Ilya Lichtenstein, one of the highest-stakes criminals in the crypto industry, is now helping the US Department of Justice in their case against Bitcoin Fog, one of the crypto mixers he used to conceal the assets he stole.
A crime of unprecedented magnitude
Lichtenstein and his wife, Heather Morgan, pled guilty to money laundering charges. They stand accused of stealing 120,000 Bitcoins from international crypto exchange Bitfinex in 2016. Other charges they face include conspiracy to commit money laundering and hacking.
Their dealings began to unravel when government officials seized around 95,000 of the stolen Bitcoin from their cryptocurrency wallets. At that time, the funds were worth around $3.6 billion. Since then, the government has seized another $475 million connected to the hack, bringing the grand total to over $4 billion.
What is Bitcoin Fog?
Bitcoin Fog is a popular darknet tool. According to a report from Bloomberg News, Lichtenstein told the jury that he used Bitcoin Fog along with other crypto mixers to conceal the source of the funds from the Bitfinex hack, but Bitcoin Fog was not his primary laundering method. He said the tool wasn’t particularly good and he moved on from it once he found services that were better suited to his purposes.
Bitcoin Fog laundered crypto worth $335M since 2011
According to the Department of Justice, the Bitcoin Fog service has laundered crypto worth $335 million since 2011. Roman Sterlingov, a dual Russian-Swedish national, was arrested on February 27 at Los Angeles International Airport for allegedly having operated Bitcoin Fog for the last 13 years. Bitcoin Fog is the oldest money laundering tool of its kind on the darknet.
Bitcoin Fog became notorious as the go-to money laundering service for cybercriminals seeking to obfuscate the source of their proceeds. Bitcoin Fog has been used to move more than 1.2 million Bitcoin, worth around $335 million at the time of the transactions. Most of the Bitcoin came from darknet marketplaces and was connected to computer fraud, drug traffic, and identity theft.
Sterlingov is charged with transmitting money without a license, money laundering, and operating an unlicensed money transfer business in the District of Columbia. The case is being investigated by the IRS-CI District of Columbia Cyber Crime Unit and the FBI Washington Field Office.
Mixers come and go, but the trend remains
Crypto mixers like Bitcoin Fog, Sinbad, Tornado Cash, and YoMix have commonly been used by Lazarus Group and other sophisticated cybercriminals, who have adapted their mixer usage in the past few years. The most popular mixer for the North Korea-affiliated hackers was Sinbad in 2022, taking over from Tornado Cash, which authorities sanctioned.
After the founders of Sinbad were charged with crypto money laundering, YoMix took its place. This crypto mixer, which runs on the Bitcoin blockchain, saw its popularity skyrocket in 2023. Its inflows grew by more than five times last year. Addresses linked to crypto hacks accounted for around a third of inflows.
Tornado Cash founders met the same fate
The founders of Tornado Cash did not escape the fate of fellow privacy mixer creators. Russian national Roman Semenov and Washington executive Roman Storm were charged with laundering hundreds of millions of dollars on behalf of North Korean cybercriminals.
Allegedly, the assets Semenov and Storm laundered through Tornado Cash exceeded $1 billion. The criminal group Lazarus received a large chunk of that.
In with the new
Ameen Soleimani, a former Tornado Cash developer, created a new crypto mixer to solve a major issue with Tornado: users can’t prove they aren’t affiliated with criminals. His tool is called Privacy Pools. Its code appeared on GitHub a year ago. It runs on Ethereum and went live on Optimism last year.
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