Bitcoin Fog Case Could Put Cryptocurrency Tracing on Trial

Tracking tools Cryptocurrencies have, in recent years, enabled law enforcement agencies to convict dark web black market operators, recover millions in ransomware payments, seize billions of stolen bitcoins, and even disrupt networks of child abuse. Now a criminal defendant claims those same tools have also wrongfully imprisoned him for more than 15 months.

In the spring of last year, Roman Sterlingov, a 33-year-old Swede and Russian, was arrested by IRS criminal investigators at the Los Angeles airport and accused of creating and operating Bitcoin Fog, a service of ” mix” of bitcoins in the dark. website that took coins from its users and returned others with the intention of preventing forensic accountants from tracking that money. The Department of Justice accuses Sterlingov of no less than $336 million in money laundering during Bitcoin Fog’s decade online.

Now, Sterlingov’s legal team, led by well-known hacker defense attorney Tor Ekeland, has their answer: They claim in a series of legal motions filed late yesterday that Sterlingov is innocent and vow to take his case to trial . In doing so, Sterlingov’s defense says, they plan to prove not only that he never ran Bitcoin Fog, but also that the blockchain analysis techniques used to pin the case on him were flawed, leading to the his unjust detention and a lost year of his life. .

“I did not create Bitcoin Fog. I was never an administrator of Bitcoin Fog,” Sterlingov told WIRED, speaking from a prison in Northern Virginia. “I’ve been here for over a year now. I’m so perplexed by the system that could put me in here, what they can do to an innocent man. It’s a Kafkaesque nightmare.”

Unlike some clearer investigations into the criminal use of cryptocurrency, prosecutors in Sterlingov’s case have not pointed to any smoking gun digital evidence recovered from Sterlingov’s possessions or devices when he was arrested on his trip in the United States last year. Instead, the statement of facts released when the charges against Sterlingov were made public in April 2021 detailed a combination of blockchain-based cryptocurrency tracing, IP address matching and online account information links. The Internal Revenue Service says the collection of evidence links Sterlingov to the creation of Bitcoin Fog in 2011 and shows, through Bitcoin tracing in particular, that he continued to receive profits from the service until 2019.

“Where is the corroborating evidence?” asks Sterlingov’s defense attorney, Ekeland. He goes through the inventory of items found on Sterlingov at the time of his arrest, which he says included laptops, hard drives, security codes for his accounts, Bitcoin debit cards and a smartphone customized to store cryptocurrency . “But you know what’s not found when he’s caught traveling? Some evidence that Bitcoin Fog operated. No witnesses, no records, no communications. They’re pinning it down in a multi-layered puzzle game.”

The Justice Department did not yet respond to WIRED’s request for comment. The IRS declined to comment on pending litigation.

Sterlingov and his lawyers yesterday filed a motion to dismiss, a motion for a letter of particulars, a motion to release seized property and a motion to reconsider pretrial detention, among other points. The Justice Department has already produced more than three terabytes of data related to the case during discovery. The defense alleges that the sheer volume of information is difficult to parse, but that nothing appears to establish a direct connection between Sterlingov and the creation or operation of Bitcoin Fog. And they further argue that the digital forensic analysis shared by the prosecution is flawed and, at best, opaque.

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