A Russian national and founder of a Hong Kong-registered crypto exchange has been arrested by US authorities and charged with processing illicit funds.

Bitzlato founder and majority owner Anatoly Legkodymov was arrested in Miami on Tuesday and summoned to a US district court on Wednesday, according to a statement from the Department of Justice. 

He is being charged with conducting an unlicensed money transmitting business and processing illicit funds that failed to meet US regulatory standards, including anti-money laundering requirements.

Legkodymov is a Russian national that was living in Shenzhen. 

Hydra Market

According to prosecutors, Bitzlato’s top counterparty for crypto transactions was Hydra Market, described as «an anonymous, illicit online marketplace for narcotics, stolen financial information, fraudulent identification documents, and money laundering services».

Prior to being shut down by US and German authorities in April 2022, Hydra Market users allegedly exchanged over $700 million in cryptocurrency with Bitzlato. Bitzlato also received more than $15 million in ransomware proceeds.

«[Hydra Market] was the largest and longest running darknet market in the world,» prosecutors noted. 

Known Crooks

Prosecutors said that Bitzlato had done «substantial business» with US-based customers, despite claiming otherwise, and marketed itself as requiring minimal identification to open accounts. 

In fact, Legkodymov allegedly told a colleague using Bitzlato’s internal chat system that the crypto exchange’s users were «known to be crooks». Colleagues also repeatedly warned Legkodymov that Bitzlato’s customer base consisted of drug traffickers as well as «addicts who buy drugs at Hydra». 

If convicted, Legkodymov faces a maximum penalty of five years in prison.

Concurrent Action

The Justice Department’s move coincides with enforcement actions being taken by the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) as well as French authorities. 

«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,» said Justice Department deputy attorney general Lisa Monaco.