Crypto Mixer Bitcoin Fog Convicted of Money Laundering

The founder of a cryptocurrency mixing service known as Bitcoin Fog was convicted in Washington federal court of helping launder tens of millions of dollars from darknet markets known for selling illegal drugs.

A jury concluded Tuesday that 35-year-old Roman Sterlingov provided a service that scrambled digital tokens to make it harder to find the source of proceeds from illegal activities. Prosecutors said Bitcoin Fog processed more than $400 million (approximately Rs. 3,375 crore) in untraceable transactions, including $78 million (approximately Rs. 658 crore) involving known darknet markets.

The verdict is the latest victory for the US in its crackdown on crypto criminals, including the November conviction of FTX co-founder Sam Bankman-Fried. Sterlingov, a Russian-Swedish citizen who testified in his own defense and denied ever running Bitcoin Fog, faces up to 20 years in prison on the most serious charges. Sterlingov, who has been in custody for almost three years, will be sentenced on July 15.

“The defendant set up the entire operation to help criminals hide their assets,” prosecutor Catherine Pelker told jurors during closing arguments. Pelker said the evidence clearly shows that Sterlingov was “instrumental” in setting up Bitcoin Fog.

After about two days of deliberation, jurors found Sterlingov guilty on all four counts, including conspiracy to launder money, money laundering and two charges related to running an unregistered money transmission service.

“Darknet criminals should know by now that operations like Bitcoin Fog cannot provide the anonymity for cryptocurrency transactions that they claim they can,” Matthew M. Graves, the U.S. Attorney for the District of Columbia, said in a statement.

Lawyer Tor Ekeland called the verdict ‘disappointing’ and said they will appeal.

“This is only half way,” Ekeland said.

During the month-long trial, prosecutors showed jurors how the government tracked the flow of cryptocurrencies from darknet markets through Bitcoin Fog. They also highlighted a multi-step process where they say Sterlingov paid for the Bitcoin Fog domain name more than a decade ago.

The government also turned to two other crypto criminals to testify about mixers: Ilya Lichtenstein, who pleaded guilty last year to a money laundering conspiracy, and Larry Harmon, who admitted to running a mixer called Helix.

Lichtenstein, who was charged along with his social media rapper wife, told jurors that he used Bitcoin Fog to launder some of the $4.5 billion (about Rs. 37,977 crore) worth of crypto that was stolen from the Bitfinex hack. Both he and Harmon said they did not know Sterlingov.

Sterlingov testified that he worked in information technology and helped create domain names for clients while employed by a marketing and Web company and as a freelancer. He said he didn’t remember if he created the Bitcoin Fog domain name and doubted he had. He also did not remember certain transactions, noting that they had taken place a long time ago.

The government said it found a number of small-value transactions originating from an account registered in Sterlingov’s name that Bitcoin Fog appeared to test before it launched in 2011. Sterlingov has said he was a user of Bitcoin Fog but did not collect fees as the government claimed.

“There is no evidence anywhere that Mr. Sterlingov operated Bitcoin Fog,” including no eyewitness accounts or server logs, Ekeland told jurors during closing arguments.

The government found no reference to Bitcoin Fog on Sterlingov’s electronic devices or notebooks, Ekeland said. He also questioned the logic of Sterlingov using a secret multi-step process to fund Bitcoin Fog when the transaction started with an easily traceable account registered in Sterlingov’s name.

The defense also questioned the reliability of the Wall Street-backed company Chainalysis, which the Justice Department and Treasury Department have consistently used to help trace the flow of cryptocurrencies in money laundering cases.

The government said the company is trustworthy, and the judge agreed. Prosecutors said they also used other methods to link Sterlingov to Bitcoin Fog’s operation. Chainalysis has previously called attacks on its credibility a “fundraising ploy” and an attempt to help the crypto world escape accountability.