Bitfinex Incident Mastermind Reveals Money Laundering Secrets in Virtual Money

In 2022, Ilya Lichtenstein and Heather Morgan were arrested for allegedly laundering $4.5 billion in cryptocurrency assets stolen in a hack of a certain exchange. They subsequently confessed to the crime.

Recent news shows that Liechtenstein has now become a cooperating witness for the government in an ongoing money laundering trial related to a cryptocurrency mixing service. Why has the mastermind behind the $4.5 billion theft turned into a federal witness in the money laundering trial? This article will outline the ins and outs of this complex case for readers.

Event Timeline

For easy understanding, here are the key timelines of the hacking incident:

• 2016: The Liechtenstein couple stole $4.5 billion worth of Bitcoin from a certain exchange but were not caught at the time.

• April 2021: The FBI arrested Roman Sterlingov, a key operator of a certain mixing coin platform.

• 2021: Several mixing platforms involved in Money Laundering were shut down, and one platform's founder pleaded guilty.

• February 1, 2022: The US government wallet received a massive transfer of approximately 94,643.3 coins of Bitcoin.

• February 2022: The Liechtenstein couple was arrested.

• August 2023: Two people pleaded guilty to theft.

The Liechtenstein couple claimed that they were able to access a certain exchange's system for a long time and stole a large amount of money. They had used a certain mixing service multiple times for Money Laundering, and later switched to using other mixers.

The Transformation from Principal Offender to Witness

In the latest trial, the Liechtenstein couple stated that they had used a certain mixing coin service for money laundering about 10 times, and then turned to other mixing coin services that they believed were better. Their money laundering activities mainly involved depositing funds into cryptocurrency trading accounts registered with identity information purchased through the dark web, with the use of mixing coin services accounting for only a small part of their money laundering activities.

Liechtenstein stated that he has never communicated directly with the operator of the mixing platform, Sterlingov, and does not know him.

The U.S. Department of Justice accused the mixing platform of money laundering over 1.2 million Bitcoins in 2021, worth approximately $335 million at the time of the transaction. These funds mainly came from dark web markets, involving illegal activities such as drug trafficking, computer fraud, and identity theft.

Facing up to 20 years in prison, Liechtenstein chose to cooperate with U.S. authorities and revealed the truth of the case. In short, this "coin theft couple" unexpectedly became witnesses proving that a certain mixing service can indeed be used for Money Laundering after using it to launder Virtual Money.

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 other cryptocurrency mixers have also attracted the attention of regulators and face sanctions. In October 2020, the Financial Crimes Enforcement Network imposed a $60 million civil fine on some Bitcoin mixer operators for operating as unregistered money services businesses.

Suggestions for Strengthening Anti-Money Laundering Measures

Given that the attackers used various methods for Money Laundering in this incident, the illegal funds passed through numerous service providers, making tracking significantly more difficult. Here are some suggestions to strengthen anti-money laundering measures:

1. Implement strict KYC and AML regulations: Virtual asset service providers should require users to undergo comprehensive identity verification to ensure compliance with relevant regulations.

2. Monitor Trading Activities: Implement a real-time monitoring system to detect and analyze suspicious trading activities, including information such as transaction amounts, frequency, sources, and destinations.

3. Establish a Reporting Mechanism: Create a reporting mechanism to promptly address reports of suspicious transactions or activities, and cooperate with regulatory authorities for investigations.

4. Strengthen cooperation and communication: Actively cooperate with security companies, regulatory agencies, and law enforcement to jointly combat Money Laundering activities. Regularly communicate to timely identify and respond to the ever-changing Money Laundering strategies of criminals.

With the development of regulatory measures and anti-money laundering tools, criminals may adopt more decentralized trading methods, use covert trading paths, or exploit technical loopholes to hide illegal fund flows. Virtual asset service providers need to remain vigilant and continuously update and improve their anti-money laundering strategies.