The main suspect in the $4.5 billion Crypto Assets theft case becomes a key witness for the U.S. government.

In 2022, the couple of Ilya Lichtenstein and Heather Morgan were arrested for allegedly laundering $4.5 billion in stolen Crypto Assets. These assets originated from a hacking incident at a certain exchange. Last year, the two admitted to their crimes.

Recent reports indicate that Liechtenstein is currently acting as a cooperating witness for the U.S. government in the prosecution of a money laundering case related to the Crypto Assets mixing service Bitcoin Fog. This development has sparked interest in the background of this large-scale virtual currency money laundering case.

Case Review

For ease of understanding, here is the key timeline of the case:

• 2016: The Liechtenstein couple stole $4.5 billion worth of Bitcoin from a certain exchange.
• April 2021: The FBI arrested Roman Sterlingov, the main operator of Bitcoin Fog.
• 2021: Multiple crypto platforms involved in money laundering were shut down, and some platform founders pleaded guilty.
• February 1, 2022: The US government wallet received approximately 94,643.3 coins.
• February 2022: The Liechtenstein couple was arrested.
• August 2023: The two pleaded guilty and were convicted of theft.

The Liechtenstein couple admitted that they were able to access the system of a certain exchange for a long time and stole a large amount of funds. They had previously used services like Bitcoin Fog for money laundering and later turned to other mixers.

From Perpetrator to Witness

In a recent trial, Liechtenstein stated that they used Bitcoin Fog for money laundering about 10 times, after which they turned to what they considered a better coin mixing service. However, these mixing services accounted for only a small portion of their overall money laundering activities. Most of the funds were deposited into cryptocurrency trading accounts registered with identity information purchased through the dark web.

Liechtenstein claims to have never had direct contact with the operator of Bitcoin Fog, Sterl ingov. In 2021, the U.S. Department of Justice charged Bitcoin Fog with laundering over 1.2 million coins, valued at approximately $335 million at the time. These funds primarily came from the dark web markets and were involved in 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, revealing the inside story of the case. In short, they were laundering money through Bitcoin Fog, inadvertently confirming the platform's laundering capabilities, and ultimately became witnesses in the case.

As of February 27, 2024, the trial is still ongoing, and the jury has not yet reached a verdict.

It is worth noting that other Crypto Assets mixers such as Sinbad and Tornado Cash have also come under the scrutiny of regulators and face sanctions. In October 2020, the Financial Crimes Enforcement Network imposed a civil penalty of $60 million on the operators of the Bitcoin mixer Helix and Coin Ninja for operating an unregistered money services business.

Recommendations for Strengthening Anti-Money Laundering Measures

Given that the attacker in this case has employed various complex methods for money laundering, making it more difficult to trace the funds, the following are some recommendations for strengthening anti-money laundering measures:

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

2. Strengthen transaction monitoring: Implement a real-time monitoring system to analyze suspicious transaction activities, including information such as transaction amount, frequency, source, and destination.

3. Establish a complete reporting mechanism: Set up a system to report suspicious transactions or activities, and closely cooperate with regulatory agencies for investigations.

4. Promote industry cooperation: Virtual asset service providers should actively collaborate with security companies, regulatory agencies, and law enforcement to jointly combat money laundering activities. Given that criminals continuously improve their money laundering strategies, such as using decentralized transactions, covert paths, or technical vulnerabilities, regular communication and cooperation within the industry is essential.