In February 2022, we reported on the seizure of a record $3.6 billion in stolen Bitcoin (“BTC”) and the subsequent criminal charges against Ilya “Dutch” Lichtenstein and Heather “Razzlekhan” Morgan for conspiracy to commit money laundering and defraud the United States. Recently, both defendants entered guilty pleas, with sentencing pending.
Both Lichtenstein and Morgan have plea agreements that involve potential sentence reductions through cooperation with the Department of Justice (“DOJ”). This case serves as a warning for financial institutions not to inadvertently disclose information related to grand jury subpoenas.
As previously discussed, Lichtenstein and Morgan were involved in an extensive operation to launder funds obtained from Lichtenstein’s 2016 hack of the Bitfinex virtual currency exchange (“VCE”). Their tactics included evading transaction thresholds by creating multiple accounts at various U.S. financial institutions and VCEs, converting stolen cryptocurrency into fiat currency through foreign bank accounts, and using cryptocurrency mixing services like ChipMixer.
Morgan’s plea agreement is somewhat more favorable than Lichtenstein’s in terms of defense stipulations.
The government’s asset seizure list reflects the wide range of methods used by Lichtenstein and Morgan to launder the stolen funds, including various cryptocurrencies, U.S. and Canadian gold coins, and funds held in accounts at several U.S. banks. This highlights a challenge faced by crypto criminals—eventually, digital currency must be converted into traditional currency, necessitating interaction with financial institutions and creating a record that can be scrutinized and subpoenaed.
Furthermore, the duo’s actions exposed them to additional criminal liability under the theory that their interference with financial institutions’ due diligence efforts caused those institutions to violate the Bank Secrecy Act (“BSA”), including failing to file Suspicious Activity Reports (“SARs”) with FinCEN.
The plea agreements also contain a cautionary anecdote for financial institutions, highlighting an incident where an institution inadvertently notified Lichtenstein and Morgan about disclosing account records to law enforcement. This notification prompted the defendants to attempt to cover their digital tracks, illustrating the importance of financial institutions staying compliant with legal obligations.
Lichtenstein’s plea agreement includes stipulations under the U.S. Sentencing Guidelines, with a potential reduction for substantial cooperation, indicating his cooperation with the government against unnamed targets. Unusually, the DOJ also agreed to potentially sponsor him for acceptance into the federal Witness Security Program.
Morgan, who played a minimal role in the offense according to the plea agreement, is facing a lower advisory Guideline sentence with potential reductions for cooperation.
The investigation involves various law enforcement agencies, including the IRS Criminal Investigation D.C. Field Office’s Cyber Crimes Unit, the FBI’s Chicago Field Office and Virtual Assets Unit, and Homeland Security Investigations New York, with significant assistance from the U.S. Attorney’s Office for the Eastern District of Pennsylvania, which has been active in digital asset law enforcement.
In conclusion, this case underscores the risks and consequences of engaging in cryptocurrency-related criminal activities and highlights the importance of cooperation with law enforcement agencies in prosecuting such cases.
By FCCT Editorial Team
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