Bitzlato co-founder released after arrest in Moscow, promises relaunch of seized exchange

Anton Shkurenko, one of the founders of the Russian crypto exchange Bitzlato that was shut down by the US Department of Justice (DOJ) in January, disputed allegations of money laundering by US and EU authorities.

Shkurenko spoke to CoinDesk after Russian media reported that he had been arrested in Moscow on Monday. He said that he had been stopped by the police for an ID check, and was released after a conversation. Although he declined to identify which law enforcement agency arrested him, he said he signed a bond to appear when requested by investigators and received a warrant to avoid further arrests.

Police arrested him because he is on Interpol’s wanted list, Shkurenko said, but he is unaware of any active criminal cases involving him in Russia. “Otherwise I wouldn’t be talking to you now,” he said on a Zoom call, sitting against what looked like an apartment wall decorated with patterned wallpaper.

“I hope I convinced the prosecutor of my innocence,” he said, adding that he cannot disclose details of an ongoing investigation. Bitzlato shut down last month following a cross-jurisdictional investigation by several US and European agencies, which found links between the then little-known exchange and darknet marketplace Hydra.

Shkurenko said he is a “technology consultant” for Bitzlato, but apparently one with a lot of power: He used to be one of the key holders for the exchange’s crypto wallets. He reportedly handed over control of those wallets to other members of the team, he told CoinDesk.

Regarding Bitzlato and the claims it processed more than $700 million in illegal funds, Shkurenko said the exchange did everything it could to cut out criminals and was “not ashamed” of its work, according to authorities. The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) formally labeled the exchange a “primary money laundering concern,” a powerful measure often used to cut off a business from the global financial system.

Bitzlato, Shkurenko said, was just “a message board” for crypto traders. In an earlier interview given to a Russian YouTube channel, Shkurenko said that Bitzlato had no bank accounts and that all its income came in crypto.

Even before the enforcement in January, Bitzlato had started migrating its infrastructure from Europe to Russia, and most of its users’ funds are now under the control of the team, he said. Bitzlato is ready to relaunch and gradually refund users who lost money as a result of the law enforcement shutdown, according to Shkurenko.

It won’t take much effort, he said: “I could start the exchange from my apartment. Two small servers are enough.”

Bitzlato, a Hong Kong-registered exchange with Russian founders, had been operating since 2016 and went under in January, when Justice Department agents working with FinCEN arrested founder Anatoly Legkodymov in Miami and charged him with unlicensed money transmission.

Almost simultaneously, Europol arrested four more people allegedly connected to Bitzlato in Europe and seized a server hosting the central’s hot wallet at a data center in France. As a result, authorities confiscated 18 million euros in crypto — which is 35% of Bitzlato users’ funds, Shkurenko said. European authorities also froze over 100 accounts on other crypto exchanges linked to Bitzlato, bringing €32 million worth of assets into their custody.

The US Department of Justice said Bitzlato’s biggest counterparty was the sanctioned and now defunct darknet marketplace Hydra. It also received over $15 million in ransom revenue, and had associations with a Russia-based Ponzi scheme “TheFiniko”. Europol said that 46% of all the cryptography that passed through Bitzlato, worth about €1 billion, “had links to criminal activities”. Also according to Europol, 3,500 bitcoin addresses and over 1,000 user details from Bitzlato systems “showed links with various criminal cases reported in Europol’s systems.”

In an interview to a Russian-language crypto YouTube channel Satoshkin Live on January 31, Shkurenko identified the four people arrested in Europe in January as former CEO Mikhail Lunev, marketing director Alexander Goncharenko, entrepreneur Pavel Lerner and development engineer Konstantin (not last name) . The first three are still in custody, while Konstantin was released on bail and is currently in Cyprus.

Legkodymov is still in custody in the United States

The DOJ and Europol said the flow of criminal money was a result of Bitzlato’s lax approach to KYC (know-your-customer) and AML (anti-money laundering) measures. Shkurenko claimed that Bitzlato has followed EU protocols and used “AML services”, which would flag suspicious transactions and trigger an investigation into the company since July 2021.

Shkurenko declined to name exactly which blockchain analytics products Bitzlato used, saying he did not want to cause problems for the vendor.

Shkurenko also claims that Bitzlato always responded to requests from law enforcement agencies, including the US Federal Bureau of Investigation. When asked if he remembered what came out of those interactions, he said he didn’t check. In general, Bitzlato’s approach was to assume all users were innocent until proven guilty, Shkurenko said.

“How should I react when a person standing in front of me gives me money, until there are criminal charges against him?” he said. The answer for Bitzlato was apparently: do nothing.

At the same time, he said the team was proactive in catching potentially criminal use of the exchange and from time to time even surfed the Hydra darknet marketplace looking for Bitzlato users. Once found, those accounts would be blocked, he said. On one occasion, Shkurenko recalled, a tech support employee walking to the office saw an ad for an illegal drug store painted on a fence—it turned out to be a Bitzlato user, upon investigation. The exchange blocked the account, he said.

According to US court documents in Legkodymov’s case, “although Bitzlato sometimes blocked or terminated users who had transacted with Hydra or were otherwise suspected of engaging in drug transactions, its employees sometimes assisted users in conducting transactions with Hydra, and sometimes they took no action either. way.”

Legkodymov and Shkurenko were former colleagues at Russia’s state-owned communications provider Rostelecom, who left to start other businesses. One effort, a joint cryptomining operation named A-XBT, operated mining farms in Russia, China and Abkhazia (a breakaway region of Georgia with a disputed international status).

According to Russia’s company register, A-XBT’s revenue in 2021 was just over $1 million. However, a year later, the company halted operations after Russian law enforcement opened a criminal case against the owner of the data center in Siberia where A-XBT hosted its ASIC miners, Shkurenko said. After that, Shkurenko and Legkodymov decided that the project did not justify their efforts, he added.

The idea to open a crypto exchange in 2016 came from the experience of mining in different regions, Shkurenko said. The partners realized that there was no practical way to trade bitcoin available to them, so they created a Telegram chat bot called BTC Banker, which matched crypto sellers and buyers – later it became Bitzlato.

Now Bitzlato has over 100 employees, Shkurenko said.

Bitzlato was not the first Russian exchange to face legal crackdown for allegedly lax KYC and AML procedures. In October 2021, OFAC sanctioned SUEX, a Moscow-based OTC that processed large amounts of crypto linked to fraud, drug markets and ransomware. Soon after, the agency sanctioned Chatex, a Telegram-based crypto trading and wallet service linked to SUEX.

In April 2022, the US Treasury Department sanctioned Garantex, another exchange with Russian roots. All four exchanges – SUEX, Chatex, Garantex and Bitzlato – used Binance as an important source of liquidity. Binance previously said it froze the accounts of SUEX, as well as Garantex, even before OFAC sanctioned them.