On Tuesday, Binance was named as one of the three largest counterparties for crypto exchange Bitzlato, in a US Treasury order that prevents any covered financial institution from sending funds to the relatively unknown firm.
Bitlatzo’s majority owner, Anatoly Legkodymov or “Gandalf”, was arrested and indicted by the Department of Justice (DoJ) on Tuesday in the Eastern District of New York. He’s charged with operating an unlicensed money transmission business.
The Treasury has indicated that he’s a “primary money laundering concern” with connections to Russian illicit finance.
Lisa Monaco, Deputy Attorney General, today said this indictment is evidence they’re “unleashing the full force of the Department of Justice on the illicit actors and entities that support cyber criminals.”
The deep ties between Bitzlato, Binance, and Hydra
According to the order by the Treasury’s Financial Crimes Enforcement Network (FinCEN), Bitzlato’s top three counterparties were Binance, Russia-connected darknet market Hydra, and alleged Ponzi scheme “The Finiko.” FinCEN ranked these three in terms of total amount of bitcoin Bitzlato received between May 2018 and September 2022.
The latest actions taken by the Treasury are likely possible thanks to the seizure of records related to the Hydra darknet market. The Treasury order said a “notable percentage” of Bitzlato’s business stemmed from Hydra — about 6-8% of all its transactions over two years.
“Bitzlato processed over 1.46 million direct transfers with [Hydra] between May 2018 and early April 2022, representing transactional flows of nearly 20,000 BTC…” the order reads.
For comparison, Binance experienced more outflows over a recent day than the total number of transactions Bitzlato has ever processed.
Previous analysis by Crystal Blockchain has indicated that Binance was also a large counterparty for Hydra, with $780 million in transactions between the entities. An investigation by the DoJ into potential money laundering at Binance is still ongoing.
Hydra processed billions in crypto thanks to Bitzlato
Bitzlato was a cryptocurrency exchange registered out of Hong Kong which was operated by Legkodymov, a Russian national. According to US authorities, Bitzlato had extremely lax procedures in place when it came to complying with know-your-customer (KYC) laws. The crypto exchange apparently even advertised that “no KYC is required for you to trade.”
“All traders are known to be crooks,” Legkodymov reportedly said, along with announcing he thinks “90% do not trade” under their legitimate identity. In turn, criminals flocked to the site, specifically users of Hydra.
- Bitzlato is identified as the second largest counterparty for Hydra.
- In total, the FBI claims to have accounted for $170.6 million in cryptocurrency sent to Bitzlato from Hydra.
- An additional $316.3 million was sent to Hydra either directly or indirectly from Bitzlato.
The complaint alleged that since May 2018, about $4.58 billion in cryptocurrency transactions have been conducted by Bitzlato. A “meaningful” portion reportedly came from the US.
At least $15 million in crypto tied to ransomware attacks have flowed through the exchange, according to the FBI.