Before Western sanctions against Russia over the Ukraine invasion began in February 2022, U.S. authorities were cracking down on the Russian crypto scene. Since the beginning of the new sanctions in 2022, the U.S. approach against the Russian crypto industry, which is under general suspicion of money laundering and sanctions violations, has intensified and is bringing charges against Russian crypto schemes and their masterminds.
Denis Dubnikov, the Ryuk Scheme, And The Lenience!
In February 2023, Russian cryptocurrency money launderer Denis Mihaqlovic Dubnikov, the 30-year-old founder of Coyote Crypto and Eggchange over-the-counter service (OTC), pleaded guilty to conspiracy to charges of money laundering. Dubnikov and his co-conspirators were accused of laundering at least $70 million in ransom proceeds from Ryuk ransomware attacks between August 2018 and August 2021.
Despite the seriousness of the charges, Dubnikov cooperated with U.S. authorities and received a relatively light sentence, including no prison time and a $2,000 money judgment. He was arrested in Amsterdam in November 2021, extradited to the United States in August 2022, and sentenced in April 2023.
Alexander Vinnik and BTC-e
In the summer of 2017, Russian IT specialist Alexander Vinnik was arrested in Greece on a U.S. warrant. Accused of operating the now-defunct BTC-e exchange, Vinnik allegedly laundered up to $9 billion through the platform. He was subsequently extradited to France and sentenced to five years in prison for money laundering. In May, the French judiciary rejected a request for his extradition to Russia, where he would face additional charges.
Anatoly Legkodymov and Bitzlato
In January 2023, Anatoly Legkodymov, the founder and majority owner of the crypto exchange Bitzlato, was arrested in Miami. Bitzlato was accused of operating as a money-transmitting business that transported and transmitted illicit funds, failing to comply with U.S. regulatory safeguards, including anti-money laundering requirements.
The exchange became associated with criminal proceeds and funds intended for criminal activities, with its largest counterparty being Hydra Market, an anonymous darknet marketplace. Hydra users exchanged over $700 million in cryptocurrency with Bitzlato until Hydra was shut down by U.S. and German law enforcement in April 2022. Bitzlato also received more than $15 million in ransomware proceeds. In late January, four more members of Bitzlato‘s team, including three executives, were arrested in Europe.
Alexey Bilyuchenko, Aleksandr Verner, and Mt. Gox
In June 2023, the U.S. Department of Justice (DoJ) charged Alexey Bilyuchenko and Aleksandr Verner, both Russian nationals, with laundering approximately 647,000 bitcoins from the Mt. Gox hack. Bilyuchenko was also charged with conspiring with Alexander Vinnik to operate BTC-e from 2011 to 2017.
Roman Storn, Roman Semenov, and Tornado Cash
In August 2023, U.S. authorities filed charges against Roman Storm, a dual U.S. and Russian citizen, and Russian national Roman Semenov. They were responsible for creating, operating, and promoting Tornado Cash, a cryptocurrency mixer used for over $1 billion in money laundering transactions. They also laundered hundreds of millions of dollars for the Lazarus Group. Storm was arrested and later released on a $2 million personal recognizance bond secured by his residence in Washington state.
Conclusion: War Against Russian Crypto Industry
Since the annexation of the Crimean Peninsula by the Ukrainians in 2014, tensions between the U.S. and Russia have been strained, and Western sanctions have been implemented. Americans have been in a proxy war with Russia since the Russian invasion of Ukraine in February 2022. Western sanctions against Russia and the Russian financial sector continue to worsen.
Therefore, the U.S. authorities’ approach against the Russian crypto sector is also becoming more aggressive. U.S. prosecutors are placing the Russian crypto sector under general suspicion of money laundering and sanctions violations. However, after the indictment, U.S. authorities are very lenient with accused Russians who cooperate. This was most recently demonstrated in April 2023 with Denis Dubnikov, who pleaded guilty to charges of money laundering and aiding a cybercrime organization and got off with a $2,000 fine and pretrial detention served. This demonstratively low sentence is probably intended to encourage other Russians to cooperate.
If you have any information about the actions of Western authorities against Russian crypto schemes, their operators, and facilitators, please share it with us through our whistleblower system, Whistle42.