The Hong Kong-founded crypto exchange had no Know Your Customer and was a significant support for Hydra, a darknet marketplace.
On December 6, Anatoly Legkodymov, the ex-CEO and cofounder of Bitzlato, a cryptocurrency exchange, appeared before Judge Eric Vitalino in New York Eastern District Court in Brooklyn. He pleaded guilty to a count of running an unauthorized money services business. He agreed to close down Bitzlato and surrender cryptocurrency worth $23M.
Criminal Actors Exploited Slack Controls Deployed by Bitzlato
A previously filed criminal cause for pleading is believed to show the intent of entering a guilty plea. U.S. Attorney for the Eastern District of New York, Breon Peace, claimed that Legkodymov’s guilty plea shows he knew that criminals were utilizing the cryptocurrency exchange like an open turnstile. These criminals were eager to exploit his slack controls over illegal money transactions.
Legkodymov’s arrest happened in Miami on January 17 this year during a harmonized global effort to bring down the exchange. On the same day, France blocked the exchange’s website. The U.S. Department of Justice (DOJ) shows that Cypris, Spain, Portugal, and the European Union Agency for Law Enforcement (Europol) also participated in the operation against it.
Bitzlato Relied Upon Inadequate Customer Checks
Bitzlato, a Hong Kong-founded noncustodial peer-to-peer cryptocurrency exchange, had ‘meagre’ Know Your Customer (KYC)/ Anti-Money Laundering regulations. Additionally, it was a significant ‘financial reserve’ for Hydra, a Russian darknet marketplace. In April last year, the Justice Department enforced sanctions on the market.
The enforcement interventions briefly rocked the crypto markets. Europol revealed that nearly 46% of assets handled by Bitzlato, amounting to €1B ($1.09B at that time), were linked to illegal deeds.
Additionally, Europol took hold of Bitzlato wallets worth €18M and froze 100 accounts worth €50M on the rest of the exchanges.
Binance was a significant Bitzlato counterparty. In January, it restricted funds in 20 wallets linked to the case. In March, the exchange unblocked some of its held funds and permitted people to withdraw up to half of their Bitcoin.
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