The U.S. Department of Justice (DOJ) has charged two Russian nationals linked to the 2011 hack of cryptocurrency exchange Mt. Gox and the illicit bitcoin exchange BTC-e, according to charges unsealed on Friday.
Both suspects will face charges related to money laundering conspiracy in the Southern District of New York. One suspect will also be charged with operating an unlicensed money services business in the Northern District of California.
Bilyuchenko faces additional charges for collaborating with Alexander Vinnik in allegedly setting up and running BTC-e from 2011 to 2017 with the stolen funds from Mt. Gox, according to Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division.
BTC-e acted as a hub for cybercriminals to transfer, launder, and store the proceeds of illegal activities, according to the second indictment unsealed in the Northern District of California. The exchange boasted over one million users and facilitated transactions worth billions of dollars during its operations from 2011 until its closure in July 2017 by law enforcement.
Hackers, ransomware actors, narcotics rings, and corrupt public officials used the service to launder billions of dollars, according to U.S. Attorney Ismail J. Ramsey for the Northern District of California.
The indictments allege that Bilyuchenko, Verner, and their co-conspirators hacked Mt. Gox’s server, which held the bitcoin wallets of the exchange’s customers to “fraudulently cause bitcoin to be transferred” to addresses under their control.
Between 2011 and 2014, Bilyuchenko, Verner, and their co-conspirators allegedly stole the majority of Mt. Gox’s bitcoin holdings, amounting to around 647,000 bitcoins. The stolen bitcoins were subsequently laundered through other online exchanges.
IRS Criminal Investigation (IRS-CI) Chief Jim Lee said that while crypto offers a new way for criminals to steal and launder money, “greed and deceit are nothing new.”
“IRS-CI is specially equipped to follow the complex financial trail left by criminals, and we are dedicated to holding those accountable for crimes committed,” he said.
An indictment in the Southern District of New York revealed that Bilyuchenko, Verner, and their co-conspirators allegedly made a deal with a Bitcoin broker in New York in April 2012 under the false pretenses of an advertising service to ultimately launder the funds stolen from Mt. Gox.
The broker was allegedly convinced to wire $6.6 million to off-shore bank accounts controlled by Bilyuchenko, Verner, and their co-conspirators in the name of shell companies between 2012 and 2013. The broker allegedly received “credit” for the wire transfers on Exchange-1, through which accused individuals allegedly laundered more than 300,000 of the stolen bitcoins.
Mt. Gox ceased its operations in 2014 after the theft came to light, resulting in significant losses for its customers. Court documents reveal that the theft orchestrated by Bilyuchenko and Verner led to the insolvency of Mt. Gox.
A DOJ official said these indictments mark a significant development in two major cryptocurrency investigations.
“These indictments highlight the department’s unwavering commitment to bring to justice bad actors in the cryptocurrency ecosystem and prevent the abuse of the financial system,” said Polite, Jr.
U.S. Attorney Damian Williams for the Southern District of New York noted that Bilyuchenko and Verner believed they could outsmart the law by employing sophisticated hacking techniques to steal and launder large amounts of cryptocurrency.
“[B]ut the charges unsealed demonstrate our ability to tenaciously pursue these alleged criminals, no matter how complex their schemes, until they are brought to justice,” he said.
The investigation involved several federal agencies and departments, including the Federal Bureau of Investigation, IRS-CI, U.S. Secret Service, and Department of Homeland Security Investigations.
