The Justice Department today announced that two individuals have been arrested on charges of conspiracy to launder cryptocurrency stolen during the 2016 Bitfinex hack.
So far, law enforcement has seized over $3.6 billion worth of Bitcoin linked to the hack, according to the DOJ.
“Today’s arrests, and the department’s largest financial seizure ever, show that cryptocurrency is not a safe haven for criminals,” said Deputy Attorney General Lisa O. Monaco.
“In a futile effort to maintain digital anonymity, the defendants laundered stolen funds through a labyrinth of cryptocurrency transactions,” Monaco said. “Thanks to the meticulous work of law enforcement, the department once again showed how it can and will follow the money, no matter what form it takes.”
A spokesperson for Bitfinex said, “We’re pleased that DOJ has recovered a significant portion of the bitcoin stolen during the 2016 hack. We have been cooperating extensively with DOJ since its investigation of this incident began.” A spokesperson for sister company Tether added that Bitfinex plans to continue working with the DOJ to regain the stolen Bitcoin. “Bitfinex intends to provide further updates on its efforts to obtain a return of the stolen bitcoin as and when those updates are available,” said the spokesperson.
According to the DOJ’s statement, federal law enforcement have arrested Ilya Lichtenstein and his wife Heather Morgan.
Both individuals are from New York City, and are scheduled to make initial appearances in federal court later today at 3:00 pm ET. Both individuals are charged with conspiracy to commit money laundering, and conspiracy to defraud the United States. These charges carry 20 and five years in prison, respectively.
According to court documents, both parties allegedly conspired to launder 119,754 Bitcoins, all stolen from the Bitfinex platform when it was hacked in 2016.
During the hack itself, over 2,000 unauthorized transactions sent the illicit funds to a digital wallet that was under Lichtenstein’s control, authorities claim. Eventually, and through a “complicated money laundering process,” says the DOJ, some of these funds ended up going into traditional accounts operated and controlled by both parties.
The rest of the stolen funds—which comprised of more than 94,000 Bitcoin—remained in Lichtenstein’s wallet, according to the DOJ. Federal agents obtained access to these files after court-authorized search warrants were executed.
“Cryptocurrency and the virtual currency exchanges trading in it comprise an expanding part of the US financial system, but digital currency heists executed through complex money laundering schemes could undermine confidence in cryptocurrency,” said US Attorney Matthew M. Graves for the District of Columbia.
In terms of how the funds were moved, federal authorities say both parties employed “numerous sophisticated laundering techniques.”
These allegedly included the use of fictitious identities to set up online accounts, utilizing computer-based programs to automate transactions, and depositing stolen funds into accounts across multiple exchanges and darknet markets—a process commonly known as “layering.”
The couple then allegedly converted Bitcoin to other forms of cryptocurrencies, described by the DOJ as “anonymity-enhanced virtual currency,” as well as using U.S.-based business accounts to legitimize their activity.
“IRS-CI Cyber Crimes Unit special agents have once again unraveled a sophisticated laundering technique, enabling them to trace, access and seize the stolen funds, which has amounted to the largest cryptocurrency seizure to date, valued at more than $3.6 billion,” said IRS-Criminal Investigation Chief Jim Lee.
Editor’s note: This story was updated after publication to include additional details regarding the seizure and to include comments from both federal authorities and Bitfinex.