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Crime Bitcoin Government The Almighty Buck United States

Feds Arrest an Alleged $336M Bitcoin-Laundering Kingpin (wired.com) 73

Posted by BeauHD from the follow-the-trail dept.
An anonymous reader quotes a report from Wired: For a decade, Bitcoin Fog has offered to obscure the source and destination of its customers' cryptocurrency, making it one of the most venerable institutions in the dark web economy. Now the IRS says it has finally identified the Russian-Swedish administrator behind that long-running anonymizing system and charged him with laundering hundreds of millions of dollars worth of bitcoins, much of which was sent to or from dark web drug markets. What gave him away? The trail of his own decade-old digital transactions.

US authorities on Tuesday arrested Roman Sterlingov in Los Angeles, according to court records, and charged him with laundering more than 1.2 million bitcoins -- worth $336 million at the times of the payments -- over the 10 years that he allegedly ran Bitcoin Fog. According to the IRS criminal investigations division, Sterlingov, a citizen of Russia and Sweden, allowed users to blend their transactions with those of others to prevent anyone examining the Bitcoin blockchain from tracing any individual's payments. He took commissions on those transactions of 2 to 2.5 percent. In total, the IRS calculates, Sterlingov allegedly took home roughly $8 million worth of bitcoin through the service, based on exchange rates at the times of each transaction. That's before factoring in Bitcoin's massive appreciation over the past decade. Ironically, it appears that the 2011 transactions Sterlingov allegedly used to set up Bitcoin Fog's server hosting are what put the IRS on his trail. Of the $336 million the complaint accuses Bitcoin Fog of laundering, at least $78 million passed through the service to various narcotics-selling dark web markets like the Silk Road, Agora, and AlphaBay over the years that followed. The IRS also appears to have used undercover agents in 2019 to transact with Bitcoin Fog, in one case sending messages to Bitcoin Fog's administrator that explicitly stated that they hoped to launder proceeds from selling ecstasy. Bitcoin Fog completed that user's transactions without a response.

Most remarkable, however, is the IRS's account of tracking down Sterlingov using the very same sort of blockchain analysis that his own service was meant to defeat. The complaint outlines how Sterlingov allegedly paid for the server hosting of Bitcoin Fog at one point in 2011 using the now-defunct digital currency Liberty Reserve. It goes on to show the blockchain evidence that identifies Sterlingov's purchase of that Liberty Reserve currency with bitcoins: He first exchanged euros for the bitcoins on the early cryptocurrency exchange Mt. Gox, then moved those bitcoins through several subsequent addresses, and finally traded them on another currency exchange for the Liberty Reserve funds he'd use to set up Bitcoin Fog's domain. Based on tracing those financial transactions, the IRS says, it then identified Mt. Gox accounts that used Sterlingov's home address and phone number, and even a Google account that included a Russian-language document on its Google Drive offering instructions for how to obscure Bitcoin payments. That document described exactly the steps Sterlingov allegedly took to buy the Liberty Reserve funds he'd used.
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Feds Arrest an Alleged $336M Bitcoin-Laundering Kingpin More

Feds Arrest an Alleged $336M Bitcoin-Laundering Kingpin

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  • I mean, worst case the bank gets a fine. And you'll still get your bonuses.

    https://www.icij.org/investiga... [icij.org]

  • Should have just HODLed... (Score:3)

    by AnonCowardSince1997 ( 6258904 ) on Wednesday April 28, 2021 @05:09PM (#61325482)

    Those coins bought on Mt. Gox way back instead of founding a criminal enterprise.

  • All it takes is one mistake (Score:4, Interesting)

    by Registered Coward v2 ( 447531 ) on Wednesday April 28, 2021 @05:15PM (#61325498)

    Investigators can miss many things and make many mistakes, but criminals generally only have to make one to eventually get caught. Plus, investigators can draw on a lot of resources but everyone the criminal taps is one more person that can turn them in.

    It will be interesting to see if he flips or decides to spend a lot of time in prison. Given the nature of his clients he no doubt has a lot on his mind right now; and if he doesn't already know it Al Capone was put away for a long time on tax evasion charges, not for the many other crimes he committed.

    • They said the same about Margaret Thatcher. She had to be right every time. ;) They only had to be lucky once.

    • If he was a Russian citizen then he should have stayed there. The USA likes to make examples of people.

