Crypto 'mixer' convicted of money laundering on Bitcoin Fog

https://www.bloomberg.com/news/articles/2024-03-12/crypto-mixer-convicted-of-money-laundering-on-bitcoin-fog

by toomuchtodo • 2 years ago

100 79 2 years ago

bloomberg.com

toomuchtodo• 2 years ago

https://archive.today/Qci5M

https://www.courtlistener.com/docket/59988850/united-states-...

pushcx2• 2 years ago

They also highlighted a multistep process they say the defendant used to pay for the Bitcoin Fog domain name more than a decade ago.

For anyone else curious, it's described in this affidavit, page 8: https://storage.courtlistener.com/recap/gov.uscourts.dcd.230...

crumpled• 2 years ago

That was interesting. At first it reads like it could have been a deep investigation. Then you realize that with the right 3 datasets, it's trivial to reveal this level of attempted obfuscation.

Mt. Gox didn't help. Liberty reserve didn't help. Bitcoin shuffling didn't help.

If it looks like a money laundering tool with a paper trail, it's eventually just a prosecution tool.

One day, Monero books will be cracked wide open and we won't even know until later.

earnesti3• 2 years ago

The initial account in the chain belongs to Sterlingnov. However where is the evidence that subsequent accounts belong to him? Maybe he was selling the BTC on Bitcoin-otc or some other random place that existed back in the days, and now he is wrongly linked to the guy.

Edit: sorry, missed the evidence about using same IP for both the mtgox and LR account. Weird using the chain of transactions and then doing that kind of rookie mistake.

jcpham23• 2 years ago

To me that process highlighted looks more to do with how to convert fake e-bucks back into real dollars via liberty reserve and less to do with any type of criminal structuring but I'm not IRS agent trying to hang a case on someone.

pushcx2• 2 years ago

What purpose do you see served by opening three Mt. Gox accounts under three different names and sending bitcoin from the first, to the second, to the third before sending it out to Liberty Reserve?

favourable• 2 years ago

and included links to a clearnet website for BITCOIN FOG (www.bitcoinfog.com), the Tor onion site (http://foggeddriztrcar2.onion), and a Twitter feed for updates on the site (www.twitter.com/#!/@Bitcoinfog)

This is how many illegal services get decloaked. They have a clearnet domain, but ironically a darknet .onion too which is what they should just have, not a clearnet domain (if what you're doing is illegal or operates in a legal grey area). I am aware it's possible to get a clearnet domain anonymously with services like NJALLA[0], but you have to take extra special care, pay with crypto, do everything over Tor, use XMPP w/OTR etc

[0] https://njal.la/

fragmede• 2 years ago

“This is good for Bitcoin “.

zoklet-enjoyer2• 2 years ago

Privacy is not a crime

ketralnis• 2 years ago

Okay but money laundering is https://www.law.cornell.edu/uscode/text/18/1956

johngladtj• 2 years ago

You misspelled "Human Right"

Ajedi328• 2 years ago

None of what Bitcoin Fog did appears to be money laundering according to the definition on that page, since it requires an "intent to promote the carrying on of specified unlawful activity".

The people using Bitcoin Fog might be engaged in money laundering if they were using it for something otherwise illegal, but I don't see how you could argue the service itself was unless they somehow knew the purpose behind every transaction occurring on their platform.

Jleagle• 2 years ago

Similar argument to bittorrent. Using it is perfectly legal, using it to download movies is illegal.

crotchfire2• 2 years ago

"Laundering money" is not, in fact, illegal.

From the very same link you posted: only laundering "the proceeds of specified unlawful activity" is illegal.

It is totally 100% legal to launder clean money.

SiempreViernes2• 2 years ago

Maybe don't use a system centred around a public ledger if you want privacy? There's plenty of discrete banking options out there.

earnesti3• 2 years ago

Actually he used liberty reserve, a popular centralized service at the time. Yes he also used BTC but I think that doesn't matter a lot, since he was using an LR account registered with his personal details to pay for the domain.

pwb25• 2 years ago

exactly, this is like convict encryption message platforms like telegram

ecommerceguy2• 2 years ago

Cryptocurrency fraud is now the riskiest scam for consumers, according to BBB

https://www.cbsnews.com/news/crypto-scam-risk-bbb-report/

There's a nice website, I've seen on HN before, that has a complete list of crypto scams and their total value. I wonder what the overall percentage of crypto transactions are for scams? 50%? more?

The only reason crypto is allowed is because it literally sucks money out of the real economy thus tamping down inflation.

chx2• 2 years ago

https://www.web3isgoinggreat.com/

bb882• 2 years ago

fullspectrumdev• 2 years ago

I wonder what the overall percentage of crypto transactions are for scams? 50%? more?

