01/02/2023 Alexander

Unpacking the US laws enacted to take down Bitzlato

Who was Anatoly Legkodymov and how did the US Department of Justice get involved?

In the latest episode of Crypto Compliance Podcast, Pawel Kuskowski, the CEO of Gatenox, had a discussion with two experts in corporate compliance, Carol Van Cleef and Art Middlemiss, about the recent arrest of Anatoly Legkodymov

Who is the owner of Bitzlato?

Legkodymov, who lived in China, was arrested in Miami for operating an unlicensed money-transmitting business called Bitzlato. The US Department of Justice (DOJ) was involved in the case, and Art explained that it was an exercise of US power and a warning to non-US actors engaged in exchange-type activities, especially those involving Russia.

Legkodymov was charged with a violation of 18 US Code 1960, which required linking his business activities to the US. The DOJ alleged that Bitzlato knowingly serviced US customers, conducted transactions with US exchanges, and was run using US online institutions.

The case was made stronger by Legkodymov’s presence in the US, where he managed the company and had incriminating devices with him when he went through customs.

These devices contained evidence connecting Bitzlato and Legkodymov, including that he conducted business in the US.

Bitzlato was closed down for its activities in Russia, involving as much as 700 million dollars in transactions with Russian dark webs. It facilitated extensive ransomware transactions and was linked to the Hydra Market, which facilitated illegal drug trafficking and cryptocurrency money laundering. The US government used section 9714(a) of the Combating Russian Money Laundering Act to exile entities it believes are a threat to the US financial system by doing business in the United States. This law prevents all US banks or financial institutions from doing any business or transmitting funds on behalf of Bitzlato. The case is a warning to other cryptocurrency exchanges that they need to be compliant with US regulations, particularly for those who are doing business in the US.

Basic KYC wasn’t even done by Bitzlato, suggesting that the entity wasn’t taking any steps to be compliant with US regulations.

Watch the whole discussion:

Carol Van Cleef is an internationally recognized authority and pioneer in legal issues involving cryptocurrencies and blockchain technology. With a focus on regulatory, compliance, and enforcement matters, Carol has built a global reputation as a leading attorney, counselor and problem solver working with fintech companies, blockchain developers, virtual currency exchanges and wallets, payment processors, prepaid access programs, and other business ventures.

As a certified anti-money laundering (AML) specialist, Carol created a series of AML compliance training programs in partnership with the Conference of State Bank Supervisors and attended by state regulators, executives from domestic and foreign banks, securities firms, money services businesses, and other entities.

Arthur D. Middlemiss practices in the areas of financial crimes compliance. He focuses on providing strategic counsel to foreign and domestic entities seeking to mitigate regulatory, criminal and reputational risk in the areas of anti-money laundering (AML) and anti-bribery and corruption (ABC). Arthur  has represented individuals and corporations in criminal investigations, investigated alleged violations of the Foreign Corrupt Practices Act, and advised financial and other companies with respect to best practices in the fields of AML and ABC compliance.