What is Bitzlato – the crypto exchange put down by the US government ⋆ ZyCrypto

The US Department of Justice (DOJ) announced a successful crackdown on Bitzlato, a major money laundering crypto exchange. At a news conference, US Attorney General Lisa Monaco confirmed the operation, adding that the exchange’s majority co-founder, Anatoly Legkodymov, was also arrested in Miami by FBI agents.

Legkodymov, 40, who operates Bitzlato from his home in Shenzhen, China, is scheduled to face charges in Florida District Court this afternoon. Since news of the arrest, the total number of wallets connected to Bitzlato has dwindled from over 6 million to fewer than 12,000.

According to the US Department of Justice, Bitzlato is directly responsible for laundering over $700 million in illicit transactions from Hydra, the now-defunct dark web megamarket, over the past three years.

But analysis by Crypto’s crime watch chain, Chainalysis, continues to probe Bitzlato’s activities over the past four years, returning over $2.5 billion to the exchange.

How dark was Bitzlato?

From the start, Bitzlato was set to welcome all forms of fraud for an exchange that excludes Face ID recognition in its KYC process. Its founder, Legkodymov, was also quoted as saying that the exchange’s users were “known to be crooks,” according to a DOJ report. In three years, transaction volume grew to over $2.5 billion, with 53% of that number being directly linked to risky and illegal sources. Chainalysis found that its top 20 transaction partners include underdog companies and ransomware strains like QubitTech, Chatex, Phobos, Dharma, Astrolocker, MG555, Guarantee, Finiko, etc. – all dark web-based companies.

Nearly $33,000 has been traced by the Hong Kong-based exchange to over six pro-Russian paramilitary groups operating in the highly volatile Donbass region and fueling the war in Ukraine through the proliferation of small arms.

Money Laundering and Crypto

In its official statement, the DOJ stated that “institutions dealing in crypto are not above the law. Referring to a growing case of sloppy due diligence and KYC deficiencies in the crypto space, US Attorney Breon Peace added that “Bitzlato sells itself to criminals as a no-questions-asked cryptocurrency exchange and rakes in millions of dollars worth of deposits. The defendant is now paying the price for the margin role his company has played in the cryptocurrency ecosystem.”

Bitzlato and FTX

While the crypto community praised the efforts of the US Department of Justice, some observers compared Bitzlato and FTX. FTX founder Sam Bankman-Fried wiped out approximately $40 billion in personal and investor funds with the fall of FTX. Both companies appear to have sustained serious illegal practices in violation of US FinCEN law, which led to their demise. Still, the US-based founder is hoping for a softer landing amid slim chances of a pardon.