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Today we are very pleased to welcome guest blogger Lili Infante, who is the CEO of CAT Labs – a tech company building digital asset recovery and quantum-resistant cryptography tools to fight crypto crime.  Lili previously spent a decade as a DEA Special Agent with the U.S. Department of Justice and pioneered an early federal task force focusing exclusively on crypto and dark web crimes. Lili has led numerous major crypto-related investigations to include the takedown of Hydra – the largest crypto-powered dark web criminal organization and money laundering platform in the world.

We reached out to Lili because her work is fascinating and increasingly important.  Law enforcement agencies, the U.S. Treasury Department and other regulators are focused on vulnerabilities and potential gaps in the United States’ anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”) regulatory, supervisory, and enforcement regimes in regards to the use and misuse of virtual assets and decentralized finance.  Virtual assets can be the vehicle of choice for terrorist financing, fraud schemes, and state-sponsored cyber crime.  Meanwhile, agencies such as the Financial Crimes Enforcement Network (FinCEN) struggle to find proposed regulatory solutions.

This blog post again takes the form of a Q&A session, in which Lili responds to questions posed by Money Laundering Watch about investigating crypto-related illicit activity and recovering digital assets. We hope you enjoy this discussion on this important topic. – Peter Hardy

Continue Reading  Fighting Crypto Crime:  A Guest Blog.

The U.S. Department of Justice (“DOJ”) announced on March 15, 2023 that in a coordinated effort between U.S. Federal Bureau of Investigations, Europol, and German police, the darknet cryptocurrency mixing service ChipMixer has been shut down.  The operation involved the U.S. government’s court-authorized seizure of two domains that directed users to the ChipMixer service and one Github account.  In addition, German authorities seized $46 million in cryptocurrency, as well as ChipMixer’s back-end servers used to run the site. 

Further, the U.S. Attorney’s Office for the Eastern District of Pennsylvania filed a criminal complaint against ChipMixer’s suspected founder, Vietnamese national, Minh Quoc Nguyen (“Nguyen”), alleging that Nguyen openly flouted financial regulations and instructed users how to use ChipMixer to evade reporting requirements while obscuring his true name under a series of stolen and fictitious identities. The complaint also alleges that ChipMixer, described as a popular platform for laundering illicit funds gained from unlawful activities like drug trafficking, ransomware attacks (according to Europol, ransomware actors Zeppelin, SunCrypt, Mamba, Dharma, Lockbit have used ChipMixer), and payment card fraud, was used to launder more than $3 billion in cryptocurrency since 2017.  Nguyen has been charged with money laundering, operating an unlicensed money transmitting business, and identity theft in connection with the operation of ChipMixer. 

Continue Reading  Darkweb Cryptocurrency Mixer ChipMixer Shut Down for Allegedly Laundering $3 Billion Worth of Crypto

The Financial Action Task Force (“FATF”) Plenary was held on February 22-24, bringing together delegates from around the world to meet in Paris and discuss a variety of global financial crimes and ongoing risk areas. In a historic move, FATF decided to suspend the Russian Federation from membership in the intergovernmental organization, based upon its actions in Ukraine over the past year. We will discuss that decision, as well as the other major outcomes of the Plenary, which involve beneficial ownership, virtual assets, ransomware, the art and antiquities market, and changes to FATF’s so-called “grey list.”

Continue Reading  FATF Plenary Suspends Membership of Russian Federation and Reiterates Other Strategic Initiatives

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.

Continue Reading  FinCEN Issues Enforcement Order Against Crypto Exchange Bitzlato in First-Time Use of Section 9714(a)

The “Highlights” — To Russia, With Crypto

The Financial Crimes Enforcement Network (“FinCEN”) issued on November 1 a Financial Trend Analysis regarding ransomware-related Bank Secrecy Act (“BSA”) filings during the second half of 2021 (the “Report”).  This publication follows up on a similar ransomware trend analysis issued by FinCEN regarding the first half of 2021, on which we blogged here.  

