Feds Arrest an Alleged $336M Bitcoin-Laundering Kingpin (wired.com) 73
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.
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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Lol criminal should've paid cash from the start. The chain has to be completely severed from your identity.
That moment you figure out faith doesn't pay... (Score:2)
But how else is one going to keep the cryptocurrency faith?
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By getting in so early that they could mine coins back when CPU mining was a thing?
*cough* *cough*
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Does this article make it clear? If cash was anonymous you wouldn't be allowed to use it.
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If cash was anonymous you wouldn't be allowed to use it.
Technically you can legally possess any amount of cash, but at the same time authorities can steal it from you whenever they see you with an unusual amount of it.
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Well that's because any time more than $9,999 get together, they're guilty of committing a crime. The money, not its owner. That's why the owners don't have standing to recover it, the courts say.
Civil asset forfeiture in those instances is straight theft, through and through. (We're not talking about illegal proceeds when you got busted for something else. This is the guy with $10k going to buy a pickup truck and the cops steal his money.)
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Every time someone brings this up I imagine a bailiff swearing in a small pile of bills that gets suspiciously smaller every time you take your eyes off it.
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The legal $10K limit only applies when you are taking cash across the US border, inbound or outbound. Internally, there is no limit. But there is also no limit on what cops can steal.
Re: That moment you figure out crime doesn't pay.. (Score:2)
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You're ttalking aboutthe automatic report that a bank has to file with FinCen for deposits of $10K or over. This has no relation to cash being carried around on one's person.
As far as civil forfeiture is concerned, the average amount seized in these actions of about $1300. These actions are most often used to harvest small amounts of money that motorists happen to be carrying when they are apprehended in traffic stops, most commonly from minority persons who are thought not to be likely to seek legal help i
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This part "who are thought not to be likely to seek legal help in recovering their money" is the significant one. Do you know who isn't likely to seek legal help recovering money? The poor. Also a factor is the small amount rela
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If the average amount is $1300 then the legal help to recover it will often cost more than you'd get back.
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But everyone has seen the movie, no one is going to come to Slashdot for money laundering advice.
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Absolutely agree. Drugs are very popular because they're functionally currency on the black market, and some have quite a high density of value.
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That a blockchain of transactions is not the anonymous crime payment method you thought it was.
He was obviously not under the impression it was anonymous, since he built his entire business around making transactions confidential.
Re:That moment you figure out crime doesn't pay... (Score:5, Insightful)
If the lawyer is also suspected of committing crimes, I'm sure it happens more than you care to admit. Don't forget he is being sued for libel.
If Democrats are breaking laws, I hope they are also investigated.
You're trying to obfuscate by bring up "what ifs" instead of focusing on the facts, Giuliani has been lying about a number of things and it's now catching up to him. The guy was once one of the most respected people in the country... and then he just went crazy.
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Those aren't facts but rather subjective assessments which fit one biased narrative.
Facts are things like "Giuliani does own 12 pairs of Nike shoes, confirmed" and not things like "though Giuliani does own 12 pairs of Nike shoes he also aided a lawsuit against Nike so the claim he likes Nike is mostly false. Liar Liar pants on fire." Facts tell us objective hard details of re
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What would you think, if the Republicans ever get hold of the government again, they then used these precedents to do the same to the Democrats?
What makes you think Republicans would need a precedent before they do something wrong?
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That a blockchain of transactions is not the anonymous crime payment method you thought it was.
So the G-Men are finally moving in on tumbling, the process by which those putatively traceable blockchain transactions are made anonymous. It will be interesting to see what effect this has on the Bitcoin price.
He should have set up a bank (Score:2)
I mean, worst case the bank gets a fine. And you'll still get your bonuses.
https://www.icij.org/investiga... [icij.org]
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Maybe, maybe not. How much effort was put into finding this one person? Multiply that by the number of people using cryptocurrencies. Is it worth the resource investment for the government to go after anyone but the most high profile?
Maybe all you need to do is keep a low profile. And live some place without a US extradition treaty.
Should have just HODLed... (Score:3)
Those coins bought on Mt. Gox way back instead of founding a criminal enterprise.
All it takes is one mistake (Score:4, Interesting)
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.
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They said the same about Margaret Thatcher. She had to be right every time. ;) They only had to be lucky once.
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If he was a Russian citizen then he should have stayed there. The USA likes to make examples of people.
Re:All it takes is one mistake (Score:4, Insightful)
If he was a Russian citizen then he should have stayed there. The USA likes to make examples of people.
So does the Russian Federation; they just have a different set of criteria as to what qualifies one to be made an example.
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I don't think Russia cares one bit about their citizens ripping off the USA.
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I don't think Russia cares one bit about their citizens ripping off the USA.
No, but my point was they are equally happy to make someone an example, if, for example, they become too visible of an opposition figure that starts garnering too much support.
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West is best.
Criminals want to travel with the jetset to all the nice places in the world, most of them have extradition treaties with the US.
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I suspect the Venn diagram of the jetset and criminals sufficiently moneyed to jetset is nearly circular.
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If he was a Russian citizen then he should have stayed there. The USA likes to make examples of people.
Ask Navalny about that.
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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)
Wait, what is illegal about connecting users who want to exchange bitcoins. ?!
Re:Wait, how is this illegal ?! (Score:5, Informative)
Re:Wait, how is this illegal ?! (Score:5, Informative)
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. ;)
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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.
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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.
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Money laundering. Even the Joker [youtu.be] knows you don't mess with the IRS.
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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.
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Intent.
Russian-Swedish administrator (Score:4, Interesting)
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.
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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
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Much better places to run out of in the USA.
The Mexican border is rather easy to cross...one way.
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Oh, for those halcyon days of yore, when everyone minded their own business, and the well-moneyed and well-armed weren't power-hungry control freaks.
When were those again?
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The IRS advises people to report income from illegal activity so they can pay the appropriate tax. Some states do also. Kansas sells tax stamps that dealers could put on their drugs, so if they are busted they won't be charged with state tax evasion. Few people take advantage of it I suspect, since so many new laws have been written since Leary vs. Th
It's unfortunate that the IRS... (Score:4, Insightful)
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.
Re: It's unfortunate that the IRS... (Score:2)
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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
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Blame the Republicans. [motherjones.com]
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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
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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.
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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?
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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
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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.
Alternative hypothesis (Score:2)
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.
Wasn't this part of blockchain? (Score:2)
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?
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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
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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
Wow... did I misread that at first glance. (Score:2)
BTC Wrong Tool (Score:3)
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.
Don't use own home address and phone number (Score:1)
Important, don't user your own home address and phone number to set up your illegal money laundering operation
Nothing is untraceable (Score:1)