Administrator of $366 Million USD Dark-net Bitcoin Laundering Service Caught Using Blockchain

Swedish-Russian citizen, Roman Sterlinghove, has been arrested by U.S. authorities after 10 years of operating a darknet bitcoin website. The administrator of the Bitcoin Fog anonymising service was arrested in Los Angeles on 27 April.

Bitcoin Fog was one of the original “mixing” services, launched in 2011, specifically designed to hide the identity of the participants in a transaction. Services like these are usually used to make transactions on the dark-net so that people could trade in goods and services anonymously with cryptocurrency.

The Internal Revenue Service (IRS) analysed over 10 years worth of blockchain data:

Analysis of bitcoin transactions, financial records, Internet service provider records, email records and additional investigative information, identifies Roman Sterlingov as the principal operator of Bitcoin Fog,

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Devon Beckett, Internal Revenue Service (IRS) special agent

According to Beckett’s statement, more than 1.2 million Bitcoin (BTC) worth $336 million (at the time of the transactions) were sent through Bitcoin Fog. Sterlingov received between 2% and 2.5% for each transaction adding up to about $8 million USD back then.

Blockchain Helped Catch The Bad Guys

Authorities estimate at least 23% of the Bitcoin that flowed through the mixing service was transferred to darknet-based narcotics marketplaces such as Silk Road and AlphaBay. In 2019, undercover IRS agents engaged Sterlingov through the platform, claiming they wished to launder the profits from ecstasy sales.

With blockchain analytics, the thing we say over and over is that all this activity is on this ledger forever, and if you did something bad 10 years ago you can be caught and arrested for it today.

Sarah Meiklejohn, Computer scientist

Law enforcement agents were able to find where Sterlinghov was paying for his hosting fees, which was through using Bitcoin to buy Liberty Reserve. From there the IRS was able to find personal information like home address, phone number, and a Google Drive account that held instructions on how the Liberty Reserve coins.

Previously in 2016, the founder of Liberty Reserve pleaded guilty to laundering $250 million USD through his digital currency business.