Source: Bitfinex, 2016
But the arrests this week highlighted the background of the accused, which at times is not only funny but also bizarre.
Here are six interesting facts.
The laundering was being done by a couple: Ilya “Dutch” Lichtenstein (a Russian citizen living in New York) and his wife, Heather Morgan (an American citizen with Turkish roots).
They kept records on a public cloud
Ilya and Heather’s big mistake was keeping a record of all wallets in a public cloud (e.g., Google, AWS). Authorities were then able to subpoena over 2,000 Bitcoin addresses found in the cloud, along with the private keys to the addresses and information on the fake identities the couple had been using to sign up for new accounts.
Use of darknet exchanges
The couple laundered the stolen funds using the darknet exchange AlphaBayalong with roughly ten global crypto exchanges, with the funds in question taking the form of Bitcoin and Monero.
Used banks and gift cards
Heather and Ilya took all the usual money laundering steps (e.g., layering small amounts, using hidden identities), bought gold, purchased a series of gift cards (from Walmart and Uber to Sony Playstation), and, of course, through Bitcoin ATMs and NFTs. They also used US banks to take the laundered cash out.
5-year laundering process
According to Elliptic, around 21% of the stolen Bitcoin has been laundered over the past five years.
The excuses they used varied tremendously.
Heather claimed she was a tech entrepreneur investing in Bitcoin since 2011 and was now looking to sell 100 BTC before the Bitcoin ETF listing.
Some excuses were more romantic. Heather claimed that her boyfriend had been regularly donating Bitcoin to her since 2014.
Both of them will have enough time to reflect on these romantic gifts, as they’ll most definitely be headed to jail for quite some time.
What draws a lot of attention here is the background of Heather Morgan, who has quite a splashy past.
She was a Forbes contributor on cybercrime, amongst other topics, presented herself as a serial entrepreneur, and gave lectures on social engineering as the founder of her startup that specialized in “cold-call marketing emails.”
The seizure of the $3.6 billion in stolen Bitcoin represents the single largest seizure in the history of the US Justice Department!
Ultimately, this case should once again show us that laundering large amounts of money via crypto is very difficult to pull off.
Blockchain technology provides a transparent, immutable record that allowed the investigators to trace the stolen funds back to the couple in question.
Yet ironically enough, the gift cards and gold they purchased during the heist, as well as the cash they withdrew out of US banks, are not so easily traceable by comparison.
For anyone interested in learning even more about the Bitfinex hack arrests, here is the statement by the special agent regarding the case.