On March 12, Russian-Swedish national Roman Sterlingov was found guilty of money laundering conspiracy and other offenses by a federal jury in Washington, D.C., for operating Bitcoin Fog, a service that criminals used to launder hundreds of millions of dollars to wash. in ill-gotten gains.
The verdict was announced by the US Department of Justice as a victory against crypto crime, but Sterlingov’s lawyers claim the case against him was flawed and plan to appeal. They argue that the emerging science used to gather evidence against him is not fit for purpose.
The DOJ investigation used blockchain forensics, a technique in which researchers scrutinize the public trail of crypto transactions to map the flow of money. In a rackUS Deputy Attorney General Lisa Monaco described the DOJ as “meticulously tracing bitcoin through the blockchain” to identify Sterlingov as the pseudonymous administrator behind Bitcoin Fog.
Bitcoin and other cryptocurrencies have gained an undeserved reputation for being less traceable than conventional money, but evidence gathered this way has brought down many criminals over the past decade. Blockchain forensics were crucial to the trial of Ross Ulbricht, founder of the infamous Silk Road marketplace. But in the Bitcoin Fog case, the defense has put this investigative technique in the spotlight, effectively putting crypto tracers on trial instead of their client. The case is “the first of its kind,” said Tor Ekeland, Sterlingov’s legal advisor. “No one has challenged blockchain forensics before because it is brand new.”
Before Sterlingov’s trial, his lawyers asked the presiding judge to determine the admissibility of evidence from blockchain forensics experts who had used software from a company called Chainalysis, which speeds up the otherwise laborious process of searching the blockchain. He ruled the evidence was admissible.
This decision has been characterized by Michael Gronager, CEO of Chainalysis, as an endorsement of his company and its methods. “We are now the only company in the world with a stamp of approval for our ability to look at a blockchain and create evidence,” he says. But Ekeland says he will work with Sterlingov to appeal both the guilty verdict and the judge’s ruling on the validity of blockchain forensics. Sterlingov’s conviction is the latest example of the unfortunate phenomenon, Ekeland claims, where “newly emerging junk science leads to unjust rulings.”
Chainalysis’ Beth Bisbee, the company’s former head of U.S. investigations, disputes this characterization. “The evidence the government presented to the jury showed the exact opposite,” said Bisbee, who testified as an expert witness at the trial. “Our methods are transparent, tested, assessed and reliable.”
Natsec threat
Until it was shut down by US law enforcement in 2021, Bitcoin Fog provided a so-called crypto-mixing or crypto-tumbling service. Funds from many parties are pooled, scrambled, and spat into brand new wallets, masking the origins of the coins in each wallet. Mixers were originally promoted as a way to improve the level of privacy that cryptocurrency could offer consumers, but that has already happened co-opted for the purpose of money laundering. Bitcoin Fog was one of the first mixers to emerge in 2011, making it “the longest-running bitcoin money laundering service on the darknet,” the DOJ says.
In recent years, the US government has cracked down on crypto mixers, which it considers a threat to national security. After disabling Bitcoin Fog, the US Treasury Department sanctioned Tornado Cash, another mixer, in 2022. took down another one, ChipMixer, and accused its founder of money laundering. To identify the people behind these operations, researchers had to track the cryptocurrency.