Less than 5% according to the companies like Chainalysis who have a vested interest in making crypto seem dangerous so they can hock their product (analysis tools) to law enforcement.

So not “50% or more” lol

ecommerceguy2• 2 years ago

Subtract "investment transactions", now try. Probably moves to 90%.

webninja• 2 years ago

Money is (almost)* never sucked out of the economy with crypto, real or not because with every transaction, money comes out from the seller’s side. Same goes for real estate, stocks, and commodities.

*Exceptions:

-Broken stablecoin smart contacts or stablecoin wallets with lost private keys.

-Many bonds, for example: I-Bonds.

qwerty4561273• 2 years ago

How can anybody even use BitCoin without mixing? Isn't this an equivalent of giving everybody all over the world permanent read-only access to your bank account?

earnesti3• 2 years ago

How do you know if your counterparty is mixing or not?

mrtksn2• 2 years ago

Not really, for most people bitcoin is the number in the exchange they use. That’s pretty private.

Also, acts as a mixer even if you end up storing your coins locally.

victorbjorklund2• 2 years ago

But isnt that only for people who just speculate in bitcoin? People who use bitcoin to pay for everyday stuff will reveal it... or have we given up pretending people use bitcoin for everyday use?

ur-whale• 2 years ago

Isn't this an equivalent of giving everybody all over the world permanent read-only access to your bank account?

If you read early Bitcoin literature, you'll discover a number of very clear and vocal warnings against "address re-use".

The protocol was designed so that addies should not ever be used more than once or it would introduce vulnerabilities.

It's indeed kind of like giving everyone permanent read-only access to your bank account.

Except that, if Bitcoin was used as intended, there would only ever be one transaction per account and there would be a new account created for each new transaction, so who cares about the reveal.

It's too bad Satoshi didn't enforce the "one new addie for every new transaction rule) that at the code level (I guess the computational burden might have been an additional problem to solve).

marzipanWhale• 2 years ago

I've used bitcoin in the past and never saw the reason for mixing. I don't really care if people track down my purchases. Anonymity is not why I use bitcoin.

jcpham23• 2 years ago

I think the most damning evidence would be when the government sent the site operator a message that says "hey this money is illegal and we've obtained it illegally" and the lack of response from the site operator is really what allows them to go after the operator for anti-money laundering evasion. The lack of action or response, but let's be realistic what good legal response could you give. Anyways if you're not doing AML you are basically a terrorist says the government of America.

KYC on the other hand wasn't set in stone until recently whether it was $10,000 or $600 and the Bank Secrecy Act is a bit of joke at this point if they really want us to KYC/AML every person we transact with in excess of $600 AND report that. Report it to who?

We're all criminals it would seem, but that email where they told him all the money was illegal will basically be the nail in the coffin.

Ajedi328• 2 years ago

I saw that and initially I thought it was pretty damning too until I noticed there doesn't appear to be any evidence anyone actually read the message they sent prior to the "illegal" transaction taking place.

crotchfire2• 2 years ago

Report it to who?

Fincen, obviously.

Their purpose for existing is to be the giant mother-of-all surveillance warehouses. Collect it all.

lgleason• 2 years ago

We will probably see more of this. Unfortunately, from what I've seen, crypto has attracted a very un-savory crowd.

s1gnp0st• 2 years ago

A blockchain is a uniquely stupid place to commit crimes. Think about it.

mike_d• 2 years ago

It probably didn't help that the company who did all the blockchain analysis for the defense (Ciphertrace/Mastercard) informed the court that their data was bad. https://www.courtlistener.com/docket/59988850/239/1/united-s...

Red_Leaves_Flyy• 2 years ago

That’s not very navigable on mobile.

Relevant text: Re: United States v. Sterlingov, Case No. 21-cr-399 (RDM)

Dear Judge Moss:

As you know, we represent Ciphertrace, a wholly owned subsidiary of Mastercard International Incorporated (“Mastercard”). Defense counsel engaged Ciphertrace as an expert in the matter of U.S. vs. Sterlingov, 21-cr-399 (RDM). Ciphertrace prepared an expert report (the “Ciphertrace Report”), and a Ciphertrace employee, Ms. Jonelle Still, testified at a Daubert hearing before the Court in August 2023.