    • Re: (Score:1)

      by rtb61 ( 674572 )

      All of the crypto currency interactions require lots of network assets, lots of network transmission. AI is really good at finding and recognising patterns of transactions. They will be using AI all over the internet to track down those patterns of network interactions, to find what ever the AI is set to sniff out across all those network transactions. A bundle of cash is safer all round.

  • Wait, how is this illegal ?! (Score:3)

    by monkeyzoo ( 3985097 ) on Wednesday April 28, 2021 @05:24PM (#61325538)

    Wait, what is illegal about connecting users who want to exchange bitcoins. ?!

    • Re:Wait, how is this illegal ?! (Score:5, Informative)

      by BrainJunkie ( 6219718 ) on Wednesday April 28, 2021 @05:31PM (#61325564)
      The part where the person connecting the users knows the funds involved were the proceeds of criminal activity. The money laundering part.

    • Re:Wait, how is this illegal ?! (Score:5, Informative)

      by lessSockMorePuppet ( 6778792 ) on Wednesday April 28, 2021 @05:31PM (#61325568) Homepage

      Technically, nothing [cornell.edu], unless several other conditions exist, most of which center around financial instruments being represented as involved in unlawful activity.

      If all the activities were presented as legitimate, and they followed all local, state, and federal reporting requirements, then they're in the clear.

      Good luck with that defense. ;)

      • Re: (Score:2)

        by Bert64 ( 520050 )

        Assuming that whoever operated the service followed all reporting requirements in the jurisdiction where they operated the service.
        The individual users are responsible for following whatever laws exist in their local jurisdictions.

        If you're going to operate a service like this, do it somewhere with minimal regulations covering it.

        • If you're going to operate a service like this, do it somewhere with minimal regulations covering it.

          And don't travel to places that do.

    • Money laundering. Even the Joker [youtu.be] knows you don't mess with the IRS.

    • Wait, what is illegal about connecting users who want to exchange bitcoins. ?!

      It's the same deal as PirateBay, I'd imagine. There's nothing technically illegal with what's being done, but since the service is being utilized to commit crime (piracy in the case of the 'bay, money laundering in this case), the captain goes down with the ship.

      Lots of small time money laundering happens using retail gift cards (in much the same way as Bitcoin), and you don't see Target and Walmart being raided by the feds. Having a large customer base not made up of criminals kind of helps.

    • Intent.

  • Russian-Swedish administrator (Score:4, Interesting)

    by PPH ( 736903 ) on Wednesday April 28, 2021 @05:29PM (#61325556)

    Arrested in Los Angeles.

    Rule #1: If you are screwing over the US taxation/banking business, stay out of the USA. Preferably stay in a non-extraditable country.

    Rule #2: Have an escape plan. DeBeers had instructed their executives that, should they suspect that they were about to be apprehended, make their way to O'Hare airport and get out of the country. O'Hare, because that has a reputation of lax supervision, what with the mob flying in and out frequently.

    • Book 'em, Lou.

    • O'hare is no longer the place. Thanks to the write-up the worst place to corporate employee escape from, just about the best facial detecting, drug sniffing dogs and better agents looking for those on the run are in that airport, reason is, too many people think it's the best place to run from.

      All the arrest are booked at another location that won't match up on standard databases: for example Fort Lee, NJ. get's all the drug traffic arrest from the GW bridge and parts of highway 95, but, if you look at the

  • It's unfortunate that the IRS... (Score:4, Insightful)

    by Otis B. Dilroy III ( 2110816 ) on Wednesday April 28, 2021 @05:40PM (#61325604)
    Doesn't exert this kind of effort in rooting out tax evasion by U.S. one-percenters. My income tax might be lower.

    I suspect that the IRS expended extraordinary resources in this investigation.

    Not because he was money laundering.
    Not because he was laundering money for criminals.
    Because cryptocurrency is involved and the U.S., and many other, governments are terrified of cryptocurrency.
    • Because usa one percenters are not breaking any laws. Feel free to disagree with their methods, and the laws allowing those methods.
      • No, a good deal of it isn't legal, the rich can just afford to drag it out in court longer than the IRS cares to fight. There were a lot of articles about this lately, specifically talking about missing out on taxes owed, not taxes legally avoided.

