Crypto mixer Bitcoin Fog founder faces 12.5 years for $400M laundering scheme

The operator of the crypto mixing tool Bitcoin Fog, Roman Sterlingov, has been sentenced to 12 and a half years for laundering $400 million in crypto for criminals. The sentencing follows a jury trial in March that found Sterlingov guilty of multiple charges, including money laundering and operating an unregistered money-transmitting business. 

US District Judge for Washington Randolph Moss passed the sentencing while also ordering the forfeiture of $395 million worth of Sterlingov’s assets, including $103 million worth of Bitcoin. According to the US Department of Justice, Bitcoin Fog is the longest-running mixer, having been around since 2011.

The DOJ claims that Sterlingov, a Russian and Swiss national, was involved in Bitcoin Fog’s operations. It also said most of the 1.2 million BTC laundered through the mixer between 2011 and 2021 came from darknet marketplaces.

Deputy Attorney General Lisa Monaco said the sentencing highlights the agency’s desire to crack down on criminal networks that allow bad actors to flourish.

She said:

“Roman Sterlingov ran the longest-running bitcoin money laundering service on the darknet, and today he paid the price. In the deepest corners of the internet, he provided a home for criminals of all stripes, from drug traffickers to identity thieves, to store hundreds of millions of dollars in illicit proceeds.”

Meanwhile, FBI Assistant Director David Sundberg noted that the sentencing is a warning against all cybercrimes. He added that the FBI will deploy all necessary tools and use all its partnerships to disrupt cybercriminal networks and bring those facilitating criminal activities to justice. The investigation into Sterlingov also involved the Internal Revenue Service (IRS).

Sterlingov’s sentence puts Chainalysis tools in the spotlight

Despite the seemingly harsh sentence, Sterlingov escaped the maximum penalty the prosecutor requested. The prosecutor had asked for a 30-year sentence, noting the magnitude of the crime and the fact that Sterlingov lied under oath about operating the mixing service or making money from it.

Meanwhile, Sterlingov’s counsel, Tor Ekeland asked for a maximum of seven and half years, noting that there was no direct evidence his client was operating Bitcoin Fog. Sterlingov had insisted throughout the trial that he was only a user of Bitcoin Fog.

The sentencing has attracted the interest of freelance journalist Lola L33tz, who considers it a miscarriage of justice. L33tz claims that the case is an example of the US government’s war on financial privacy, noting that the Chainalysis tools used by prosecutors during investigations cannot be fully trusted and are, therefore, not enough to sentence a person to over a decade in jail.

L33tz points to the testimony of J. W. Verret, a forensic accountant who served as an expert witness for Sterlingov in the trial. Verret noted that there is no forensic evidence connecting Sterlingov to the operation of Bitcoin Fog, and the pre-trial hearing failed to account for 19,939 BTC, allegedly the crime’s proceeds. Other experts have also questioned Chainalysis’s tools, noting the likely inaccuracies.

She said:

“The government is now seizing the little Bitcoin he has left, while the Billions of Dollars he allegedly made operating Bitcoin Fog continue to remain unaccounted for.”

However, the judge and prosecutors did not agree with this line of reasoning. Chainalysis also came out to defend its tools, noting that the court’s rejection of the defense’s arguments against the admissibility of analytics evidence sets further precedence for the admissibility of evidence gathered using the Chainalysis tool.

Bitcoin Fog sentence is a warning to other crypto mixers

In his judgment, Judge Moss noted that a life sentence would be too harsh for the crimes committed. However, he emphasized the sentence being a deterrent for the crypto industry, which he claims has a poor record with compliance.

Many crypto community members have picked on this, noting that the US authorities are sending a clear message to mixers.

Crypto podcaster Mario Nawfal said:

“This ain’t just a slap on the wrist – it’s a straight-up message to mixers: play shady, pay heavy.”

Interestingly, some crypto mixer founders have been arrested and are awaiting trial in the US. The list includes the founders of Tornado Cash, Roman Storm and Roman Semenov, as well as Samourai wallet co-founder Keonne Rodriguez and the mixer’s CTO William Hill.

Both of these mixers have processed more transactions than Bitcoin Fog, raising concerns about the potential jail terms for those connected to them if they are found guilty.