TRM Weekly Roundup | November 21, 2024

Welcome back for another ✨Weekly Roundup✨ — and what a week it’s been in the cryptoverse! On deck in this edition from our policy pros Ari Redbord , Angela Ang , and Isabella Chase :

• Ilya Lichtenstein and Heather “Razzlekhan” Morgan sentenced in Bitfinex case
• “Crypto Month” in DC federal courthouse
• Breaking Klad
• New EU sanctions guidance for PSPs and CASPs
• ASIC chairman takes aim at "legislative porridge" in Australian regulation
• The UK aims to boost financial innovation with a Digital Gilt Pilot

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👩⚖️ Ilya Lichtenstein and Heather “Razzlekhan” Morgan sentenced in Bitfinex case

On Friday, November 15 and Monday, November 18, Ilya Lichtenstein and Heather “Razzlekhan” Morgan were sentenced respectively for their roles in laundering over 120,000 bitcoin, stolen from the cryptocurrency exchange Bitfinex in 2016. Lichtenstein was sentenced to 60 months — the sentence recommended by DOJ Trial Attorney Jessica Peck — and Morgan to 18 months.

The Bitfinex investigation, which resulted in the largest seizure in US history, was led by former IRS Criminal Investigation (IRS-CI) Special Agent Chris Janczewski — now TRM’s Head of Global Investigations. Mr. Janczewski investigated the case with the Federal Bureau of Investigation (FBI) , Homeland Security Investigations (HSI), and prosecutors at the U.S. Department of Justice .

Lichtenstein and Morgan pled guilty to money laundering conspiracy charges in August 2023, and Lichtenstein admitted to being the original hacker responsible for the Bitfinex breach. Their arrest and subsequent investigation captivated the public due to the couple’s unconventional online personas and the staggering amount of stolen cryptocurrency involved.

In August 2016, as set forth in the detailed criminal complaint, Lichtenstein stole 119,754 BTC (then worth approximately USD 71 million). In 2022, just before Lichtenstein and Morgan were arrested for laundering the proceeds of the 2016 theft, law enforcement was able to seize approximately 94,000 BTC (then worth USD 3.6 million) — which is the largest seizure in the history of the United States.

After the arrests, law enforcement continued to investigate; and with the help of the defendants, additional seizures of US currency, gold coins, BTC, ETH, USDC, USDT, and other assets — all connected to the original theft — were made. Due to the additional seized assets and increased price of cryptocurrencies, the government has recovered approximately USD 10 billion in assets, according to forfeiture documents filed in court.

💡 For the deepest dive yet into the hack, the laundering, and the court case, read TRM’s take here.

🏛️ “Crypto Month” in DC federal courthouse

It wasn’t just the Bitfinex case in D.C. federal court over the last few weeks.

Earlier this month, Roman Sterlingov — found guilty on money laundering and other charges earlier this year for his operation of darknet mixer Bitcoin Fog — was sentenced to 12.5 years in prison. At trial, the jury found that Bitcoin Fog processed more than USD 400 million in transactions, including some from illicit markets like Silk Road, Agora, and AlphaBay.

Also, late last week, Larry Dean Harmon — the operator of the cryptocurrency mixer Helix and darknet search engine Grams — was sentenced to three years in prison for conspiracy to commit money laundering. In addition to his prison term, Harmon was ordered to serve three years of supervised release and to forfeit assets exceeding USD 400 million, including cryptocurrency and real estate.

Between 2014 and 2017, Harmon operated Helix, a service that laundered approximately 354,468 bitcoins (valued at over USD 311 million at the time) for darknet markets, facilitating transactions for illegal activities such as drug trafficking. Harmon’s cooperation with authorities, including his testimony in the trial of Sterlingov, contributed to a reduced sentence. Sterlingov was sentenced to more than 12 years in prison.

About three years ago, in the early days of the Helix and Bitcoin Fog cases, TRM wrote a blog post on what the cases could mean.

💡 Check out what we got right — and wrong — here.

🇷🇺 Breaking Klad

Last week, the Global Initiative against Transnational Organized Crime published a detailed report by TRM Senior Blockchain Intelligence Analyst Patrick S. and journalist Max Daly on Russia's industrial-scale darknet drug trade.

The report — “Breaking Klad: Russia’s Dead Drop Drug Revolution” — provides a look into the unique drug trade model pioneered in Russia which uses darknet markets, cryptocurrency, and physical "dead drops" to distribute drugs. This approach bypasses face-to-face interactions common in other regions.

Darknet platforms dominate Russia's drug economy, generating billions of dollars and causing a shift towards synthetic drugs. Russia's model, marked by organized crime, violence, and tech-driven anonymity, is expanding internationally and could reshape global drug economies.

