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Bitcoin Fog operator convicted of laundering $400 million worth of Bitcoins on the dark web

A U.S. federal jury has convicted a Russian-Swedish dual citizen, Roman Sterlingov, of operating Bitcoin Fog, “the longest-running Bitcoin money laundering service on the dark web,” the Justice Department announced yesterday.

According to the Justice Department, Sterlingov ran Bitcoin Fog from 2011 to 2021, moving over 1.2 million Bitcoin (approximately $400 million) before he was arrested. In the press release, Assistant Attorney General Lisa Monaco said that the DOJ is “tirelessly” seeking to “laboriously” track Bitcoin through the blockchain “in order to hold Sterlingov and his Bitcoin Fog company accountable.”

“Roman Sterlingov thought he could use the shadows of the Internet to launder hundreds of millions of dollars in Bitcoin without getting caught,” Monaco said. “But he was wrong.”

Sterlingow faces maximum sentences of 20 years each for the money laundering conspiracy and sting money laundering. He was also convicted of “operating an unlicensed money transfer business and transferring money without a license in the District of Columbia, each of which carries a maximum penalty of five years in prison,” the DOJ said. Sentencing is scheduled for July.

Throughout the trial, Sterlingov maintained his innocence and accused the US of relying on “junk science” to trace Bitcoin using flawed blockchain analysis techniques, Wired reported.

“I didn’t create the Bitcoin nebula,” Sterlingov told Wired in an interview from a Northern Virginia prison, comparing his trial to “a Kafkaesque nightmare.”

But the Justice Department submitted “more than three terabytes of data related to the case,” Wired reported, showing “a trail of financial transactions dating back to 2011 that allegedly linked Sterlingov to payments to register the Bitcoinfog.com domain “. From there, investigators used blockchain analysis to track down Bitcoin payments that appeared to be Bitcoin Fog “test transactions” before the money laundering service was launched.

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Sterlingov told Wired that he was merely a user of Bitcoin Fog, but never operated the service and never used Bitcoins for illegal activities.

Ultimately, “court documents and evidence presented in court” proved that Sterlingov was the operator of Bitcoin Fog, the DOJ said, and ran “the longest-running cryptocurrency 'mixer'” that “gained notoriety as the money laundering service of choice for criminals.” to hide their illegal proceeds from law enforcement.” Investigators found that the majority of cryptocurrency mixed through “Bitcoin Fog” “came from darknet marketplaces and was linked to illegal drugs, computer crime, identity theft and child sexual abuse material.” .

Bitcoin Fog launders money by charging a fee for mixing Bitcoins in a pool and redistributing the Bitcoins in a way that supposedly makes it more difficult to trace and link Bitcoins to the original source or link Bitcoins to illegal activities to bring, explained Bleeping Computer.

In the DOJ's announcement, Acting Assistant Attorney General Nicole M. Argentieri said that Sterlingov and his clients “believed they could use Bitcoin Fog to hide these illegal transactions,” but the jury's guilty verdict shows “that belief was wrong.” .

Sterlingov's lawyer, Tor Ekeland, told Ars that Sterlingov was “disappointed” and would appeal. He questioned both the choice of venue – Ekeland believes it is unconstitutional because the U.S. Constitution requires that all federal criminal trials take place in the district where the crime was committed – and the DOJ's tracing techniques.

“I think there are significant issues here that have to do with just tracing and the sufficiency of the evidence,” Ekeland told Ars.

Ekeland said the government's leads found what they identified as the first deposit in Bitcoin Fog in 2011, but there were many different addresses involved, and “the only reason” Sterlingov was named was because because he was the only one using Know Your Customer identification verification back then. Government witnesses, Ekeland said, admitted this was consistent with him either selling Bitcoin or being with the founders of Bitcoin Fog, but no evidence that he had operated the service.

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“Where is a shred of evidence that he actually ran the site? Because I still haven’t seen that,” Ekeland said.

JW Verret, an associate professor at George Mason University School of Law who testified in the trial, was “at the legal table” when the verdict was read, Verret wrote for CoinTelegraph.

“It felt like I had been punched in the gut,” Verret wrote. “The only way my brain can process it is by focusing on attraction strategies.”

Verret had testified that investigators' techniques linking Sterlingov to Bitcoin Fog were flawed, and briefly summarized his views for CoinTelegraph before concluding that Sterlingov was “an easy marker to frame the operation of Bitcoin Fog.” Fog”.

If the techniques are flawed, it could complicate global investigations. Bleeping Computer noted that law enforcement worldwide is increasingly cracking down on cryptocurrency mixers, including Tornado Cash, ChipMixer and Blender.io. Due to links to criminal activity, law enforcement also appears to be cooperating more internationally. To arrest and convict Sterlingov, U.S. law enforcement worked with Europol and Swedish and Romanian police.

In the DOJ press release, IRS Criminal Investigation Director Jim Lee said that the IRS's “special agents are specially equipped to pursue the complex financial trail that criminals leave behind, and we are committed to holding them accountable for crimes they commit.” .” And the U.S. Attorney for the District of Columbia, Matthew Graves, issued a warning to anyone attempting to launder cryptocurrencies through mixers like Bitcoin Fog.

“Dark web criminals should know by now that operations like Bitcoin Fog cannot provide the anonymity for cryptocurrency transactions that they claim to provide,” Graves said.

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