How programmers become terrorists. An inside look at the history of Bitzlato

The work of the Bitzlato company was stopped on the night of January 17-18, 2023. The next morning, every programmer in the company woke up to find himself transformed into an international terrorist in his own bed. Just like Gregor Samsa, who turned from a man into a huge insect and thereby caused universal horror.

Only in our case the transformation was carried out on paper. Many employees ended up on the Interpol list, which they learned about from local authorities as soon as possible.

There has been a lot of conjecture and speculation in the media based on press releases from the New York City Attorney's Office. Now the dust has settled and the facts can be reviewed. At the moment, Anatoly Legkodymov, co-founder of Bitzlato, has been released from jail and the case against him has been closed. It was a big victory.

However, Anatoly faces extradition to France and new charges in the same case with a term of up to 20 years. Other members of the team are also under arrest in France.

But first things first.

What is Bitzlato

Bitzlato is a cryptocurrency exchange registered in Hong Kong and has been operating in the CIS market for 7 years. The creators of the exchange are Russian and Ukrainian crypto enthusiasts, who in 2016 managed to create a competitor to Binance in the field of peer-to-peer trading on the domestic market.

Bitzlato was one of the first cryptocurrency companies to introduce mandatory KYC and AML (Know Your Customer and Anti-Money Laundering) procedures. That is, despite the fact that this was clearly a negative factor for business, the company began to do two things back in 2021. Require passports from all users and check transactions for connections with prohibited services. Bitzlato introduced these procedures just a few months later than Binance. By the way, in the company’s jurisdiction – Hong Kong – the relevant requirements came into force only in May 2023 (5 months after the events described). But in Russia there is still no such regulation at all.

Bitzlato cooperated with Russian and foreign authorities upon requests from law enforcement agencies. There is official confirmation of this. For example, gratitude to Bitzlato from the Ministry of Internal Affairs “for professionalism and high responsibility in the performance of civic duty.” This fact will be useful for the future narrative.

Considering the described transparency and openness of the company, Anatoly felt completely safe when going to the USA to learn to fly.

This was long before Durov’s famous trip to France, and no one yet knew that arrest warrants were issued by Interpol literally on the fly.

Attack on the company

At midnight on January 17, all the cryptocurrency was withdrawn from the company’s French servers, where some of the wallets were stored. Alarmed programmers began to block a possible hacker attack.

This event forced Anatoly to react in company chats – for the first time during the holidays. What's interesting is it was this fact of Anatoly's participation that prosecutors later used to prove that Anatoly was “illegally operating from US territory”.

Anatoly went for a walk around the lake, and when he returned, the house was surrounded by police cars.

I come back and look – some police lights. I thought there was some kind of local raid here. Well, they're looking for some drug addicts. Because when you walk around Miami, everything is permeated with the smell of cannabis. As I later found out, they were not at all interested in hemp. And this was not the filming of “CSI: Miami” (show about crime investigation – editor's note). It turns out they were interested in me.

– Anatoly Legkodymov, co-founder of Bitzlato

Anatoly was handcuffed. He did not have the keys to the house on him, but the FBI needed to conduct a search. Anatoly’s frightened 11-year-old daughter could be seen in the second floor window.

They gave me a megaphone. They gave me this megaphone. And I shout: “Daughter, call your mother.” As it turned out, the wife was in the shower. My daughter called for her for a long time, about 5 minutes. It turns out that I helped arrest myself. Not only did I come voluntarily, I also helped them open the door to the house.

*laughs*

And he worked as a translator. (At the time of his arrest, Anatoly’s relatives did not speak English – editor’s note).

– Anatoly Legkodymov, co-founder of Bitzlato

It subsequently turned out that the withdrawal of funds from the company's French servers was not a hacker attack. It was a coordinated operation between American and French intelligence services.

What violations did the United States find in the work of the Hong Kong company with users from the CIS? More on this below.

Accusation

It is important to note that the accusation is not directed at the company. The company itself is tacitly recognized as a criminal organization. This follows from the fact that it is not the legal entity that is called to account, but the people directly working in the company. Here are the charges against Anatoly Legkodymov personally:

• Bitzlato does not have a US license to conduct monetary transactions for its users.

• Bitzlato lacks AML and KYC procedures that meet US requirements. Correspondence between users and company support is provided as evidence. It follows from it that there were cases when support knew that users were making transfers from Bitzlato to prohibited services, but did nothing about it.

• Although users are mainly from Russia and Eastern Europe, the matter is directly related to the United States. Why? Because there were also American users. This is confirmed by the presence of American IP addresses and American bank cards.

• Anatoly had the imprudence to work for a company from the United States. This is confirmed by data from the Internet provider (remember the story of the attack on January 17). Thus, he gave a reason for his instant arrest, because… contributed to the work of a criminal organization from the United States.

Protection

Defense response on each point:

• A US license was not required because Bitzlato cut off US users at the KYC stage. In other words, an American could not register for the service. And in fact, neither Americans nor other citizens have had the opportunity to add American bank cards for a long time. They were warned about this in advance in the user agreement. Only those who accessed via VPN could have IP addresses from the USA.

• KYC and AML have been constantly improved. Any employee training takes time, including support agents. As for AML (transaction verification), independent companies were hired for it back in 2021. First Valega, then ScoreChain. Significant amounts of money were spent on transaction verification services. However, evidence from these companies was not presented by the prosecution; instead, reports from a third company, Chainalysis, were taken.

