WASHINGTON -- A Russian national who founded a cryptocurrency exchange that the Justice Department says became a haven for the proceeds of criminal activity has been arrested, federal officials said Wednesday.
Anatoly Legkodymov, who lives in China, was arrested Tuesday night in Miami and was due in court on a charge of conducting an unlicensed money-transmitting business.
Prosecutors allege that Legkodymov's cryptocurrency exchange, Bitzlato Ltd., of which he served as majority owner, did not implement required anti-money-laundering safeguards and required only minimal identification from its users, even permitting them to supply information belonging to “straw man registrants,” people serving as cover for the users.
“The result was that Bitzlato became a safe haven for criminals, like drug dealers and ransomware groups,” said Breon Peace, the U.S. attorney in Brooklyn, where the case was filed. “They knew that when the police traced their funds to Bitzlato, Bitzlato would not be able to turn over its users’ true identities.”
The company, registered in Hong Kong, was founded in 2016 and operates globally.
The Justice Department said Bitzlato, either directly or through its intermediaries, conducted more than $700 million in cryptocurrency exchanges with users of Hydra Market, a darknet marketplace for drugs, fake identifications and other illegal products. The Justice Department seized that marketplace last year and shut it down.
“Operating offshore or moving your servers out of the continental U.S. will not shield you,” Deputy Attorney General Lisa Monaco said at a Wednesday news conference. “And 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.”
Monaco's mention of a tropical island seemed to be an apparent reference to the arrest last month in the Bahamas of Sam Bankman-Fried, the former CEO of failed cryptocurrency firm FTX.
The charge Legkodymov faces carries a maximum penalty of five years in prison upon conviction. Legkodymov, 40, was in custody Wednesday, and it was unclear if he had a lawyer who could comment on his behalf. He could face additional charges as the investigation moves forward.
Asked at the news conference if Bizlato had assisted Russia in evading sanctions tied to its invasion of Ukraine, Deputy Treasury Secretary Wally Adeyemo said, "What we do know is Russia has set up an ecosystem that is permissive for cyber criminals.”
The Treasury Department's Financial Crimes Enforcement Network and French authorities worked together to identify the alleged criminal activities by Bitzlato, which U.S. officials said was a sign of the global cooperation to purge bad actors from cryptocurrency markets.