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Bitcoin Mixing Magnate Arrested for Alleged $336M Laundering

An IRS agent paid for the bitcoin mixing service while posing online as a narcotics dealer.

US officials arrested an alleged bitcoin mixing service operator who reportedly provided laundering services to the tune of nearly $336 million in bitcoin over the course of 10 years, a report by Coin Desk explains.

Public court documents show that federal agents arrested a man by the name of Roman Sterlingov, a Russian and Swedish citizen, on three charges: unlicensed money transmission, money laundering, and money transmission without a license.  

Sterlingov's mixing service, called Bitcoin Fog, reportedly allowed customers to transfer bitcoin while hiding where the coins are sent from. The service was launched in 2011 and has allegedly been used to transfer 1.2 million BTC ($335.8 million based on their value at the time of the transactions). 

According to an affidavit filed by IRS Criminal Investigation Special Agent Devon Beckett, bitcoin stolen via hacking campaigns was run through the Bitcoin Fog service.

In order to compile their case, federal agents used blockchain analysis as well as running funds through Bitcoin Fog, the document explained.

US federal agent pretends to be narcotics seller

In his affidavit, Beckett explained that, despite bitcoin's propensity and reputation for owner anonymity, law enforcement can often identify bitcoin owners' addresses via blockchain analysis.

In order to compile further incriminating evidence, an IRS agent conducted a transaction on Bitcoin Fog, claiming the bitcoin was from a narcotics sale.

"Analysis of bitcoin transactions, financial records, Internet service provider records, e-mail records, and additional investigative information, identifies Roman Sterlingov as the principal operator of Bitcoin Fog," Beckett said in the affidavit.

While cryptocurrency essentially allows individuals to make secure transactions to anyone in the world without the need for a third party, it also has the potential for enabling crime via its harder-to-track transactions.

One example in recent weeks saw two cryptocurrency exchanges in Turkey go dark in what look to be fraud campaigns ridding users of their entire portfolios. As of Tuesday, April 28, the Bitcoin Fog website is still operational with some experts suggesting it may have been quietly taken over by law enforcement in a bid to catch criminals using the service.

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