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After investigators tracked down his crypto activities dating back to 2011, a Swedish-Russian man was charged with running a multi-million dollar Bitcoin laundering service.
After reviewing 10 years of blockchain records, US authorities arrested the suspected mastermind behind Bitcoin Fog, a multi-million dollar darknet-based BTC mixing service.
Authorities have given a chilling message to other users of unauthorised blockchain services: “This activity is on this ledger forever,” and ever-more advanced analytics technologies will track down offences perpetrated years ago.
For nearly a decade, Bitcoin Fog has enabled users to hide the origin and destination of their crypto properties. The Internal Revenue Service, on the other hand, has charged Roman Sterlingov, a Russian-Swedish citizen, with laundering more than 1.2 million Bitcoin worth $336 million while working as the website’s administrator.
Sterlingov was arrested on April 27 in Los Angeles, with the IRS estimating he earned fees ranging from 2% to 2.50% for blending services at the time of each sale — about $8 million at the time but exponentially more today.
Authorities say that at least 23% of the Bitcoin that passed through the mixing service was diverted to darknet drug marketplaces like Silk Road.
The arrest of Sterlingov was the result of authorities painstakingly unravelling the network of BTC transactions connected with the mixer service dating back to 2011, using the Bitcoin blockchain to trace the site’s operator.
Sterlingov launched the website in late 2011 under a Japanese alias that translates to “Happy New Year,” claiming that Bitcoin Fog eliminates the possibility of authorities “finding your payments and making it impossible to prove any connection between a deposit and a withdraw inside our service.”
In 2019, undercover IRS agents contacted Sterlingov via the website, saying they wanted to launder ecstasy profits. The transactions were completed without a response.
Law enforcement was able to determine that Sterlingov had compensated for Bitcoin Fog’s domain storage costs through the now-defunct digital currency Liberty Reserve, helping them to determine whether he purchased the Liberty Reserve from Bitcoin transferred from the defunct pioneer crypto exchange, Mt Gox.
The IRS was able to find Sterlingov’s home address and phone number, as well as a Google Drive account containing directions detailing the steps he took to buy his Liberty Reserve coins, from there.
“This is yet another example of how investigators with the right tools can leverage the transparency of cryptocurrency to follow the flow of illicit funds,” said Jonathan Levin, co-founder of blockchain forensics firm, Chainalysis.
Computer scientist, Sarah Meiklejohn, stated:
“With blockchain analytics, the thing we say over and over is that all this activity is on this ledger forever, and if you did something bad 10 years ago you can be caught and arrested for it today.”
Despite Sterlingov’s detention Bitcoin Fog remains online, although it is unclear who is operating the site.