FBI Arrest Couple For Alleged Laundering Of $4.5bn In Bitcoin

A hack of a virtual currency exchange back in 2016 has resulted in the arrest of a married couple in New York nearly six years later.

The FBI announced on Tuesday that two individuals were arrested in Manhattan for an alleged conspiracy to launder $4.5 billion in stolen cryptocurrency.

It comes after the crypto exchange platform Bitfinex in Hong Kong, which was the world’s largest dollar-based exchange for bitcoin, was hacked in August 2016, and 119,756 bitcoin was stolen from users’ accounts.

Bitfinex theft

The theft at the time triggered a slump in bitcoin prices, which fell over 23 percent after news of the theft emerged.

At the time of the theft, the value of the 119,756 stolen units was only $72 million.

But six years later the amount of stolen bitcoin is now worth a staggering $4.5 billion.

The FBI said it has so far recovered $3.6 billion in cryptocurrency linked to that hack.

It comes after large amounts of bitcoin stolen from Bitfixex began to be moved by hackers last month from a wallet associated the theft.

Blockchain analytics firm Elliptic had reported that 94,643.29 bitcoins ($3.55 billion) had been moved in 23 transactions.

FBI arrests

Now on Tuesday morning the FBI said it has arrested Ilya Lichtenstein, aged 34, and his wife, Heather Morgan, aged 31, both of New York, for an alleged conspiracy to commit money laundering, which carries a maximum sentence of 20 years in prison.

They were also arrested for conspiracy to defraud the United States, which carries a maximum sentence of five years in prison.

“Today’s arrests, and the department’s largest financial seizure ever, show that cryptocurrency is not a safe haven for criminals,” said Deputy Attorney General Lisa O. Monaco.

“In a futile effort to maintain digital anonymity, the defendants laundered stolen funds through a labyrinth of cryptocurrency transactions,” she added. “Thanks to the meticulous work of law enforcement, the department once again showed how it can and will follow the money, no matter what form it takes.”

“Today, federal law enforcement demonstrates once again that we can follow money through the blockchain, and that we will not allow cryptocurrency to be a safe haven for money laundering or a zone of lawlessness within our financial system,” said Assistant Attorney General Kenneth A. Polite Jr. of the Justice Department’s Criminal Division.

“The arrests today show that we will take a firm stand against those who allegedly try to use virtual currencies for criminal purposes,” said Polite.

Laundering techniques

Court documents reveal that Lichtenstein and Morgan allegedly conspired to launder the proceeds of 119,754 bitcoin that were stolen from Bitfinex’s platform, after a hacker breached Bitfinex’s systems and initiated more than 2,000 unauthorised transactions.

Those unauthorised transactions allegedly sent the stolen bitcoin to a digital wallet under Lichtenstein’s control.

Over the last five years, approximately 25,000 of those stolen bitcoin were transferred out of Lichtenstein’s wallet via a complicated money laundering process that ended with some of the stolen funds being deposited into financial accounts controlled by Lichtenstein and Morgan, the FBI allege.

The remainder of the stolen funds, comprising more than 94,000 bitcoin, remained in the wallet used to receive and store the illegal proceeds from the hack.

After the execution of search warrants of online accounts controlled by Lichtenstein and Morgan, FBI agents obtained access to files within an online account controlled by Lichtenstein.

The FBI said those files contained the private keys required to access the digital wallet that directly received the funds stolen from Bitfinex, and allowed special agents to lawfully seize and recover more than 94,000 bitcoin that had been stolen from Bitfinex.

The recovered bitcoin was valued at over $3.6 billion at the time of seizure.

The criminal complaint alleges that Lichtenstein and Morgan employed numerous sophisticated laundering techniques, including using fictitious identities to set up online accounts.

In addition, they allegedly utilised “computer programs to automate transactions, a laundering technique that allows for many transactions to take place in a short period of time; depositing the stolen funds into accounts at a variety of virtual currency exchanges and darknet markets, and then withdrawing the funds, which obfuscates the trail of the transaction history by breaking up the fund flow; converting bitcoin to other forms of virtual currency, including anonymity-enhanced virtual currency (AEC), in a practice known as ‘chain hopping’; and using US-based business accounts to legitimize their banking activity.”

Bitcoin thefts

Bitcoin has been rocked by a number of high profile incidents over the past decade.

Perhaps the most famous was the bitcoin exchange Mt. Gox, which collapsed and entered bankruptcy protection in February 2014.

That Tokyo-based bitcoin exchange filed for bankruptcy after admitting it had lost 850,000 bitcoins, worth $500m (£226m) at the time (they are now worth closer to $37 billion).

The Mt. Gox exchange had been targeted repeatedly by hackers, but experts concluded later it was an inside job.

Mt Gox was once the world’s most popular venue for trading and storing bitcoins, and the collapse left thousands of creditors out of pocket.