The founder of cryptocurrency mixing service Bitcoin Fog was sentenced on Friday to 150 months in prison for operating what prosecutors described as one of the “largest and longest-running money laundering services.”
According to prosecutors, the service was used to launder over $400 million in criminal proceeds since being created in 2011. The case was one that challenged the idea that cryptocurrencies, because they are not fiat currency, can operate outside of normal legal frameworks. As blockchain analysis and crypto payment tracing techniques have matured and become central to criminal investigations, it was a matter of time before the services key to scrambling the origins of money would come under scrutiny themselves. Besides money laundering, mixers can be charged with running unlicensed money transmitting businesses. Basically, allowing people to send and receive money without checking their identities.
In layman’s terms, cryptocurrency mixers are big pools where crypto users deposit their tokens, after which the cryptocurrency gets shuffled, then redistributed back to users equal to the original amount they put in, minus a service fee taken by the mixer. The idea is to prevent forensic accountants from following that money’s trail, though proponents of the services say they just help individuals maintain their privacy.
As part of sentencing, Sterlingov, 36, was ordered to forfeit his interest in a Bitcoin Fog wallet with containing Bitcoin valued at more than $103 million. Sterlingov has said that his crypto holdings came not from Bitcoin Fog but from early investment in cryptocurrencies. He did concede that he used the service as a user seeking privacy, and suggested those transactions led prosecutors to wrongly tie him to the service’s operations.
Sterlingov maintained throughout trial that he never operated Bitcoin Fog. After sentencing, however, Sterlingov expressed remorse. “I am sorry for any harm that may have come from my actions,” he told the judge. “I’m fully committed to becoming a better person.”
The government tied Sterlingov to the service by showing a trail of financial transactions from 2011 linking him to payments made to register the Bitcoinfog.com domain. Bitcoin Fog operated on the dark web, but Bitcoinfog.com advertised how to find the site. Sterlingov said in court that he worked in 2011 as a web designer for a Swedish marketing company, implying he might have made the site for a client. But he also said he couldn’t remember for sure as it was so long ago.
WIRED back in 2022 explained more of the government’s evidence:
The funds to pay for that domain traveled through several accounts and were eventually exchanged from Bitcoin for the now-defunct digital currency Liberty Reserve, according to prosecutors. But the IRS says IP addresses, blockchain data, and phone numbers linked with the various accounts all connect the payments to Sterlingov. A Russian-language document in Sterlingov’s Google Account also described a method for obfuscating payments similar to the one he’s accused of using for that domain registration.
Prosecutors concluded, and the jury agreed, that despite a lack of service logs or other evidence linking Sterlingov to the operations of Bitcoin Fog, the overwhelming evidence supported it beyond a reasonable doubt. The defendant’s statements can’t “be reconciled with the jury’s verdict,” prosecutors wrote in their sentencing memo.
The co-founder of another crypto mixer, Tornado Cash, was sentenced in May to 64 months in prison after being found guilty by a Dutch court of laundering over $1.2 billion.
Who knows, if President-elect Trump follows through on his pledge to commute Ross Ulbricht’s life sentence for operating the Silk Road dark marketplace, maybe Sterlingov and other crypto mixers might have a similar chance at freedom. It seems unlikely the pledge was anything more than a ploy to win support, however.
