Anatoly Legkodymov, also known as “Gandalf,” a Russian national and majority owner of Bitzlato Ltd., a cryptocurrency exchange, pleaded guilty in Brooklyn Federal Court to operating an illicit money transmitting business on Wednesday. 

Bitzlato was involved in processing more than $700 million in illicit funds, including ransomware proceeds, and was linked to Hydra Market, a darknet bazaar for drugs and other illegal activities. Legkodymov agreed to dissolve Bitzlato and forfeit about $23 million in seized assets.

Legkodymov, a senior executive and majority shareholder of Bitzlato Ltd., a Hong Kong-registered global cryptocurrency exchange, is alleged to have operated with minimal identification requirements for its users. 

“Legkodymov’s guilty plea today confirms that he was well aware that Bitzlato, his cryptocurrency exchange, was being used like an open turnstile by criminals eager to take advantage of his lax controls over illicit money transactions,” said U.S. Attorney Breon Peace. “The defendant may have thought he was operating from a safe haven overseas for his ‘No Questions Asked’ clearinghouse, but this prosecution and conviction demonstrate otherwise.”

Bitzlato’s policy often did not require standard identity verification such as selfies or passports. In cases where identification was requested, the exchange frequently permitted the use of “straw man” registrants’ information, thereby allowing users to bypass proper identity checks.

Bitzlato’s inadequate “know-your-customer” procedures made it a hub for criminal funds, particularly in dealings with Hydra Market, a major darknet market for illegal goods and services. Users exchanged more than $700 million in cryptocurrency with Bitzlato, until Hydra Market’s shutdown by U.S. and German law enforcement in April 2022. 

Bitzlato also handled significant ransomware proceeds, and it was known that the cryptocurrency passing through Bitzlato often represented criminal proceeds or was intended for illicit transactions.

The case against Anatoly Legkodymov was held in the Eastern District of New York (EDNY) partly because of the involvement of the United States Attorney’s Office for the EDNY and the National Cryptocurrency Enforcement Team (NCET). 

NCET, which focuses on combating illegal uses of digital assets, including cryptocurrency crimes, works within the Criminal Division’s Computer Crime and Intellectual Property Section. Their efforts, alongside international collaboration with agencies like the FBI’s Legal Attaché in France and France’s Cyber Crime Investigation Unit, contributed to the jurisdictional decision for the case.