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How to Get the Attention of the FBI, IRS and OFAC All at Once with Your Cryptocurrency Transactions

Updated: Jun 21, 2022

A very popular and important story that has circulated around the cryptocurrency community is the arrest of Ilya “Dutch” Lichtenstein and Heather Morgan for attempting to launder (i.e. money launder) the $3.6 billion dollars that they stole in 2016. For more information on how they were able to manipulate a hack to steal the then $71 million (which has since appreciated to $3.6 billion) in bitcoin, view this article for background information.

The couple called attention to themselves as financial institutions began to take note of their lies and evaisions regarding their assets. Both the IRS and FBI were soon made aware of the couple's activity and evident laundering attempts. The IRS was able to track some of the purchases made with the stolen money and released an affadavit detailing the gold, NFT's, gift cards and service payments that the small portion of the money was used for. The FBI also did a physical search of the couples' homes where they found the physical drives where a majority of the stolen bitcoin was stored.

The FBI's search revealed an issue that has now made this case relvant in the realm of international trade and sanctions programs. The FBI found evidence that the couple had done research about dark net vendors of fake banking, passport and identification credntials that eventually led the couple to obtain a package of such items from a vendor in the Ukraine. Using this package of fake credntials the couple opened finanical accounts in Russia.

The pursuit of alternate identities brought the couple within the scope of the Russia/Ukraine related sanctions programs as well as the Cyber-related sanctions program which are all maintained by the Office of Foreign Assets Control (OFAC). The Russia/Ukraine sanctions programs broadly prohibit transactions with the two countries except for very specific reasons which all do not apply to what was detailed by the FBI's report. The Cyber-related sanctions program imposes sanctions against cyber criminals including perpetrators of ransomware attacks, cyber attacks and any other illegal cyber activities. The credentials vendor that the couple used was very likely Ukranian as that would explain why they met in the country. Furthermore, depending on the sophistication of these credentials a cyber crime may have been committed in the creation of the documents. In a broader sense, the fact that the couple needed to contact the vendor through the dark net raises a strong case for the vendor's likely affilitation with cyber crime or groups that have been known to facilitate such crimes.

Even though there is some speculation about the applicability of the sanctions programs to this particular case, there is enough suspicious activity to definitely attract the attention of OFAC. This is another example of how the once thought to be anonymous process of trading cryptocurrencies is being exposed in a variety of new ways over time.

As a business that deals with international trade it is important that you stay aware of the different ways that cryptocurrency transactions can be tracked back to individuals that facilitate them. As more businesses trade with cryptocurrencies and encounter opportunities in the realm that has collectively been labeled the metaverse it is important that business owners implement systems to ensure that they remain in legal compliance. Review our other article here to understand what legal compliance means when conducting a cryptocurrency transaction.

Need help navigating the waters of an OFAC investigation or the threat of one? Click here to contact us for assistance.

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