        • The biggest reason the IRS doesn't try to go for the big guys more often is the big guys have accountants that are just as good, if not better then the IRS team. The IRS just doesn't have the resources to go through all the big guys dealings.

          It's significantly easier going after small, medium and LLCs because they don't have nearly as much going on. There are also a lot more little guys to fleece.

          If the government wanted everyone paying their fair share of taxes, they would of kept the tax code easy enough

          • Blame the Republicans. [motherjones.com]

          • This is factually true, the cases drag out so long and the IRS people see what the rich tax accounts make, that they change sides or outright quit to start a firm. This first came to light recently, within the last 10 years, when the IRS charge a German American lawyer from texas with a tax avoidance to the tune of a few billion ( money chase not a jail time chase ) and the article went into extreme detail on what has happened in the past with these cases.

            I can not recall where I read it, I am guessing with

      • Why do you assume that? Nobody really knows if they are breaking tax laws or not, because it's the IRS policy not to audit the rich due to lack of enforcement budget - poorer people are easier to audit. In the absence of evidence to the contrary, we should assume a reasonable rich person will commit tax fraud because it's de facto allowed by the government.

      • Because usa one percenters are not breaking any laws. Feel free to disagree with their methods, and the laws allowing those methods.

        What kind of bizarre rich person worship is this?

    • Re: (Score:1)

      by Anonymous Coward

      Most US Citizens don't actually legally owe *any* income tax. At all. According to the laws congress has written.

      This book walks you through the actual laws and their correct interpretation (hint: tax law is *regulatory law*, meaning legal term definitions *must* be strictly adhered to when interpreting the laws as written--you *cannot* apply common-language definitions. this makes a *huge* difference!) The IRS publications conveniently don't include the legal term defintiions, and just let you *assume* com

    • I would think that it was important enough to learn how to do it, what are the steps and tools needed and what evidence could be gathered from it. the amount spent will most likely pay for itself in the future.

    • I am wondering if in many cases, crypto-criminals are easy to catch because there's a permanent, indelible record of their transactions on the blockchain.

      I find it pretty easy to believe there's a lot of people out there crime-ing away with Bitcoin completely oblivious that they're easy to trace.

  • allowed users to blend their transactions with those of others to prevent anyone examining the Bitcoin blockchain from tracing any individual's payments.

    Wasn't one of the parts of blockchain that you had a record of each transaction? How does one mingle your transactions with others without breaking the chain?

    • Re: (Score:2, Informative)

      by Anonymous Coward

      Well, let's try to work through one possible method.

      Supposed you have 100 people. Each puts in some arbitrary amount. Each amount is tied to an address. Each individual who supplied coin initially also supplies a list of addresses from fresh wallets, equal to the number of parcels they'll receive back after the fee, but then any information linking the initial amount and wallets is discarded. The transactions are recorded, all the amounts are sent to one single address. The person in charge of this address

      • Re: (Score:2, Insightful)

        by Anonymous Coward

        Before you rush off and implement it, pay serious attention to the outside information caveat. The nature of one particular person's transactions might be anonymous this way if a large number of the other parties don't do anything to give away which coins they started with--but if they do, you can use the process of elimination to find the remaining persons. Like if everyone else went and spent those mixed coins under their real name, leaving only 1 set of addresses equal in value to the remaining person's

  • At first I thought that it said that they arrested a Klingon who was alleged to be laundering bitcoin, and thought was all like, "What??? There's a star trek convention happening in the middle of a pandemic?"

  • BTC Wrong Tool (Score:3)

    by bill_mcgonigle ( 4333 ) * on Wednesday April 28, 2021 @07:39PM (#61325962) Homepage Journal

    BTC isn't a privacy coin. ZCash is probably secure. Monero uses combinatorics by default. Bitcoin Cash lets you shuffle combinatorically in your wallet. BTC is mostly just for speculation.

    If you want cash-level privacy don't use BTC.

  • “Based on tracing those financial transactions, the IRS says, it then identified Mt. Gox accounts that used Sterlingov's home address and phone number,”

    Important, don't user your own home address and phone number to set up your illegal money laundering operation :]
  • You're foolish to think that any cryptocurrency is untraceable. Money going in or out, public registry, etc will be your downfall, IRS will get you sooner or later. For all the crimes Al Capone, the IRS is the one that put him in jail for tax evasion. The Swiss banks used to be the place to use, but no longer.

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