The operator of the world's longest-running Bitcoin money laundering service faces a 50-year prison sentence after being found guilty in a US court.

Roman Sterlingov, 35, operated Bitcoin Fog, a service that was used by cybercriminals of various flavors to hide their digital tracks when using cryptocurrency as part of their illicit activities.

It worked by sending a number of Bitcoin tokens to Bitcoin Fog, which would then be mixed with other users' funds and paid back to the owner in multiple smaller transactions. The service collected a small percentage of each transaction's value, earning Sterlingov a fortune.

According to the Department of Justice (DoJ), law enforcement previously seized 1,354 Bitcoin that was held in a Bitcoin Fog wallet along with $349,625 in other tokens from the Kraken crypto exchange. The value of the Bitcoin stands at just shy of $100 million, per today's exchange rate.

Bitcoin Fog was in operation between October 2011 and April 2021 before authorities nabbed the Russian-Swede and took the service down. Over the course of its lifespan, authorities say it laundered "well over" 1.2 million Bitcoin tokens, which at their respective values across that timeline amounted to around $400 million in total.

The service catered to various types of crime, although it was largely used by customers of dark web marketplaces who purchased illicit goods such as drugs and stolen digital assets. Dark web marketplaces themselves were direct customers too, offering these so-called mixing services through their platforms, but relying on Bitcoin Fog.

The DoJ notes that the service was also used by Welcome to Video members, a South Korean dark website that allowed users to trade child sexual abuse material (CSAM).

"Roman Sterlingov thought he could use the shadows of the internet to launder hundreds of millions of dollars in Bitcoin without getting caught. But he was wrong," said Lisa Monaco, deputy attorney general. 

"Our team of agents, analysts, and prosecutors were relentless in their pursuit of justice, painstakingly tracing Bitcoin through the blockchain to hold Sterlingov and his Bitcoin Fog enterprise to account. Today, a jury returned guilty verdicts on all counts - showing that no matter where you operate, if your cryptocurrency service reaches the United States, you must abide by US law."

Sterlingov was found guilty on one count of money laundering conspiracy and sting money laundering, each carrying a maximum sentence of 20 years.

He was also found guilty on one count each of operating an unlicensed money-transmitting business, and violations of the DC Money Transmitters Act, each of which carry a maximum sentence of five years. Sterlingov is due to be sentenced on July 15.

What is a Bitcoin mixing service?

Mixing services have been in operation for many years and others like Bitcoin Fog continue to operate today.

After being adopted by cybercriminals, law enforcement quickly became effective at tracing the owners of Bitcoin tokens through analysis of blockchain transactions.

Mixing services such as Bitcoin Fog made the process much more difficult. Cryptocurrency exchange OKX even says the pool of funds these services generate is completely untraceable.

"A coin mixer… [mixes] together cryptocurrency funds of multiple users, creating a pool of funds that is impossible to trace back to its original source," it says. "This makes it difficult for anyone - including governments, hackers, and other malicious actors - to track or identify the parties involved in a transaction.

"Additionally, coin mixers can provide an added layer of protection against hacking and theft, as coin mixers make it difficult for attackers to determine the source of a particular cryptocurrency wallet."

Crypto mixers aren't inherently illegal and can operate legally within most jurisdictions, providing they're not being used for crime. 

The US, for example, doesn't outlaw mixing services, but requires them to register as money transmitters under the Bank Secrecy Act. Others have been put on sanctions lists so doing business with them is obviously illegal.

According to blockchain data platform Chainalysis, it isn't aware of any mixers operating currently that meet the criteria required to be registered with the US as a legitimate service.

It says only a small percentage of mixing service users are doing so related to nefarious means, though. Many use them for financial privacy reasons, it says, such as people looking to hide their finances from the oppressive regimes they live under and those who just want to make legal transactions anonymously. ®

https://www.theregister.com//2024/03/13/bitcoin_fog_conviction/