Crypto launderer kept identity ‘hidden in the fog’, US alleges

A Russian-Swedish national ran a crypto mixing service that served as a critical link in helping move tens of millions of dollars from darknet markets known mostly for selling illegal drugs, a prosecutor alleged at the start of the man’s trial.

Roman Sterlingov operated Bitcoin Fog, an “online money laundering service”, which jumbled tokens together from different owners to make it difficult to trace transactions, Christopher Brown said in his opening statement in Washington federal court. Sterlingov took steps to make sure his role in starting the mixer “remained hidden in the fog”, Brown added.

But Sterlingov’s attorney, Tor Ekeland, told jurors that the government’s evidence is lacking, noting that there are no eyewitness accounts or server logs that back up the criminal case. “You are not going to see a single piece of evidence showing Mr Sterlingov ever operated Bitcoin Fog,” he said.

While high-profile crypto defendants typically plead guilty, Sterlingov has insisted since his arrest almost three years ago that he’s innocent and he’ll fight the charges. His unusual defence has included attacking the Wall Street-backed firm Chainalysis, which the Justice and Treasury Departments often hire to help trace the flow of crypto in money laundering cases.

Ekeland has labeled the technology “junk science” and argued that Chainalysis’ accuracy can’t be supported because it can’t identify error rates.

Chainalysis has defended its work, calling Ekeland’s attacks a “fundraising ploy” and part of an effort to help the crypto world escape accountability.

In his opening statement, Brown said jurors would hear testimony from two witnesses who worked extensively with the darknet and used Bitcoin Fog to process illegal proceeds. The government earlier indicated that Ilya Lichtenstein, who admitted to a money-laundering conspiracy tied to the theft of billions of dollars of Bitcoin from the Bitfinex exchange, planned to testify.

The government also presented a slide that showed the flow of illicit funds through Bitcoin Fog to or from online marketplaces that sell illicit products ranging from narcotics to child pornography. Bitcoin Fog processed more than US$400mil (RM1.91bil) in untraceable transactions, including tens of millions of dollars tied to these markets over a decade, said Brown.

Darknet markets

Ekeland told jurors that Sterlingov never had anything to do with child pornography and that there was no evidence that he communicated with darknet markets. “You won’t see a single communication between Mr Sterlingov and one of these darknet markets saying ‘Hey, let’s conspire’,” said Ekeland.

Agents relied on Chainalysis to trace funds from Sterlingov’s Kraken accounts to Bitcoin Fog. Sterlingov, who Ekeland will testify at trial, acknowledged in a pretrial hearing that he used Bitcoin Fog, but denied the claim that he operated or earned fees from it.

Prosecutors have said Sterlingov registered the Bitcoin Fog domain name more than a decade ago and paid for it using a multistep process that involved burner email accounts. Those same steps replicated those outlined in a document found in a Google account tied to Sterlingov’s phone number, according to an FBI affidavit.

Ekeland said the government was trying to make the notes look nefarious when the steps outlined represented a “common practice”.

Brown told jurors by the end of the trial they would be able to see “how law enforcement was able to pierce the fog surrounding the defendant”. – Bloomberg