Jonelle Still, director of investigations and intelligence at CipherTrace, a cryptocurrency intelligence company owned by Mastercard, filed a report this week in a criminal case involving the Bitcoin Fog cryptocurrency mixing service, supporting the defense in the United States v. Roman Sterlingov case.
According to Cointelegraph, Sterlingov was accused by U.S. authorities of participating in illegal money laundering transactions while serving as the administrator of the Bitcoin Fog website, which was said to be as high as $336 million. Sterlingov was arrested in April 2021 after prosecutors investigated a decade of blockchain data. According to his lawyers, the criminal charges are based on evidence provided by blockchain investigative agency Chainalysis.
CipherTrace, which joined the case at the request of Sterlingov's defense attorneys, detailed Still's views on the validity of the data prosecutors obtained from Chainalysis in a 41-page report. The core point of the report is the assertion that the data provided by Chainalysis cannot be verified on-chain:
"The blockchain forensics and tracing tools used in this case were misused to incorrectly conclude that Mr. Sterlingov was the operator of Bitcoin Fog, when no such evidence existed on the chain."
In a podcast interview, Sterlingov's legal representatives Tor Ekeland and Michael Hassard explained the case from their perspective. They claim that Chainalysis failed to use the data to trace back to their clients, and instead only provided prosecutors with an opinion on who founded Bitcoin Fog.
Ekeland and Hassard allege that the government is basing its case on Chainalysis data and its claim that IRS Secret Service agents sent a message in 2019 to what they believe was the Bitcoin Fog help desk or a similar unit, asking whether the service was a good fit. Laundering the Bitcoin they earned from selling “molly” (the common name for MDMA).
Lawyers claim that Bitcoin Fog never responded to the message, and IRS agents continued to use the Bitcoin Fog service in what U.S. authorities now claim was a money laundering operation. But Ekeland and Hassard said the government never actually sold molly in exchange for Bitcoin and laundered the money through the Bitcoin Fog service.
The report provided by CipherTrace highlighted some of the issues surrounding the Chainalysis data, ultimately concluding that “Blockchain forensics can only be used to generate investigative leads and is insufficient as a primary source of evidence alone.” The authors go on to note that the U.S. and Chainalysis reaching such a conclusion without “any conclusive evidence of blockchain forensics” is “shocking.”
The report reads:
“In order to prevent false arrests like this one, it is recommended that Chainalysis and its blockchain analysis methods be independently audited.”
As the United States seized all of Sterlingov's assets during his trial, his defense team and CipherTrace provided pro bono assistance to his legal efforts.
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