• The American who allegedly successfully registered on the exchange turned out to be an FBI agent. The prosecution referred specifically to him. However, he also registered not using documents from the United States, but using a passport from another country – he had dual citizenship. What’s important is that even an FBI agent has not conducted, and could not have conducted, a single transaction through Bitzlato in American jurisdiction.

• Anatoly came to the USA on vacation with his wife and three small children. This is hardly consistent with the behavior of a person with criminal intentions.

Despite the apparent simplicity of the case, it took the lawyers 1.5 years to bring these points to the court. The trial was constantly postponed for various reasons.

Court

Anatoly spent the entire year and a half in the Metropolitan Detention Center. This is the notorious New York detention center where rapists and murderers are sent.

There was one gang there. They received 30-40 years for murder. And they just walked around and tried to scam everyone there for food. I really didn't like it. And I was the only one there who began to conflict with them. <...> After the conflict, I understood that it could have been worse, and next time I prepared for it. Thank God there was no next time.

– Anatoly Legkodymov, co-founder of Bitzlato

Thanks to the efforts of the Russian embassy and personally Anatoly Antonov (at that time the Russian Ambassador to the USA), Anatoly Legkodymov was transferred from the 5th to the 8th floor. Those convicted of politics and financial fraud were kept on the 8th floor, and at least there were no more fights there.

Now it is important to note one feature of the US federal courts. A federal court is a court where the state itself acts as the prosecutor, since in its opinion a federal law was violated. It is impossible to win a case in US federal court. In other words, in 99% of cases the government is right. There are only less than 1% of cases where the defendants still win in federal court. This is open data from the Pew Research Center, the PolitiFact organization, and a current American judge wrote about it in his book.

At the same time, the accused take on a huge risk – in case of loss, the punishment increases many times over. For example, for Anatoly it would increase from 5 to 20 years in prison. Such success statistics (99% in favor of the state) are achieved due to the fact that judges and juries are more inclined to trust the prosecution, that is, the state. It, in turn, has leverage over colleagues and relatives through the FBI. The mentioned book describes, using specific case studies, how this happens in practice.

Considering all of the above, the only reasonable option for Anatoly was to admit part of the guilt before the trial. Thus, the court only had to determine the punishment. This no longer requires a jury trial; the issue is decided by a federal judge.

As a result, Anatoly admitted his guilt in the fact that although the company was not criminal in itself, it did not do enough to stop the criminals. Criminals used it to launder money and buy drugs and other goods on the black market. The prosecution asked for 5 years, but the judge sided with Anatoly.

Below is an interesting excerpt from the minutes of the court hearing. The judge compared Bitzlato's activities to mail, which could also be used to send drugs.

JUDGE (ADDRESSING THE PROSECUTOR): I believe you will not deny that among the transactions (committed by Bitzlato users – editor's note) There are also those that are completely legal under both American and global laws.

PROSECUTOR: Yes, I'm sure of that.

THE COURT: In this sense, the company is like a post office.

PROSECUTOR: Yes, it looks like a post office. But imagine a post office where, say, 25 percent of parcels are drugs.

COURT: In that case, would you send the postmaster general to prison?

PROSECUTOR: Well… we probably would have asked him to double-check the numbers.

– from the court record of 07/18/2024 in the District Court of New York, page 49

Then the conversation went in a different direction.

The judge's final decision: Anatoly's time in prison clearly covers the punishment in this case. Thus, after serving 1.5 years in a pre-trial detention center, Anatoly was released, no longer having any claims from the court.

However, freedom did not last a single second. Immediately after his formal release from arrest, Anatoly was sent to the US immigration prison in Pennsylvania. The fact is that he boldly violated the terms of his visa, having stayed in the USA for as much as 1.5 years. This practice (sending those released to a migration prison) is very popular in the United States.

At the moment, Anatoly is still in a migration prison. Moreover, while he was in this prison, a new warrant was issued for his extradition from the United States to France. In France, he is about to be re-indicted on charges related to Bitzlato, despite the fact that he has already served his statutory sentence.

Instead of a conclusion

In the civilized world, when a service violates the laws of any country, the country blocks this service and opens a case against the company. For example, Brazil recently did this in relation to X (formerly Twitter) Elon Musk. Next, the blocked company hires lawyers in this country and defends itself, while eliminating violations. This is a path that can really lead to some improvements in business and in people's lives.

Bitzlato was not given the opportunity to defend himself. The tactic of a surprise attack was chosen. No one received any warnings, and no lawyers were found in the United States in advance. Everyone was taken by surprise.

You can debate for a long time why they did it this way. Is this related to politics? But the company was not under sanctions. The multinational team has always maintained political neutrality. The very essence of cryptocurrencies implies a rejection of geopolitical restrictions.

Anatoly himself said this:

I was imprisoned not because I allegedly drove chernukha and not because I allegedly violated the law, not because a bunch of other things… Including the guys – they were also imprisoned. And all because there is a war against crypto.

– Anatoly Legkodymov, co-founder of Bitzlato

Anatoly’s opinion on this and other issues can be read on his blog legkodymov.com and in the telegram channel @anatolylegkodymov. All the legal “sources” of this article will be posted there, or have already been posted.

Thanks for reading. The purpose of the article was to reveal the truth about the Bitzlato company through the eyes of direct participants.