According to the Wall Street Journal, the company was listed as a primary money-laundering concern, and its founder was charged for allegedly facilitating money laundering for criminal entities. The Treasury Department used a section from the USA Patriot Act, which is a law used to combat money laundering and terrorist financing.
The conclusion was that Bitzlato was used to allegedly launder illicit funds for Russia-based ransomware activities. The Treasury Department used a so-called death-knell sanction in Bitzlato’s case, which basically cut off the company from the US financial system. Such an action was previously used against banks and other financial institutions.
Hong Kong-based Bitzlato has operations all over the world, and according to US authorities, it allegedly exchanged more than USD 700 million in cryptocurrency with Hydra Market. Hydra was shut down in April 2022. It was a Russian dark web marketplace that facilitated the trafficking of illegal drugs as well as financial services including cryptocurrency tumbling for money laundering and exchange services between cryptocurrency and Russian rubles.
Apart from laundering hundreds of millions of dollars, the Justice Department accused Bitzlato of cashing in on more than USD 15 million in ransomware proceeds. The founder and majority owner of Bitzlato, Anatoly Legkodymov was apprehended in Miami on 19 January 2023. Following US action, French authorities also shut down Bitzlato’s digital infrastructure and seized its cryptocurrency reserves. At the time of writing, Bitzlato’s website is inaccessible.
US prosecutors accused Bitzlato of lacking effective know-your-customer procedures to check users’ identity as required by US anti-money-laundering laws. The Wall Street Journal further reports that authorities will continue to investigate whether Bitzlato had a role to play in circumventing sanctions imposed on Russia over its invasion of Ukraine.
Before these developments, Bitzlato wasn’t that well-known. According to FinCEN representatives, by April 2022, Bitzlato had a daily bitcoin balance that was just 0.0185% of the largest US-based crypto exchange.
According to coindesk.com citing an order from the Treasury Department's Financial Crimes Enforcement Network (FinCEN), Binance was named as one of the receiving and sending counterparties associated with Bitzlato. Other sending counterparties include Hydra, Local Bitcoins, and TheFinko.
In turn, Binance representatives cited by the same source revealed their willingness to provide assistance with this investigation. The order in question forbids the transmittal of funds involving Bitzlato by any domestic financial institution or all covered financial institutions. The order will come into effect on 1 February 2023.
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