In its first use of Section 9714(a) of the Combating Russian Money Laundering Act, the Financial Crimes Enforcement Network (“FinCEN”) issued a notice of enforcement order (the “Order”) on January 18, 2023 against the cryptocurrency exchange Bitzlato Limited (“Bitzlato”), which has operated globally and is registered in Hong Kong. The Order was issued in conjunction with the Department of Justice’s (“DOJ”) arrest of Bitzlato’s founder, Russian national Anatoly Legkodymov. Bitzlato has processed over four billion dollars in cryptocurrency transactions since 2018. According to the government, a substantial portion of those transactions involved criminal proceeds.
Legkodymov, who resided in China until his arrest in the United States, has been charged initially, via complaint and warrant, with conducting an unlicensed money-transmitting business under 18 U.S.C. § 1960, although the allegations against Bitzlato appear to extend far beyond mere unlicensed money transmission. Both the Order and the lengthy affidavit in support of the complaint stress that Bitzlato openly touted its intentional lack of any sort of real anti-money laundering (“AML”) program. For example, “Bitzlato’s website advertised for years (and as recently as March 31, 2022) that the site offered ‘Simple Registration without KYC. Neither selfies nor passports required. Only your email needed.’ Similarly, a blog post on Bitzlato’s website stated: ‘On Bitzlato no KYC is required for you to trade.’”
This post will focus on FinCEN’s Order, which identifies Bitzlato as a “primary money laundering concern,” and prohibits certain money transmission involving Bitzlato by covered financial institutions. The Order also highlights the threats posed to U.S. national security and the integrity of the U.S. financial sector by Bitzlato’s active facilitation of laundering of Russian illicit finance. However, FinCEN’s press release makes clear that Bitzlato is just one part of a larger ecosystem of Russian cybercriminals, including ransomware attackers, operating with impunity in Russia.