Arrests Show Laundering $4.5B In Crypto Isn't Easy
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Arrests Show Laundering $4.5B In Crypto Isn't Easy

5 months ago

New details have emerged that reveal some of the tactics they relied upon — and a key takeaway is this: Know Your Customer checks imposed by trading platforms are working.

Arrests Show Laundering $4.5B In Crypto Isn't Easy


The allegations surrounding Heather Morgan and Ilya Lichtenstein suggest that trying to launder cryptocurrency worth $4.5 billion is not easy.
The couple are facing 20 years in prison amid allegations they were involved in attempting to clean the funds stolen when the Bitfinex crypto exchange was hacked back in 2016.

New details have emerged that reveal some of the tactics they relied upon — and a key takeaway is this: Know Your Customer checks imposed by trading platforms are working.

According to Elliptic, a key step in identifying the suspects was taken when the Alphabay darknet marketplace was seized and shut down by law enforcement in 2017.

BTC linked to the Bitfinex hack was sent through this platform — and given how Alphabay used to pool all funds together, this would offer the same effect as a mixing service, obfuscating transaction histories and making the owners harder to track.

Elliptic claims that, after the closure, detectives would have likely been able to access Alphabay's internal transaction logs — allowing them to follow the money to a crypto exchange wallet that had been opened in Lichtenstein's name.

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Lots of Money, Nowhere to Go

Morgan and Lichtenstein are believed to have opened seven accounts on one crypto exchange — but their access was frozen because the identities they had used could not be verified. This effectively left $186,000 out of reach.

But not all trading platforms enforced checks that were this robust. They also used another exchange that allowed crypto to be exchanged for prepaid debit cards — spending the funds on Uber rides, bookings and buying a PlayStation.

Somewhat inevitably, it's also alleged that they used the funds to buy non-fungible tokens.

There have been some interesting side effects from this breakthrough.

Bitfinex had established a new cryptocurrency called UNUS SED LEO back in 2019 following a series of setbacks. As well as this hack, the exchange's payment processor was subject to a partial government seizure of its funds in 2018. In a whitepaper, Bitfinex has pledged that — if the crypto lost from this hack was ever retrieved — 80% of the net funds recovered would be used to buy back the tokens.
All of this has contributed to a dramatic surge in LEO's value — and CoinMarketCap data shows that it has rallied by 47% over the past 24 hours, extending to 80% over the past week.

Some analysts believe that the drama could also be exceedingly bullish for Bitcoin — deterring cybercriminals who believe they can get away with stealing crypto, and offering hope to those who may have lost Bitcoin years ago. FRNT Financial's chief executive Stephane Ouellette told Bloomberg:

"This is very likely to have a major impact on future sophisticated and institutional investors' evaluation of counterparty risk in the space. To know that even a hack from a more nascent time in the industry six years ago can be resolved will be mind-changing insight for many."

The maturity of the cryptoasset space has also led to the creation of several blockchain intelligence firms — specialists who are tasked with helping law enforcement agencies monitor the flow of cryptocurrencies that are stolen.

Late last year, a rehabilitation plan was also established for those affected by the Mt. Gox collapse in 2014 — when 850,000 BTC was stolen. Approximately 150,000 BTC was later recovered, and the surge in Bitcoin's dollar value means that many of the victims will be turned into overnight millionaires.
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