In its largest financial seizure ever, the U.S. Department of Justice has taken possession of US$3.6 billion worth of digital assets from a couple arrested in Manhattan. The arrests, reportedly linked to the 2016 Bitfinex hack, “show that cryptocurrency is not a safe haven for criminals” according to Deputy Attorney General Lisa O. Monaco.
Husband and wife Ilya Lichtenstein, 34, and Heather Morgan, 31, are charged with conspiracy to launder the 119,754 BTC (US$4.5 billion) stolen in Bitfinex’s infamous hack attack. The pair allegedly used a series of fictitious identities, online accounts and automated transactions to launder the funds through various cryptocurrency exchanges and darknet markets. Once converted into fiat currencies, the funds ended up in accounts belonging to Lichtenstein and Morgan.
Though Lichtenstein’s BTC wallet received the initial proceeds of the stolen Bitfinex coins, the DOJ’s statement is unclear on whether he or his wife was responsible for the initial hack/theft. It also does not mention whether the BTC (or resulting fiat) in question will be returned to Bitfinex.
Despite the complexity of the operation, authorities were able to track the movement of the funds through the couple’s accounts using blockchain records. It may have been a lucky break for law enforcement, but the question of ultimate ownership of digital assets remains unresolved. Without control of ownership by courts and court orders, this represents a risk to all digital asset holders. It’s worth noting that money from the 2016 hack has been continuously moving out of the hacker’s wallet to “unknown wallets” since 2019. In 2020, Bitfinex offered up to $400 million in reward to any individual that could put them in touch with the hacker.
Lichtenstein and Morgan were reportedly only able to launder 25,000 BTC from the stolen total in the five years since the Bitfinex incident. That’s still a hefty sum, but it left more than 94,000 BTC for the DOJ to seize.
As BTC maximalist Michael Saylor noted, the DOJ now joins him as one of the world’s largest BTC bagholders.
— Michael Saylor⚡️ (@saylor) February 8, 2022
Agents received a court order to access files in an online account Lichtenstein controlled. Those files contained private keys to the wallets he allegedly used to receive and send the stolen BTC, which they then seized.
Deputy Attorney General Lisa O. Monaco thanked investigators for their efforts, saying, “Today’s arrests, and the department’s largest financial seizure ever, show that cryptocurrency is not a safe haven for criminals. In a futile effort to maintain digital anonymity, the defendants laundered stolen funds through a labyrinth of cryptocurrency transactions. Thanks to the meticulous work of law enforcement, the department once again showed how it can and will follow the money, no matter what form it takes.”
Statements from other government agencies highlighted both the dangers of assuming blockchain transactions can be “anonymous,” and the risks that large thefts such as Bitfinex’s pose to confidence in digital assets and the legacy financial system.
“Financial crime strikes at the core of our national and economic security. With a hack of this magnitude, public and private sector collaboration is crucial to ensure continued consumer confidence in our financial system,” said Acting Executive Associate Director Steve Francis of Homeland Security Investigations (HSI).
“Ilya Lichtenstein and his wife Heather Morgan attempted to subvert legitimate commerce for their own nefarious purposes, operating with perceived anonymity. Today’s action demonstrates HSI’s commitment and ability to work with a collation of the willing to unravel these technical fraud schemes and identify the perpetrators, regardless of where they operate.”
As well as conspiracy to commit money laundering, the couple have also been charged with conspiracy to defraud the United States. The two charges carry a maximum 20- and 5-year prison sentence respectively.
The couple’s arrest demonstrates the federal authorities’ power to recover the missing BTC from the Bitfinex hack—if they want to. But it shouldn’t be a case of if the government wants to because the exchanges and operators involved in these incidents have an obligation to do action and help their clients recover the money instead of giving them fake coins that have no real value and no real utility unless, of course, these firms are also part of the money laundering scam.
As mentioned above, it’s not clear if the stolen funds will be returned to Bitfinex, or remain in the DOJ’s possession. Given the exchange’s history with U.S. regulations and banking industry, as well as its location outside U.S. jurisdiction, could make any retrieval process complex and lengthy.
Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—a from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple, Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.
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