Bitcoin Fog Case Could Put Cryptocurrency Tracing on Trial

Ekeland says that discovery documents in the case show that the prosecution’s cryptocurrency tracing was performed with tools sold by Chainalysis, a New York–based blockchain analysis startup, along with consulting help from Excygent, a government contractor specializing in cybercriminal and cryptocurrency investigations, which Chainalysis acquired in 2021.

Ekeland argues that Chainalysis, valued at $8.6 billion in a recent investment round and frequently used in high-profile cybercriminal law enforcement investigations, had a conflict of interest in the case, given its financial dependence on US government contracts and a flow of former government investigators who have gone to work for Chainalysis. “This is a story of people profiteering and advancing their careers, throwing people in jail to promote their blockchain analysis tool that is junk science and doesn’t withstand any scrutiny,” says Ekeland. He adds that, based on the evidence provided in Sterlingov’s case, he believes “Chainalysis is the Theranos of blockchain analysis.”

Chainalysis declined to comment about the motions filed yesterday, their broader implications, or Ekeland’s characterization of its work.

Sterlingov, for his part, says his cryptocurrency holdings—all of which were frozen at the time of his arrest—came not from Bitcoin Fog but from early investment in cryptocurrency. He concedes that he did send and receive payments to Bitcoin Fog as a user of the service seeking privacy, but says he didn’t use his bitcoins for anything illegal. “I think some of my transfers must have gotten mixed up with everything,” he says.

Along with their motions, the defense filed two expert declarations with the court, one from cybersecurity researcher Chris Vickery and the other from intelligence analyst Eric Garland. The documents are meant to support Sterlingov and his lawyer’s accusations about the prosecution’s digital forensic analysis and Chainalysis and Excygent’s alleged conflicts of interest in investigating Sterlingov’s potential ties to Bitcoin Fog.

Sterlingov, who moved with his family from Voronezh, Russia, to Gothenburg, Sweden, when he was 14, also argues that as a Swedish citizen he should be tried in Sweden rather than the United States. He had flown to the US, he says, only to go to flight school to train as a commercial pilot. His defense has argued in Monday’s motions that the District of Columbia prosecutors charging Sterlingov have no venue to pursue the case, given that he has no connection to Washington, DC.

“I don’t understand how I’m in an American jail. I’ve never done business with America,” says Sterlingov. “I’m worried. I don’t know what’s going to happen. I’m thousands of miles from my home. If I were some kind of crypto criminal kingpin, which I’m not, Sweden could deal with me.”

Furthermore, Sterlingov’s lawyers argue in their motion to dismiss that the statute of limitations has run out on the charges against him, since the alleged conduct at issue, including registering the domain and conducting particular Bitcoin transactions, occurred in 2011. The motion argues that three of the counts brought against Sterlingov have a five-year statute of limitations and that one has a six-year statute.

Given that blockchain analysis and cryptocurrency payment tracing techniques have matured over the past decade and have become central to many cybercriminal investigations in the US and worldwide, it is inevitable that their methodology and validity will be called into question and interrogated. Sterlingov’s case is taking the first step to establish that battleground.

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