It recently came to Mastercard’s attention that, contrary to the wording of the Ciphertrace Report, some of the data relied upon may be unverifiable and unauditable. This issue was unknown to Ms. Still at the time of the Report and appears to be due to data collection practices originating prior to Mastercard’s acquisition of Ciphertrace. It also appears that at least some of the data relied upon in the Ciphertrace Report may have come from other companies, including Chainalysis. Mastercard has advised defense counsel of this matter and writes to bring it directly to the Court’s attention.

As soon as Mastercard counsel learned about the potential data issues, Mastercard launched an expedited, privileged investigation involving internal and outside counsel and an outside forensics team. This investigation is ongoing, but we have learned enough to conclude that parts of the Ciphertrace Report are unreliable.

We regret the unavoidable impact of this issue on the Defense, the Government, and, of course, Case 1:21-cr-00399-RDM Document 239-1 Filed 02/04/24 Page 3 of 3

February 1, 2024 Page 2

this Court – especially with the fast approaching trial date. We stand ready to answer the Court’s questions.

Respectfully,

A. Joseph Jay III for SHEPPARD, MULLIN, RICHTER & HAMPTON LLP

1vuio0pswjnm7• 2 years ago

https://www.cnbc.com/2018/07/09/nobel-prize-winning-economis...

"The criticisms are just a failure of the imagination," said Tyler Winklevoss. <--- Not a Nobel Prize winner

zoklet-enjoyer2• 2 years ago

https://cointelegraph.com/news/bad-blockchain-forensics-conv...

olliej2• 2 years ago

Ok so four charges:

1) Conspiring to money launder

2) Money laundering (so I guess the conspiracy succeeded?)

3 & 4) Failing to register a money transfer service

So the important steps are

a) demonstrating the defendant (Sterlingov) is the person running (and I guess profiting?) from the mixer. That's not a crime, just that it's a thing that they have to do, and I guess we're able to successfully show (sounds like some dumb "opsec" mistakes).

b) show that the defendant intended money launderers to use it, and that they did (charges 1&2)

c) show that the defendant did not register the service (charges 3&4)

So I'm going to leave (b) to the end, it's more complicated and IANAL, so let's look at (a) & (c).

Charges 3&4, and C is very simple - it does not matter that it's online, it does not matter that it's crypto, and it does not matter whether or not you care about privacy or laundering. The law requires all money transfer services to be registered, and this service was demonstrably not registered, so it's a very clear cut that whoever operated the mixer was breaking the law. That the prosecutors had to prove Sterlingov was running the service further demonstrates that it was not registered, and given they apparently were able to prove he was running the service I hope we can all see that he is guilty of this crime, even if you may not like the law requiring you to register your service (if you think a law is illegal you would use the courts to prove it is illegal and invalidate the law).

To me it seems plainly obvious, that given they apparently had sufficient evidence to show that Sterlingov was running the service, that he's guilty of not registering it, even if he had actively prevented any laundering using it.

So that leaves the money laundering charges. Once you're transferring money US law has a variety anti laundering regulations, and the fact that some, or even most of your users are legitimate isn't a requirement. Afaict they just have to show that you could be reasonably aware you were processing illegal transfers and were not actively trying prevent those transfers. This applies to banks as well as mixers. A bunch of forum posts by the operator specifically talk about how other "legitimate, visible businesses" would be forced to reveal info about your funds to authorities (directly comparing its secrecy to SilkRoad), posted links about needing a mixer to evade taxes, and how you needed to use a tor based mixer (e.g. their's) to avoid law enforcement taking down the mixer. It doesn't take a giant leap to see even from what's in the government's statement of facts here that this was being advertised as a service to hide transactions that would otherwise be required to be reported. The government does not need to point to them explicitly saying "hey, use me for your laundering needs".

Note that it does not matter if you think you should not have to report those transactions, the law says that you do, and that a service that facilitates you hiding those transactions is breaking the law. It does not matter if you think some transactions should not be illegal, the law says they are illegal, and that a service that facilitates those transactions if breaking the law. This case is not "bitcoin fog made illegal sales" or "hid its income from the IRS" (though I'd be curious if they did that), it's that they facilitated others doing so in a manner that was illegal.

If you want to run a mixer, it's very clear you will be running a financial transfer entity and need to register it, or you are committing a crime. Again it does not matter if you think it should not be a crime, the law says that it is. If you don't like it, you need a court to rule it's invalid, or you need to get people who agree with you elected.

If you want to run a mixer, it's similarly clear you are not subject to completely new rules (or lack thereof) vs other financial transfer services so you have to try to prevent illegal uses of your service, not just not promoting it for that purpose, but actively preventing such transactions as much as reasonably possible, including identity verification, just as required by any other financial service.

Crypto 'mixer' convicted of money laundering on Bitcoin Fog

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