Law enforcement globally utilizes TRM Labs’ blockchain intelligence to gain insights into cryptocurrency transactions linked to Russian darknet markets, enabling investigators to track financial flows, monitor darknet market activity, identify illicit actors, and enhance cross-border collaboration and information sharing.

💡 Check out this must-read report here.

🇪🇺 New EU sanctions guidance for PSPs and CASPs

The European Banking Authority (EBA) published its final guidance on internal policies, procedures, and controls to ensure the implementation of Union and national sanctions, a.k.a. sanctions guidance. The guidance is split into two parts: The first applies to all financial institutions, and the second is specific to Payment Service Providers (PSPs) and Crypto Asset Service Providers (CASPs). The guidance is designed to strengthen sanctions frameworks across the EU and reduce inconsistencies between different member states.

So what do CASPs need to have in place to comply with this guidance?

As with financial institutions, PSPs and CASPs must have proper policies, procedures, and controls in place; and have sound governance and a robust exposure assessment. Additionally, they must also have a screening system that is adequate and reliable, have a defined dataset that is being screened against, and screen information on customers and violations or circumvention activities. Regarding the selection of a screening system, PSPs and CASPs should consider the size and complexity of their sanctions exposure and, crucially, test their screening system at least once a year to ensure it is preforming as expected. Aligning with the Travel Rule, the guidance also stipulates that all funds should be sanction screened before being transferred to their beneficiary.

The guidance will formally apply from December 30, 2025, giving firms just over a year to get their control frameworks in shape.

💡 If you’d like tips on building an effective sanctions program in crypto, check out our resources here.

🇦🇺 ASIC chairman takes aim at "legislative porridge" in Australian regulation

In his keynote address at last week's ASIC Annual Forum, ASIC Chairman Joe Longo called out multiple waves of legislative reform that had resulted in "an often dizzying web of connections, references, and definitions," or "legislative porridge.”

"If we continue on the path we’re on, we will undermine how effectively consumers and investors can exercise their rights, and we risk a chilling effect on productivity and innovation as businesses struggle to decipher and anticipate regulatory requirements," added Longo.

He stressed the importance of addressing the issue with further changes ahead — including a crypto regulatory framework — and announced that ASIC would convene a Simplification Consultative Group made up of consumer advocates and industry leaders to identify how ASIC can more efficiently and effectively administer the law.

The digital asset industry in Australia is still waiting on the long-anticipated digital asset regulatory framework, which would introduce a new financial product, the digital asset facility, into Australian law. In the meantime, ASIC Commissioner Alan Kirkland told the industry in September that a "significant number of crypto-asset firms in the Australian market are likely to need a license under the current law. This is because we think many widely traded crypto assets are a financial product."

🇬🇧 The UK aims to boost financial innovation with a Digital Gilt Pilot

Delivering her first Mansion House speech last week, Rachel Reeves, the UK’s Chancellor of the Exchequer set out how the government will support the growth of the financial sector. The speech included a commitment to a Financial Services Growth and Competitiveness Strategy, a New Payments Vision, and the announcement that the government intends to create a digital gilt. Following the speech, HM Treasury issued letters to regulators which are intended to remind them of their mandates. The letter to the FCA underscored the need for the Financial Conduct Authority (FCA) to carry out its secondary mandates to ensure competitiveness and growth, and consider how it can support “more responsible and informed risk-taking across the economy.”

Although crypto assets weren’t specifically called out, the announcement of the Digital Gilt Instrument (DIGIT) pilot will be of interest to tokenization watchers. The DIGIT will allow for the tokenization of a gilt — a UK government issued bond — using DLT. If successful, the UK will join the ranks of Switzerland, The Philippines, and Hong Kong — who have all issued forms of digital government bonds. This announcement, and the recent opening of the Digital Securities Sandbox, signal that tokenization is likely to be the lead pillar of the UK’s approach to digital assets.

• 📜 What do a 4,000 year-old ancient ledger and the blockchain have in common? Dr. Ellen Feingold, curator of the National Numismatic Collection at the Smithsonian Institution ’s National Museum of American History joins Ari Redbord and special guest Chris Janczewski on our latest TRM Talks to discuss the history of money, and why a 2019 MacBook Pro belongs in the Smithsonian (hint: Chris may have used it to help secure the the largest monetary seizure in US history). Listen to the full episode now.
• 💸 Learn the ins and outs of the “Bitcoin Bank Heist” in the Smithsonian Institute’s Sidedoor podcast, featuring Zia Faruqui (United States Magistrate Judge at the District Court for the District of Columbia), Ari Redbord (Global Head of Policy at TRM Labs), and Chris Janczewski (Head of Global Investigations at TRM Labs). Stream the episode now.
• ☘️  Chainabuse — the leading reporting platform for malicious crypto activity worldwide — is now the official reporting partner for Operation Shamrock, enabling law enforcement to triage reports faster, investigate cases more thoroughly, and identify linked reports more efficiently. Learn more about the partnership in this press release.