What are US authorities really aiming to indict Russian founders of small exchange Bitzrat?[Column]| coindesk JAPAN | Coindesk Japan

On January 18, the U.S. Department of Justice announced that it would hold a press conference on crypto assets (virtual currencies), causing a panic among industry insiders. Many people were apprehensive. Bitcoin (BTC) and Ethereum (ETH) are down about 5%.

FTX bankruptcy, fears surrounding crypto conglomerate (and CoinDesk parent company) Digital Currency Group (Genesis Global files for bankruptcy), world’s largest crypto exchange by trading volume A lot has been going on in the crypto industry lately, including the years-long investigation into Binance.

If you open the lid…

But at a press conference held at 12:00 noon ET on Thursday, little-known cryptocurrency exchange Bitzlato was shut down and its founder arrested in Miami. He seemed like a waste of tax money. What is Bitzrat?

In fact, authorities also misspelled “Bitzlato” in court filings. “The authorities also heard about this exchange for the first time today,” tweeted crypto researcher Bennett Tomlin.

Bitzrat is a Hong Kong-registered exchange run by Russian citizen Anatoly Legkodymov.

Since its founding in 2018, Bitzrat has traded about $4.5 billion worth of crypto assets, according to the complaint. $700 million of that was linked to the popular darknet marketplace Hydra. In addition, a “substantial” transaction was attributed to an American customer. This means that it will be subject to US regulatory action.

A joint investigation by the U.S. Department of Justice, the U.S. Federal Bureau of Investigation (FBI), the U.S. Treasury, and several European authorities found that Bitzrath’s “remittance business” had minimal Know Your Customer (KYC) procedures. It was found to have been used to launder illegal funds, such as ransomware and drug trafficking.

Rekkodimov said he knew that Bitzrat was being used by such criminals and even advertised it. If convicted of illegal money transfer business, he could be sentenced to up to five years in prison.

big announcement

Of course, very few people knew of Bitzrath and Lekkodimov before the press conference, and in 2011, Sen. (Silk Road)” was a reminder of the unintentional drive of many to the Silk Road.

That’s not to say that Bitzrath wasn’t what the FBI calls a “money laundering engine in China.”

But even at its peak, Bitzrath’s net worth is just $6 million. Also, when I checked the net, the traffic of the exchange, which was called a crime hub, was quite low.

So why did the authorities overstate what appeared to be a relatively simple police case?

“Today’s move sends a clear message: whether you want to break US law from China or Europe, or exploit the US financial system from a tropical island,” Justice Department Deputy Secretary Lisa Monaco said. You can expect to be punished for your criminal behavior in an American court,” he said.

Taken literally, the police may crack down and the cryptocurrency industry may be globally “decentralized,” but it shows that the majority of investigations begin and end in the United States.

This is nothing new. US authorities have fought many offshore companies for years.

Is binance next?

Monaco’s remarks may have sent chills down the spine of Binance CEO Changpeng Zhao. Bitzlato’s biggest trading partner was Binance (followed by Hydra, and Finiko, a suspected Ponzi scheme).

According to industry media Protos, the Bitzlato investigation was likely sparked or accelerated by documents seized from Hydra last year. If that’s true, the U.S. Department of Justice, which is already investigating Binance, would likely have similar data on the flow of funds between Binance and Hydra.

According to research by Igor Makarov and Antoinette Schoar of the National Bureau of Economic Research (NBER), Bitzlato had the second-largest trading volume with Hydra after Binance.

I am not saying that Binance is the next target. Binance has so far strengthened its KYC procedures and improved its relationship with regulators. However, it is clear that the U.S. Securities and Exchange Commission (SEC) is interested in Binance’s inner workings, and that Binance is still being told that it may face money laundering charges. I wouldn’t be surprised if Hydra’s name comes up when that happens.

exceptional success

In any case, the Bitzlato indictment proves that regulators and law enforcement have the necessary tools to investigate and prosecute cryptocurrency crime. This is notable given the spate of large-scale blockchain-related crimes last year, including FTX, and politicians calling for stricter rules and oversight.

According to The Washington Post, the indictment is the first effort to be created in 2021 and led by the NCET, a team dedicated to crypto assets within the U.S. Department of Justice. It was also an opportunity for the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to showcase the additional powers the 2021 National Defense Authorization Act has for combating Russia-related financial crimes.

Some argue that oversight of remittances is already too pervasive. It is based on the premise that surveillance for safety is taken for granted and penalizes everyone, so to speak.

However, since the closure of the Silk Road, a fully public, transparent and immutable blockchain has proven to be ill-equipped for illicit activity. Nonetheless, many people continue to commit illegal acts. Crimes are committed and laws exist.

That’s why the press conference was so embarrassing to watch. Monaco’s deputy chief in particular, when he spoke of the broad powers of regulators, used the word “tropical” to refer to FTX only to show how far regulators have failed to curb crime. embossed. Bitzlato may be an exceptional success story. However, compared to FTX, the scale of the damage is insignificant.

｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Image: Shutterstock
｜Original: Bitzlato, Binance and What Regulators Are Really Doing