The U.S. Department of Justice (DOJ) announced the takedown of cryptocurrency exchange Bitzlato as part of an “international cryptocurrency enforcement action,” citing its role in processing illicit funds for the Russian-speaking underground. The Russian owner of the platform, Anatoly Legkodymov, was arrested in Miami on Tuesday by the FBI. Meanwhile, Bitzlato claimed it had been hacked and suspended withdrawals indefinitely.
Joint U.S.-French Operation Leads to Arrest of Bitzlato Co-Founder
U.S. authorities have apprehended Anatoly Legkodymov, a resident of China, on charges that his Hong Kong-registered crypto trading platform, Bitzlato, processed illicit funds worth hundreds of millions of dollars. The Russian, a co-founder and majority owner of the exchange, was arrested by the FBI in Miami. Deputy Attorney General Lisa Monaco stated during a press conference that the DOJ, working with the U.S. Treasury Department and French law enforcement, had “disrupted Bitzlato, a China-based cryptocurrency exchange, notorious for laundering criminal proceeds from the darknet” and ransomware attacks. She declared: “Today, the Department of Justice has dealt a significant blow to the crypto crime ecosystem.”
Legkodymov is accused of operating the exchange as a “high-tech financial hub that, in his own words, catered to ‘known crooks’,” Monaco explained. She alleged that Bitzlato was a “crucial financial resource” for Hydra, the largest darknet market with Russian roots, which was shut down in April 2022 by German police with U.S. support. According to the DOJ, Hydra buyers funded illicit purchases from crypto accounts hosted at Bitzlato, while sellers of drugs, stolen financial information, and hacking tools sent criminal proceeds to accounts at the exchange, collectively amounting to $700 million in direct and indirect transfers between 2018 and 2022.
The deputy attorney general also noted that participants in the operation engaged in a “coordinated campaign of disruption,” including law enforcement actions in several European countries and the seizure of Bitzlato’s servers. By midday Wednesday, Bitzlato’s website was replaced with a notice indicating that the service had been seized by French authorities, according to Reuters.
Bitzlato Claims Hack Attack, Halts Withdrawals
Also on Wednesday, Bitzlato operators announced on Telegram that the exchange had suffered a hacking attack. They told users that withdrawals had been suspended indefinitely and asked them to refrain from sending coins to the platform until the issue is resolved. “Our service was hacked, part of the funds was withdrawn from the service,” the exchange said, noting that the attackers were able to steal a small portion of the funds without specifying the amount. It sought to assure customers that their assets were not lost, stating: “For all victims, we guarantee a refund.”
As a security measure, the platform was disabled, and users were asked not to replenish wallets until work was restored. At the time of writing, the platform remained offline. The hack presumably occurred after the exchange announced maintenance scheduled for Thursday, Jan. 19, aimed at “improving the operation of the service and its security.” Bitzlato launched in 2016 under the name Changebot and later became a cryptocurrency exchange offering peer-to-peer (P2P) trading services. It lists pairs of the Russian ruble with BTC, ETH, USDT, and other digital coins that can be bought and sold with a variety of payment methods.
Online crypto exchangers like Bitzlato are popular in Russia and the former Soviet space, but as crypto assets are yet to be fully regulated in the region, they are often targeted by authorities across the Commonwealth of Independent States. A recent report revealed that the Belarusian judiciary imposed a hefty fine on the operator of one such platform.