A Russian operator of a China-based cryptocurrency exchange with links to South Florida and other parts of the world appeared in federal court in Miami Wednesday on charges of running an unlicensed money transmitting business that is suspected of laundering hundreds of millions of dollars in drug trafficking and other criminal proceeds, federal authorities said.
Anatoly Legkodymov, 40, the founder and majority owner of Hong Kong-based Bitzlato Ltd., which authorities say he also managed from Miami over the past year, was arrested Tuesday night at a family home in the Miami-Dade area while he was on vacation.
Legkodymov, who was charged in criminal complaint by federal prosecutors in Brooklyn, will have a detention hearing on Friday in Miami federal court. His transfer to New York will also be addressed.
Legkodymov is accused of failing to maintain an anti-money laundering program at Bitzlato, which conducted more than $700 million of cryptocurrency transactions with Hydra Market, a darknet marketplace for narcotics, stolen financial information, fraudulent IDs and money laundering services, Justice Department officials in an announcement of the Russian’s arrest. Hydra, which federal officials say transmitted more than $15 million in ransomware through Bitzlato, was shut down by U.S. and German authorities last April.
“Today’s actions send the clear message: whether you break our laws from China or Europe — or abuse our financial system from a tropical island — you can expect to answer for your crimes inside a United States courtroom,” Deputy Attorney General Lisa Monaco said in a statement, an apparent reference to the arrest last month in the Bahamas of Sam Bankman-Fried, the former CEO of failed cryptocurrency firm FTX.
The spectacular collapse of his exchange business not only sent a seismic shock through the crytocurrency industry in Miami, New York and other parts of the world, but it also led to a legal battle over FTX’s naming rights to the Miami Heat’s basketball arena on the waterfront.
Legkodymov’s defense attorney, Joel DeFabio, emphasized that his client has only been charged with operating an unlicensed money transmitting business, which carries up to five years in prison, not money laundering or other serious crimes.
“At this time, he’s charged with not following the complicated rules and regulations of the United States government for his money transaction business,” DeFabio said. “It’s understandable for someone working outside the United States that they would not fully understand these strict rules and regulations.”
Justice Department officials highlighted details of Legkodymov’s alleged criminal activity in a news release Wednesday, citing his company’s failure to prevent money laundering by doing business with suspicious operators who moved millions of tainted dollars through the cryptocurrency exchange. Legkodymov and other Bitzlato executives failed to know their customers while conducting unlawful financial transactions, federal officials said.
“Legkodymov and Bitzlato’s other managers were aware that Bitzlato’s accounts were rife with illicit activity and that many of its users were registered under others’ identities,” authorities said in the news release.
“For instance, on May 29, 2019, Legkodymov used Bitzlato’s internal chat system to write to a colleague that Bitzlato’s users were ‘known to be crooks,’ using others’ identity documents to register their accounts. Legkodymov was repeatedly warned by colleagues that Bitzlato’s customer base consisted of ‘addicts who buy drugs at Hydra’ and ‘drug traffickers,’ ” the news release said, citing details of the criminal complaint.
One senior executive stressed that Bizlato should only “nominally” combat drug dealers, in order to avoid “hurting the company’s bottom line.”
Prosecutors said while Bizlato claimed not to accept users from the United States, it did “substantial business” with American customers and its customer service representatives repeatedly advised users that they could transfer funds from U.S. financial institutions.
“Moreover, Legkodymov — who himself administered Bitzlato from Miami in 2022 and 2023 — received reports reflecting substantial traffic to Bitzlato’s website from U.S.-based Internet Protocol addresses, including over 250 million such visits in July 2022,” federal officials said in the news release.
This story was originally published January 18, 2023 5:17 PM.