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Bitcoin Fog Case Might Put Cryptocurrency Tracing on Trial

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Instruments to hint cryptocurrencies have, over simply the final a number of years, allowed regulation enforcement businesses to convict dark web black market administrators, recover millions in ransomware payments, seize billions in stolen bitcoins, and even disrupt networks of child abuse. Now one felony defendant claims those self same instruments have additionally unjustly put him in jail for greater than 15 months.

Within the spring of final 12 months, Roman Sterlingov, a 33-year-old Swedish-Russian nationwide, was arrested by IRS felony investigators on the Los Angeles airport and accused of creating and operating Bitcoin Fog, a bitcoin “mixing” service on the darkish net that took in cash from its customers and returned others with the intention of stopping forensic accountants from following that cash’s path. The Justice Division accuses Sterlingov of at least $336 million in cash laundering over Bitcoin Fog’s decade on-line.

Now, Sterlingov’s authorized workforce, led by the well-known hacker protection lawyer Tor Ekeland, has fired again: They’re claiming in a sequence of authorized motions filed late yesterday that Sterlingov is harmless and vowing to take his case to trial. In doing so, Sterlingov’s protection says, they plan to indicate not solely that he by no means ran Bitcoin Fog, but additionally that the blockchain evaluation methods used to pin the case on him had been defective, resulting in his wrongful arrest and a misplaced 12 months of his life.

“I didn’t create Bitcoin Fog. I used to be by no means an administrator of Bitcoin Fog,” Sterlingov advised WIRED, talking from a Northern Virginia jail. “I’ve been right here for greater than a 12 months now. I’m actually perplexed on the system that would put me in right here, at what they’ll do to an harmless man. It’s a Kafkaesque nightmare.”

In contrast to in some extra clear-cut investigations of felony use of cryptocurrency, prosecutors in Sterlingov’s case haven’t pointed to any smoking-gun digital proof retrieved from Sterlingov’s possessions or gadgets when he was arrested throughout his journey to the US final 12 months. As a substitute, the assertion of information launched when fees in opposition to Sterlingov grew to become public in April 2021 detailed a mix of blockchain-based cryptocurrency tracing, IP handle matching, and on-line account data hyperlinks. The Inner Income Service says that assortment of proof ties Sterlingov to Bitcoin Fog’s creation in 2011, and reveals—via Bitcoin tracing specifically—that he continued to obtain income from the service as late as 2019.

“The place’s the corroborating proof?” asks Sterlingov’s protection lawyer Ekeland. He runs via the stock of things discovered on Sterlingov on the time of his arrest, which he says included laptops, exhausting drives, backup codes for his accounts, Bitcoin debit playing cards, and a personalized smartphone for storing cryptocurrency. “However you recognize what’s not discovered after they catch him touring? A shred of proof that he operated Bitcoin Fog. No witnesses, no logs, no communications. They’re pinning it on a multi-layer guessing recreation.”

The Division of Justice didn’t but reply to WIRED’s request for remark. The IRS declined to touch upon pending litigation.

Sterlingov and his attorneys yesterday filed a movement to dismiss, a movement for a invoice of particulars, a movement to free seized belongings, and a movement to rethink pre-trial detention, amongst different gadgets. The Division of Justice has already produced greater than three terabytes of knowledge associated to the case throughout discovery. The protection alleges that the sheer quantity of data is tough to parse, however that nothing in it appears to determine a direct connection between Sterlingov and the creation or operation of Bitcoin Fog. And so they additional argue that the digital forensic evaluation the prosecution has shared is flawed and opaque at greatest.

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