After five years of success, the United States government has busted a $3.6 billion bitcoin business this week, which appears to be a continuation of its success in stopping some criminal activities used to launder stolen cash five years ago.
Heather Morgan, 31, and her husband, Ilya Lichtenstein, 34, were arrested and charged with money laundering after a search warrant was executed last week, according to the Justice Department. The couple’s online wallets included 94,636 bitcoins, according to the Justice Department.
The seized bitcoin is believed to be the majority of approximately 120,000 bitcoins that were taken from the cryptocurrency exchange Bitfinex in a breach in 2016.
Following the filing of a complaint with the federal government, it was discovered that the couple had transferred the stolen funds through sites such as AlphaBay, which exist on what is known as the dark web—a portion of the internet accessible only through special browsers designed to conceal identities—and services known as mixers, which are used to break up cryptocurrency transactions in order to make them more difficult to track.
According to the government, they used a variety of email addresses to create bogus accounts with unhosted wallets as well as accounts at about ten additional cryptocurrency exchanges.
As of now, neither the couple nor anybody else has been prosecuted with the original theft from Bitfinex, which is unprecedented. On Wednesday, attempts were made to contact Mr. Lichtenstein and Ms. Morgan for comment were met with failure. According to Anirudh Bansal, the couple’s attorney, he declined to comment. Mr. Bansal said in front of a judge on Tuesday that his clients had been aware of the government’s inquiry since November and had not attempted to exit the country during that time period.
Earlier this week, federal prosecutors said that they had taken custody of Mr. Lichtenstein and Ms. Morgan and that they had charged them with attempting to launder the monies they had stolen. It was in July 2017 that the Justice Department seized and shut down the online marketplace AlphaBay, which according to the government had 200,000 users who bought and sold stolen identification documents, counterfeit items, spyware, guns, and other illicit goods.
Prosecutors did not specify in this week’s complaint how they initially linked Ms. Morgan and Mr. Lichtenstein to the stolen bitcoins, nor did they provide any more information. The two men were most likely discovered by the authorities, according to Tom Robinson, co-founder of the crypto analytics business Elliptic Enterprises Ltd., who believes they were identified through the AlphaBay marketplace.
The complaint contains flow charts that show how the stolen cash was transferred from Bitfinex to AlphaBay and then over the bitcoin blockchain to the many other accounts that the couple had allegedly set up for themselves. In addition, Mr. Robinson stated that “this likely allowed [the government] to gain access to AlphaBay’s internal transaction records, which would enable them to trace the stolen Bitfinex cash.”
The Department of Justice Did Not Respond to a Request for Comment.
According to the complaint, the authorities claimed they traced the movement of funds through the unhosted wallets and across exchanges, discovering transactions that ended up in accounts on exchanges that the two alleged launderers owned in their real identities. It was discovered in one instance that two of these accounts used the same login from the same place in New York, according to the complaint.
Prosecutors claim that approximately $2.9 million was transferred from those accounts into bank accounts maintained by Mr. Lichtenstein and Ms. Morgan throughout the investigation. According to the complaint, the authorities were also able to trace part of the cashback to transactions in 2020 with a gift-card service, the account for which was maintained in Mr. Lichtenstein’s real name, through two swaps and other accounts.
In accordance with the complaint, Mr. Lichtenstein and Ms. Morgan reportedly swapped some of the bitcoin for other cryptocurrencies, cashed out some of the stolen monies through bitcoin ATMs, and used the stolen funds to purchase nonfungible tokens, also known as NFTs. According to a report released last week by the United States Treasury Department, these digital collectibles have recently become another method for cybercriminals to launder digital money.
According to the complaint, agents with the United States Justice Department executed a search warrant on January 31 and February 1 and seized the bitcoins from the online wallets in question.
Federal authorities have maintained their own cryptocurrency wallets for some time, which they have used to store seized assets.
As part of its ongoing effort to track down cryptocurrency thefts, the United States government has built up an infrastructure to complement its standard investigation tactics with those geared at the unregulated digital-asset market during the past decade.
For the development of software programs to monitor illicit funds over the blockchain, the federal government has contracted with analytics organizations such as Chainalysis Inc. and Elliptic to develop software programs. Authorities must sift through hundreds of millions of pseudonymous transactions because, while the blockchain keeps account of every bitcoin transaction openly, there are hundreds of millions of public transactions.
Both Companies Declined to Comment on Whether or Not They Provided Assistance With the Probe.
With the Justice Department, a digital bank called Anchorage Digital in San Francisco maintains the government wallet and other related services as part of a deal signed with the department in 2015. The bank declined to comment, despite the fact that the arrangement had already been revealed publicly. prosecutors said victims of the hack who have legitimate claims can ask for their money to be returned, and that the courts will finally decide how the money should be distributed based on their requests.
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