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A husband-and-wife team, now known as the Bitcoin Bandits, was arrested on Tuesday. They have been charged with conspiracy to launder cryptocurrency. And the crypto theft they are accused of was during the 2016 hack of Bitfinex, a virtual currency exchange (VCE).

After the arrest, Ilya “Dutch” Lichtenstein, 34, and his wife, Heather Morgan, 31, both of New York, New York, made their initial appearances in federal court in Manhattan. Lichtenstein holds dual citizenship in the US and Russia.

The couple was charged with a Money Laundering Conspiracy, in violation of 18 U.S.C. § 1956(h); and Conspiracy to Defraud the United States, in violation of 18 U.S.C. § 371. The laundering charges carry a maximum of 20 years in prison. And the defraud carries a maximum of five years behind bars.

A federal district court judge will determine the final length of sentences.

Bitfinex operated by iFinex is one of the world’s largest virtual currency exchanges. And they use their platform for customers to buy, sell, and store various kinds of virtual currency. 

At the time of the initial hack, the crypto was worth approximately 77 million. And today the increased value is an estimated $4.5 billion. Law enforcement has been able to track back and seize over $3.6 billion in cryptocurrency linked to the Bitfinex hack.

FBI hacks back stolen crypto 

IRS-CI Washington, D.C. Field Office’s Cyber Crimes Unit led the investigation. They were supported by the FBI’s Chicago Field Office, and HSI-New York. And the Ansbach Police Department in Germany assisted in this investigation.

According to the arrest warrant Statement of Facts, Lichtenstein and Morgan are linked to the bitcoin wallets where the bitcoin was being held.

Authorities got search warrants of online accounts controlled by Lichtenstein and Morgan. They were able to track the bitcoin and hack back a substantial amount.

Court documents allege that Lichtenstein and Morgan conspired to launder the stolen 119,754 bitcoin. When Bitfinex was breached, hackers initiated more than 2,000 unauthorized transactions. 

The unauthorized transactions sent the stolen bitcoin to a digital wallet under Lichtenstein’s control. For the last five years, approximately 25,000 of those stolen bitcoins were transferred out of Lichtenstein’s wallet. He used a complicated money laundering process. And the stolen funds were being deposited back into financial accounts controlled by Lichtenstein and Morgan. 

The remainder of the converted crypto, more than 94,000 bitcoins, remained in the wallet. And it was used to receive and store the illegal proceeds from the hack.

Uncovered files contained the private keys required to access the digital wallet that directly received the funds stolen from Bitfinex. And special agents recovered more than 94,000 bitcoins. The seized bitcoin was valued at over $3.6 billion at the time of the seizure.

Law Enforcement issue statements on Bitcoin Bandits

“Today’s arrests, and the department’s largest financial seizure ever, show that cryptocurrency is not a haven for criminals,” Deputy Attorney General Lisa O. Monaco tweeted. “In a futile effort to maintain digital anonymity, the defendants laundered stolen funds through a labyrinth of cryptocurrency transactions. Thanks to the meticulous work of law enforcement, the department once again showed how it can and will follow the money, no matter what form it takes.”

“Today, federal law enforcement demonstrates once again that we can follow the money through the blockchain, and that we will not allow cryptocurrency to be a haven for money laundering or a zone of lawlessness within our financial system,” said Assistant Attorney General Kenneth A. Polite Jr. of the Justice Department’s Criminal Division. “The arrests today show that we will take a firm stand against those who allegedly try to use virtual currencies for criminal purposes.”