The backstory: Anatoly Legkodymov, founder of the Hong Kong-registered Bitzlato cryptocurrency exchange, has found himself in the middle of an investigation. The Russian national lives in China, and his exchange is said to have processed around US$4.5 billion worth of crypto since 2018. But, it's also said to have required minimal identification from users and have connections to a market on the dark web, where lots of illegal stuff happens.
The development: On Wednesday, US prosecutors announced they had arrested Legkodymov in Miami and charged him with money laundering. According to officials, Legkodymov even once said the exchange's users were "known to be crooks."
Prosecutors said the exchange had helped with illegal gambling and drug deals worth more than US$700 million. They also accused Bitzlato of hiding these activities, including providing a "crucial financial resource" for the closed Hydra market, an online dark web platform used for illegal transactions like selling stolen financial information and money laundering.
On top of that, they also believed that Bitzlato got more than US$15 million in ransomware payments. French authorities also seized Bitzlato's website as part of an international effort. Most recently, Binance was named as a key counterparty in the complaint.
"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," said US Deputy Attorney General Lisa Monaco at a news conference.
"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," said US Attorney Breon Peace at a press conference announcing Legkodymov's arrest.
"While US financial institutions will refuse to engage in business with Bitzlato, (one would expect that) other financial institutions will follow suit," said Cari Stinebower, a former Treasury Department official and now a partner at law firm Winston & Strawn. "The impact will be to freeze Bitzlato out of the global financial sector almost immediately."
As of publication, Legkodymov could not be reached for comment on the case.