In the most recent analysis, FinCEN found that both the number of ransomware-related Suspicious Activity Reports (“SAR”) filed, and the dollar amounts at issue, nearly tripled from 2020 to 2021.  The notable takeaways from the Report include:

  • Ransomware-related SARs were the highest ever in 2021 (both in number of SARs and in dollar amounts of activity reported).
  • Ransomware-related SARs reported amounts totaling almost $1.2 billion in 2021.
  • Approximately 75% of ransomware-related incidents between June 2021 and December 2021 were connected to Russia-related ransomware variants.

The Report, which stated that the majority of these ransomware payments were made in Bitcoin, serves as a particular reminder to cryptocurrency exchanges of their role in both identifying and reporting ransomware-related transactions facilitated through their platforms.  The Report stresses that SAR filings play an essential role in helping FinCEN identify ransomware trends.

Continue Reading  FinCEN Reports Staggering Increase in Reported Ransomware Attacks

With Guest Speaker Matthew Haslinger of M&T Bank

We are extremely pleased to offer a podcast (here) on the legal and logistical issues facing financial institutions as they implement the regulations issued by the Financial Crimes Enforcement Network (FinCEN) pursuant to the Anti-Money Laundering Act of 2020 (AMLA) and the Corporate Transparency Act…

Enforcement Trends, Crypto, the AML Act — and More

We are very pleased to be moderating, once again, the Practising Law Institute’s 2022 Anti-Money Laundering Conference on May 17, 2022, starting at 9 a.m. This year’s conference will be both live and virtual — and it will be as informative, interesting and timely as always. …

On April 5, 2022 the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced sanctions against “the world’s largest and most prominent darknet market, Hydra Market” and Garantex, a virtual currency exchange registered in Estonia but operating in Moscow and St. Petersburg, Russia.  The sanctions are part of a larger initiative targeting Russian cybercrime that spans across multiple federal departments—including the U.S. Department of Justice, Federal Bureau of Investigations, Drug Enforcement Administration, Internal Revenue Service Criminal Investigation, and Homeland Security Investigations—and across the globe—including international partners like the German Federal Criminal Police and Estonia’s Financial Intelligence Unit.  The sanctions follow September and November sanctions of SUEX OTC, S.R.O. and CHATEX, two virtual currency exchanges operated out of Moscow that allegedly facilitated transactions for ransomware actors.  SUEX was the first virtual currency exchange subject to OFAC sanctions (and the subject of a previous post).

While ostensibly focused on closing another avenue for ransomware purveyors to profit off of their wares, the sanctions may also cut off all types of cybercriminals who allegedly find “a haven” in Russia and used Hydra or Garantex.
Continue Reading  OFAC Designates “Hydra” –  the Largest Darknet Market – and Third Russian Virtual Currency Exchange

On March 1, 2022, the U.S. Department of the Treasury (“Treasury”) published its National Risk Assessment for Money Laundering, Terrorist Financing, and Proliferation Financing (the “NMLRA”), identifying the national threats, vulnerabilities, and risks facing the U.S. financial system.  The NMLRA is 74 pages long and comprehensively covers many different perceived threats and vulnerabilities, including the misuse of legal entities, virtual assets, real estate, investment advisors, and casinos.  This post therefore selects three key issues for closer analyses.

First, cybercrime (a topic we cover frequently) in the form of ransomware received the dubious honor of representing “a larger and growing share of the overall money laundering threat in the United States.”  Second, professional money laundering organizations (“PMLOs”) continue to peddle their illicit services internationally to launder the proceeds of cybercrime, narcotics trafficking, and other schemes on behalf of organized criminal enterprises.  Third, merchants and professionals, such as lawyers, real estate professionals, and financial services employees, continue to perform – knowingly or unknowingly – critical functions in support of money laundering schemes and obfuscating the source of ill-gotten gains.
Continue Reading  U.S. Treasury Identifies Ongoing and Emergent Money Laundering Risks and Vulnerabilities

On March 7, the Financial Crimes Enforcement Network (“FinCEN”) issued an alert “advising all financial institutions to be vigilant against potential efforts to evade the expansive sanctions and other U.S.-imposed restrictions implemented in connection with the Russian Federation’s further invasion of Ukraine.”  The press release is here.  The alert itself is here.
Continue Reading  Russian Sanctions:  FinCEN Provides Red Flags for Potential Evasion Attempts