Bitzlato co-founder pleads guilty to money laundering, agrees to dissolve digital asset exchange

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Anatoly Legkodymov, the Russian co-founder of Hong Kong-based digital asset exchange Bitzlato, pleaded guilty to money laundering charges in a New York court on December 8.

“Bitzlato Ltd. processed more than $700 million in illicit funds, including millions in ransomware proceeds, was primary counterparty of notorious drug bazaar hydra market and advertised lax identification procedures,” said a statement from the United States Attorney’s Office for the Eastern District of New York.

In a proceeding held before U.S. District Judge Eric N. Vitaliano, Legkodymov agreed to a plea deal dissolving Bitzlato and releasing any claim over approximately $23 million in seized assets of the exchange.

“Legkodymov’s guilty plea today confirms that he was well aware that Bitzlato, his cryptocurrency exchange, was being used like an open turnstile by criminals eager to take advantage of his lax controls over illicit money transactions,” said U.S. Attorney Breon Peace. “The defendant may have thought he was operating from a safe haven overseas for his ‘No Questions Asked’ clearinghouse, but this prosecution and conviction demonstrate otherwise.”

Legkodymov was arrested in January in Miami as part of a joint operation with the European Union Agency for Law Enforcement Cooperation (Europol). He was identified as a senior executive and the majority shareholder of the Hong Kong-registered exchange (previously known as Changebot), which offered both exchange and peer-to-peer services. The exchange was also closely linked to the now defunct Hydra, the biggest dark web marketplace globally, before its seizure by U.S. authorities in April 2022.

According to Wednesday’s indictment, Bitzlato had been the “largest counterparty” of Hydra, whose users sent around $700 million worth of digital assets through the exchange. Bitzlato also received more than $15 million in ransomware proceeds, and the U.S. Attorney’s Office alleges that Legkodymov and his team knew criminals were using the exchange.

Bitzlato was labeled a “primary money laundering concern” by the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) earlier this year.

International crackdown

In January, Europol confirmed it had led a crackdown resulting in the arrest of senior management at Bitzlato after an investigation that revealed the exchange had received over a billion euros from criminal entities, most of which was then converted to Russian rubles. Two of the founders, Legkodymov and Anton Shkurenko, as well as four other members of the Bitzlato team, were among those arrested.

Europol also took down the digital infrastructure of the exchange, which was based in France.

The European enforcement agency claimed that Bitzlato received over 2.1 billion euros ($2.3 billion) in BTC, Dogecoin, Ether, Litecoin, BCH, and other digital assets. An estimated 46% of the assets, or about $1.1 billion, had links to criminal activities.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—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.