Now the IRS says it has finally identified the Russian-Swedish administrator behind that long-running anonymizing system and charged him with laundering hundreds of millions of dollars worth of bitcoins, much of which was sent to or from dark web drug markets.
US authorities on Tuesday arrested Roman Sterlingov in Los Angeles, according to court records, and charged him with laundering more than 1.2 million bitcoins—worth $336 million at the times of the payments—over the 10 years that he allegedly ran Bitcoin Fog.
As of Tuesday afternoon, Bitcoin Fog remained online, though it’s unclear who, if anyone, now operates it.
Of the $336 million the complaint accuses Bitcoin Fog of laundering, at least $78 million passed through the service to various narcotics-selling dark web markets like the Silk Road, Agora, and AlphaBay over the years that followed.
It goes on to show the blockchain evidence that identifies Sterlingov’s purchase of that Liberty Reserve currency with bitcoins: He first exchanged euros for the bitcoins on the early cryptocurrency exchange Mt.
Gox accounts that used Sterlingov’s home address and phone number, and even a Google account that included a Russian-language document on its Google Drive offering instructions for how to obscure Bitcoin payments.
The case shows yet another example of how Bitcoin, once widely believed to be a powerful tool for making anonymous, untraceable transactions, has turned out to be in many cases the very opposite.
The arrest of Bitcoin Fog’s administrator based on blockchain analysis represents just how far back in time investigators can reach with those “follow the money” techniques, says Sarah Meiklejohn, a computer scientist at University College of London whose work pioneered Bitcoin-tracing techniques in 2013.
She notes that law enforcement has quietly taken over dark web criminal operations in the past—though it’s not clear, if that were the case with Bitcoin Fog, why the criminal complaint against Sterlingov has been unsealed.
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