New York couple charged with conspiring to launder crypto billions

A New York couple was arrested Tuesday and charged with conspiracy to launder billions of dollars’ worth of stolen bitcoin, resulting in the seizure of $3.6 billion in  cryptocurrency, the Justice Department announced, the largest financial seizure in the department’s history.  

Russian national Ilya Lichtenstein, 34, and his wife, Heather Morgan, 31,  are accused of attempting to launder the proceeds of almost 120,000 bitcoin that were stolen in a 2016 hack of Bitfinex, a platform where cryptocurrency including bitcoin is exchanged. At the time of the hack, the complaint says the bitcoin were worth $71 million, but the price of bitcoin has exploded since then.

They are not charged with carrying out the hack. 

The Justice Department says that following the 2016 hack, blockchain analysis shows the stolen bitcoin was funneled to a digital wallet under Lichtenstein’s control. From there, the criminal complaint alleges he used money laundering techniques to convert and deposit about 25,000 bitcoin into financial accounts that he and his wife controlled. 

The remaining 94,000 bitcoin allegedly remained in the digital wallet, allowing Lichtenstein to receive and store illegal proceeds from the hack, the Justice Department says. 

The couple then allegedly converted some of the stolen cryptocurrency into millions of dollars’ worth of conventional currency and then used the cash proceeds to buy gold, a $500 Walmart gift card. They also allegedly spend some of the money on Ubers and a Play Station, the complaint indicates.

Justice Department officials explained Monday that the couple used sophisticated laundering techniques to get the stolen bitcoin from the digital wallet into various exchanges and bank accounts.  

In an effort to hide their stolen funds from the more open blockchain system where users can see the transactions of their fellow traders, Lichtenstein and Morgan allegedly employed both conventional schemes and more complex moves unique to the growing digital financial system.  

They used fictitious identities to set up online accounts and automated financial transactions, the Department of Justice said, before depositing the bitcoin into accounts throughout virtual platforms and even darknet markets to try to further distance themselves from the fraudulent transactions they were carrying out.

Investigators followed the hacked bitcoin to the darknet sites, through a “circuitous journey” of thousands of transactions that ultimately ended up in accounts tied to the New York couple, federal prosecutors said. 

“Criminals always leave tracks, and today’s case is a reminder that the FBI has the tools to follow the digital trail, wherever it may lead,” said FBI Deputy Director Paul M. Abbate in a release.

Lichtenstein and Morgan are charged with conspiracy to commit money laundering, which carries a maximum sentence of 20 years in prison, and conspiracy to defraud the United States, which carries a maximum sentence of five years in prison.

The Justice Department says, following a court-mediated process, the billions of dollars it seized could be returned to potential victims of the crime who file valid complaints. 

Bitcoin, the most popular type of cryptocurrency that has a value typically set in dollars, has gained mainstream notoriety in recent years. The computer-generated, open-source code operates globally on a network of private computers and was at the center of many of last year’s wildest financial gains and losses.

Bitfinex previously advertised a nine-figure reward for information assisting to the return of the stolen cryptocurrency, but it remains unclear if the incentive helped federal law enforcement with its investigation.

In October, Deputy Attorney General Lisa Monaco announced a hybrid team of anti-money laundering and cybersecurity experts to form a new task force– the National Cryptocurrency Enforcement Team – dedicated to complex investigations of crimes involving cryptocurrency.

Tuesday’s charges follow  several high profile seizures by the Department of Justice. In October, the U.S. recovered some $2.3 million in cryptocurrency paid in ransom to cybercriminals whose attack prompted the shutdown of Colonial Pipeline, the country’s largest fuel pipeline.

A month later, the Justice Department announced that U.S. officials had seized more than $6 million in cryptocurrency following the July 4 weekend REvil ransomware attacks, in which the hacking of a Florida-based software firm Kaseya infected more than a thousand businesses worldwide.

Here’s the complaint: