actors based in North Korea.

The Biden administration has also attempted to develop a better regulatory framework for the cryptocurrency industry. The Treasury deputy secretary, Wally Adeyemo, has noted that the malicious actors that planned to use crypto to evade sanctions or compromise national security should view the enforcement action against Bitzlato as one of the tools that would be used in the future to tame illicit finance.

A recent report by Chainalysis said that the amount of crypto assets sent to wallets that had illicit activity reached a record high in 2022. During the year, more than $20 billion worth of crypto assets were sent to wallet addresses associated with criminal activity. The crypto industry suffered multiple hacking attacks in 2022, with most of the proceeds being laundered via mixers.

The DoJ has, in recent months, been involved in the developments happening in the cryptocurrency sector. The institution filed charges against the founder of FTX, Sam Bankman-Fried, accusing him of fraud after the FTX exchange filed for bankruptcy.

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