On February 13, the U.S. Department of Justice announced that Larry Harmon, the operator of a Darknet-based cryptocurrency laundering service that “mixed” Bitcoin, had been arrested based on a federal indictment that charged him with money laundering conspiracy, operating an unlicensed money transmitting business and conducting money transmission without a District of Columbia license.
Bitcoin “mixers,” as a Bitcoin Magazine post defined them, are “solutions (software or services) that let users mix their coins with other users, in order to preserve their privacy.” While Bitcoin addresses themselves are pseudonymous, the post explained, “they can often still be linked to real-world identities” through Bitcoin exchange data or blockchain analysis. By mixing their coins, however, “users can obscure the ties between their Bitcoin addresses and real-world identities.”
Bitcoin mixers use a variety of techniques. Some use “centralized” mixing, in which a mixer simply takes a batch of Bitcoins that a person owns and sends that person someone else’s Bitcoins. Others enable a large group of users to collaborate in making a single large payment to themselves, or merge smaller transactions into larger transactions.
The indictment against Harmon alleges that he operated his Bitcoin “mixer” or “tumbler” service, named Helix, from 2014 to 2017. Helix allegedly allowed customers, for a fee, to send Bitcoin “to designated recipients in a manner that was designed to conceal the source or owner of the bitcoin.” Harmon advertised Helix to customers on the Darknet as a means of concealing transactions from law enforcement. Helix was also allegedly linked to and associated with “Grams,” a Darknet search engine that Harmon ran.
The indictment further alleges that Helix moved more than 350,000 Bitcoin (valued at more than $300 million at the time of the transactions) on behalf of customers, with the largest volume of Bitcoin coming from Darknet markets. Helix partnered with the Darknet market AlphaBay – reputed to be the largest Darknet marketplace in operation when law enforcement seized it in 2017 — to provide Bitcoin laundering services for AlphaBay customers.
Note: This indictment is reportedly the first that the Justice Department has brought against a Bitcoin mixer. Observers of the cryptocurrency industry can safely assume that it will not be the last. Especially after this indictment and last year’s shutdown of Bitcoin mixer Bestmixer by the Dutch Fiscal Information and Investigation Service, law enforcement and anti-money laundering regulators in multiple countries are likely to increase their investigation and pursuit of cryptocurrency mixers and tumblers. The volume of transactions that mixers have handled – reportedly $200 million by Bestmixer and $300 million by Helix – are substantial enough to cause concern about their continuing utility in concealing and laundering criminal proceeds.