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The Justice Department has Seized $3.6 billion in Bitcoin Stolen in the 2016 Bitfinex Hack

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There is no doubt that cryptocurrency is incredibly popular right now. However there is an underbelly to the world of crypto. On February 8, 2022, the US Department of Justice announced the seizure of $3.6 billion in bitcoin stolen by hackers from a cryptocurrency exchange. The department cracked down on the hackers and arrested two suspects: Ilya Lichtenstein, 34, and his 31-year-old wife, Heather Morgan. The two were in the process of laundering the digital currency when the long arm of the law apprehended them in their Manhattan apartment.

This is the largest financial seizure in the history of the Justice Department. According to court documents, the couple was attempting to launder 120,000 bitcoin stolen from Bitfinex in 2016. A hacker allegedly compromised the exchange platform and set up over 2,000 illegal transactions by rapidly automating cryptocurrency movement and deposits with special computer programs designed to conceal the origin of such transactions. A portion of the stolen digital currency was later traced back to Ilya Lichtenstein and Heather Morgan’s accounts.

Couple Charged with Attempting to Defraud the United States of America

Ilya Lichtenstein and Heather Morgan, who marketed themselves as expert entrepreneurs with in-depth knowledge of technology issues, were summoned to Manhattan court to answer charges of conspiracy to launder money and defraud the United States. Heather Morgan’s bond was set at $3 million by US Magistrate Judge Debra, with her parents’ home used as security. A $5 million bond was set for Mr. Ilya Lichtenstein, and the two were barred from using internet-enabled devices or transacting in digital currency.

Anirudh Bansal, the couple’s lawyer, attempted to mitigate the charges by telling the court that his clients had been aware of the Justice Department’s investigation into their dealings for some time. He noted that they had made no attempts to flee the country, confident of their innocence in the matter. Nonetheless, conspiracy to launder and defraud the United States are grave offenses with maximum prison sentences of twenty and five years, respectively.

What this record financial seizure means for the Crypto Industry

Statistics by Chainalysis blockchain analytics indicate that in 2021 alone, online scammers defrauded over $14 billion worth of cryptocurrency.  In 2022, the popular Wormhole bridge, which connects the Solana and Ethereum blockchains, reported a $320 million loss to hackers in early February. In response to the rise in digital currency crimes, District of Columbia US Attorney Mathew Graves issued a statement warning that the rampant digital heists were undermining trust in cryptocurrency exchanges. According to Mathew Graves, it is a significant impediment to expanding America’s financial system.

The record financial seizure, according to Keneth Polite Jr, the assistant attorney general for the US Justice Department’s criminal division, is a big and bold statement by federal law enforcement that it can effectively trace funds through the blockchain. Criminals previously lauded cryptocurrency as a safe haven for money laundering because it was perceived to be a lawless financial space. With recent crackdowns on cybercriminals, such notions are quickly becoming obsolete.

The Infamous Couple’s Money Laundering Methods

The federal agents investigating the case discovered that the funds were moved using a variety of sophisticated laundering techniques. To begin, the perpetrators created fictitious online accounts. The second phase was “layering,” in which stolen money transactions and deposits were automated using computer-based programs into bogus accounts in various darknet markets and exchanges. After that, bitcoin was converted into other cryptocurrencies. It was dubbed “anonymity enhanced digital currency” by the Department of Justice. The couple was keen to use US-based commercial accounts to make their transactions appear legitimate.

To stay ahead of updated digital hacking and cryptocurrency laundering tactics, the IRS-CI cyber crimes unit keeps up with any emerging cyber trends. Such foresight proved useful in deciphering Ilya Lichtenstein’s and Heather Morgan’s sophisticated laundering strategies. Following the 2016 Bitfinex heist, the IRS-CI unit did an outstanding job tracing and seizing the laundered bitcoins totaling $3.6 billion in cash value. The IRS investigations chief, Jim Lee, was particularly pleased with the progress made by the specialized cybercrime unit in recent years. Given that it was able to account for every transaction following the 2016 heist, the department has been impressive.

Conclusion

Financial crimes of this magnitude are a significant threat to the country’s economic security. The introduction of digital currencies has broadened opportunities in the globalization era, but it has also introduced a slew of risk factors. This is one of the main reasons why many economies are hesitant to adopt cryptocurrencies. Steve Francis, associate director of homeland security investigations, emphasized the importance of public-private collaboration in maintaining consumer trust in evolving financial systems. The arrest of Ilya Lichtenstein and Heather Morgan is a huge victory for the Justice Department, and hopefully, it will serve as a deterrent to others considering engaging in cybercrime.

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