Anton Shkurenko, co-founder of Russian crypto exchange Bitzlato, was recently arrested in Moscow after U.S. and E.U. authorities accused him of money laundering. Shkurenko denies the allegations and claims he was only stopped for an ID check. Blockchain research firm Chainalysis reported that Binance, the world’s largest crypto exchange, processed $345.8 million worth of bitcoin (BTC) transactions for Bitzlato. The Hash panel discusses the latest developments after Shkurenko’s arrest and the implications for the crypto industry.
Alex Shkurenko, a Russian citizen, was detained by police due to his presence on the Interpol wanted list. He claims to be unaware of any active criminal cases against him in Russia. He is currently undergoing an investigation and is hopeful that he will be able to prove his innocence. Shkurenko’s company, Bitzlato, recently shut down following a cross-jurisdictional investigation by U.S. and European agencies, which found connections between the exchange and darknet marketplace Hydra. The investigation is ongoing and Shkurenko is unable to disclose any details.
Bitzlato, a crypto exchange, has been accused of processing over $700 million of illicit funds. According to authorities, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has labeled the exchange a “primary money-laundering concern”, a powerful measure used to cut off a business from the global financial system. Tech consultant for Bitzlato, Andrey Shkurenko, claims that the exchange did everything to cut off criminals and is not ashamed of its work. He used to be one of the key holders for the exchange’s crypto wallets and handed control over those wallets to other members of the team. This incident highlights the need for crypto exchanges to take measures to prevent money laundering and other illicit activities.
According to Bitzlato founder, Shkurenko, Bitzlato was only a bulletin board for crypto trades and did not have any bank accounts. The platform had begun migrating its infrastructure from Europe to Russia before the enforcement action, and most of the users’ funds are now under control of the team. Bitzlato is now ready to relaunch and gradually refund users who lost money as a result of the shutdown. Crypto traders who were affected by the shutdown of Bitzlato can now look forward to getting their funds back.
Bitzlato, was shut down in January after its founder, Anatoly Legkodymov, was arrested in Miami by Department of Justice representatives working with FinCEN. Legkodymov was charged with unlicensed money transmitting. The exchange had been operating since 2016 and was reportedly able to be launched from Legkodymov’s apartment with just two small servers. The arrest of Legkodymov is part of a larger effort by the Department of Justice to crack down on illegal cryptocurrency activities around the world.
Europol and the U.S. Department of Justice have arrested four people and seized a server hosting Bitzlato’s hot wallet, confiscating 18 million euros worth of crypto. The authorities also froze over 100 accounts at other crypto exchanges linked to Bitzlato, bringing $32 million euros worth of assets under their custody. Bitzlato’s largest counterparty was the sanctioned and now defunct darknet marketplace Hydra, and it received over $15 million of ransomware proceeds. 46% of all the crypto that went through Bitzlato, worth roughly 1 billion euro, had links to criminal activities. 3,500 bitcoin addresses and over a 1,000 user details from Bitzlato systems showed links with various criminal cases reported in Europol’s systems.
Bitzlato has been accused of facilitating the flow of criminal money. Five people have been arrested in connection with the case, including former CEO Mikhail Lunev, marketing director Alexander Goncharenko, contractor Pavel Lerner, dev-ops engineer Konstantin, and Legkodymov who remains in custody in the U.S. According to Bitzlato’s CEO, the company has been following E.U. protocols and using AML services since July 2021. The AML services are designed to flag suspicious transactions and trigger an investigation at the company. The arrests have raised questions about the effectiveness of Bitzlato’s KYC and AML measures.
Bitzlato has been responding to requests from law enforcement agencies, including the U.S. Federal Bureau of Investigation. According to Bitzlato’s CEO, Dmitry Shkurenko, the company’s approach is to presume all users innocent until proven guilty. Shkurenko declined to name the exact blockchain analytics products Bitzlato used, but said the company always responded to requests from law enforcement agencies. He also said that Bitzlato did not check what came out of those interactions. This approach of presuming innocence until proven guilty is a key part of Bitzlato’s mission to ensure the safety and security of its users.
Bitzlato takes proactive measures to prevent criminal use of its platform. The team regularly browses the Hydra darknet marketplace to search for Bitzlato users and block any accounts that are found. On one occasion, a tech support employee walking to the office saw an ad for an illicit drug shop painted on a fence, which turned out to be a Bitzlato user. The exchange blocked the account immediately. Bitzlato also advises users to not react if someone gives them money until there are criminal allegations against them. The exchange is committed to providing a safe and secure platform for its users.
Legkodymov and Shkurenko, former coworkers at Russia’s government-owned communications provider Rostelecom, quit to start other businesses. One of their efforts was a joint crypto mining business named A-XBT, which operated mining farms in Russia, China and Abkhazia. They were also involved in the dark web marketplace Hydra, which was used to facilitate illegal drug transactions. U.S. court documents revealed that Bitzlato, a crypto exchange owned by Legkodymov and Shkurenko, sometimes blocked or terminated users who had transacted with Hydra, but also sometimes helped users to carry out transactions with Hydra, or took no action either way. Legkodymov and Shkurenko were arrested in 2020 and charged with money laundering and operating an unlicensed money transmitting business.
A-XBT, a Russian crypto exchange founded by partners Alexander Shkurenko and Dmitry Legkodymov in 2016, ceased operations in 2021 after Russian law enforcement opened a criminal case against the owner of the data center in Siberia where A-XBT hosted its ASIC mining machines. The idea to open a crypto exchange came from the experience of operating mining farms in different regions, as the partners realized there was no convenient way to trade bitcoin available to them. To fill this gap, they created a Telegram chat bot called BTC Banker, which later became Bitzlato. A-XBT’s revenue in 2021 was a bit over $1 million, but the project did not justify the partners’ efforts and they decided to close it.
Bitzlato has grown to over 100 employees since its launch in 2020. The exchange has faced legal scrutiny for its allegedly lax KYC and AML procedures. In October 2021, the U.S. Treasury sanctioned SUEX, a Moscow-based OTC, and Chatex, a Telegram-based crypto trading and wallet service linked to SUEX. In April 2022, Garantex, another exchange with Russian roots, was also sanctioned. All four exchanges used Binance as a major liquidity source, and Binance froze the accounts of SUEX and Garantex before the OFAC sanctioned them.
