Bitfinex mastermind becomes a federal witness in Money Laundering case

In 2022, Ilya Lichtenstein and Heather Morgan were arrested on charges of Money Laundering. They were accused of participating in the laundering of $4.5 billion in cryptocurrency stolen from a trading platform that was hacked. The two admitted to the charges last year.

Recent news shows that Liechtenstein is currently acting as a government cooperating witness in a money laundering trial involving cryptocurrency mixing services. The mixing service in question is called Bitcoin Fog. So, why would the mastermind behind the $4.5 billion cryptocurrency theft become a federal witness in a money laundering trial? Let's sort out the complexities of this case.

Event Timeline

To facilitate understanding, we have organized the key timelines of this hacking incident as follows:

• 2016: The Liechtenstein couple stole $4.5 billion worth of Bitcoin from a trading platform, but were not captured at the time.

• April 2021: Law enforcement arrested Roman Sterlingov, the main operator of the Bitcoin Fog platform.

• 2021: The Bitcoin Fog and Helix platforms involved in Money Laundering were shut down, and the founder of Helix pleaded guilty.

• February 1, 2022: A government wallet address received a large transfer of approximately 94,643.3 bitcoins.

• February 2022: The Liechtenstein couple was arrested.

• August 2023: Two people pleaded guilty and were convicted of theft.

The Liechtenstein couple admitted that they were able to access the system of a certain trading platform for a long time and stole a huge amount of funds. They claimed to have used Bitcoin Fog multiple times for Money Laundering, and later switched to other mixing services.

From Mastermind to Federal Witness

In a recent trial, the Liechtenstein couple stated that they used Bitcoin Fog for Money Laundering approximately 10 times, before turning to Helix, which they believed was a better mixing service. They also revealed that using mixing services was just a small part of the overall Money Laundering activities, with most of the funds deposited into cryptocurrency trading accounts registered with identity information purchased through the dark web.

Liechtenstein claimed that he has never communicated directly with the operator of Bitcoin Fog, Sterlin Goff, and does not know him.

In 2021, law enforcement accused Bitcoin Fog of laundering over 1.2 million bitcoins, worth approximately $335 million at the time. These funds primarily came from dark web markets and involved illegal activities such as drug trafficking, computer fraud, and identity theft.

Facing up to 20 years in prison, Liechtenstein chose to cooperate with authorities to reveal the truth of the case. In short, the Liechtenstein couple laundered money through Bitcoin Fog, which has been confirmed to be capable of laundering money, and they have now become witnesses.

As of February 27, 2024, the trial is still ongoing, and the jury has not yet reached a verdict.

It is worth noting that the operations of cryptocurrency mixers such as Sinbad and Tornado Cash have also attracted the attention of regulators and face sanctions. In October 2020, the Financial Crimes Enforcement Network imposed sanctions on the operators of the Bitcoin mixer Helix and Coin Ninja, imposing a civil fine of $60 million for operating two unregistered money service businesses.

Suggestions for Strengthening Anti-Money Laundering Measures

In this incident, the attackers used various methods for Money Laundering, and the illegal funds passed through numerous service providers, increasing the difficulty of tracking the funds. In response to this situation, we propose the following recommendations:

1. Strengthen KYC and AML regulations: Virtual asset service providers should require users to undergo comprehensive identity verification to ensure compliance with relevant regulations. This includes collecting user identity information, address verification, and other necessary documentation.

2. Real-time transaction monitoring: Implement a real-time monitoring system to detect and analyze suspicious transaction activities, including transaction amounts, frequency, sources, and destinations. Professional tools can be used to analyze and rate each transaction to identify suspicious on-chain behaviors.

3. Establish a reporting mechanism: Set up a reporting mechanism to promptly handle reports of suspicious transactions or activities, and collaborate with regulatory authorities for investigations. Professional tools can assist in generating suspicious transaction reports to support regulatory and law enforcement efforts.

4. Strengthen Industry Cooperation: Virtual asset service providers should actively collaborate with security companies, regulatory agencies, and law enforcement to jointly combat Money Laundering activities. Given that criminals continuously adjust their Money Laundering strategies, such as using decentralized transactions, concealed trading paths, or exploiting technical vulnerabilities, service providers should regularly communicate with security companies to promptly address new challenges.