By Anthony Marcus, consultant for Eurasia Business News – April 5, 2022

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned today the world’s largest and most prominent darknet market, Hydra Market (Hydra), in a coordinated international effort to disrupt proliferation of cybercrime services and other illegal services and goods available through the Russia-based darknet platform.

The U.S. and European operation targeting Hydra was a collaborative initiative joined by the U.S. Department of Justice, Federal Bureau of Investigations, Drug Enforcement Administration, Internal Revenue Service Criminal Investigation, Homeland Security Investigations and European Allies. This action was enhanced by international cooperation with the German Federal Criminal Police, who today shut down Hydra servers in Germany and seized $25 million worth of bitcoin.

“The servers of the world’s largest darknet market have been confiscated and 543 bitcoins with a total value of about 23 million euros have been secured,” according to a statement from the Frankfurt Public Prosecutor’s Office and the Federal Criminal Police Office (BKA).

“The global threat of cybercrime and ransomware that originates in Russia, and the ability of criminal leaders to operate there with impunity, is deeply concerning to the United States,” said the US Secretary of the Treasury Janet L. Yellen.

The official added that : “Our actions send a message today to criminals that you cannot hide on the darknet or their forums, and you cannot hide in Russia or anywhere else in the world. In coordination with allies and partners, like Germany and Estonia, we will continue to disrupt these networks.”

What are darknets ?

Darknets are Internet-based networks that individuals use special software to access in a manner designed to hide the individuals’ identity and their associated Internet activity. Marketplaces that reside on the darknet almost exclusively accept virtual currency as payment for a large range of illegal services and goods, including ransomware-as-a-service (RaaS). Virtual currency is often the payment method of choice on darknet marketplaces because illicit actors who transact on the darknet often incorrectly believe virtual currencies to be an anonymous and untraceable means of exchange. Ransomware payments are also often demanded in virtual currency for similar reasons. Countering ransomware is a top priority of the Administration. Today’s action supports the Administration’s counter-ransomware lines of effort to disrupt ransomware infrastructure and actors in close coordination with international partners. The U.S. and German government’s action today addresses the abuse of virtual currency to launder ransom payments.

The United States has been repeatedly designating Russia as the home of major cybercriminals. Today’s action against Hydra and Garantex platforms builds upon recent U.S. sanctions against virtual currency exchanges SUEX and CHATEX, both of which, like Garantex, operated out of Moscow, Russia, according the U.S. authorities.

The U.S. Treasury stated in its press release that Washington is committed to taking action against actors that, like Hydra and Garantex, willfully disregard anti-money laundering and countering the financing of terrorism (AML/CFT) obligations and allow their systems to be abused by illicit actors.

The U.S. Treasury repeated that breaking regulations and compliance by persons that run virtual currency exchanges will lead to rigorous investigations.

Additionally, the United States urged the international community to effectively implement international standards on AML/CFT in the virtual currency area, particularly regarding virtual currency exchanges. The virtual currency industry has a critical role to play in implementing appropriate AML/CFT and sanctions controls to prevent sanctioned persons and other illicit actors from exploiting virtual currencies to undermine the national security of the United States and our partners.

Read also : U.S. Treasury Imposed Sanctions on Members of Russian Duma and Sberbank CEO

In addition to sanctioning Hydra, OFAC is identifying over 100 virtual currency addresses associated with the entity’s operations that have been used to conduct illicit transactions. The U.S. Treasury is committed to sharing additional illicit virtual currency addresses as they become available.

Read also : How will Russia respond to Western sanctions ?

As reflected in the U.S. Executive Order (E.O.) 14067 of March 9, 2022, “Ensuring Responsible Development of Digital Assets,” the Biden Administration supports responsible innovation in digital assets, while prioritizing efforts to identify and mitigate illicit financing risks in the digital asset ecosystem. In the coming month, the U.S. Department of the Treasury will publish an updated National Strategy to Combat Illicit Finance, which will highlight planned Treasury efforts to further combat the misuse of virtual currency and exchanges.

What is the Hydra market ?

Hydra was launched in 2015 and is the most prominent Russian darknet market, and the largest darknet market left in the world. Hydra’s offerings have included ransomware-as-a-service, hacking services and software, stolen personal information, counterfeit currency, stolen virtual currency, and illicit drugs, according to the U.S. Treasury.

What is Garantex ?

Garantex is a virtual currency exchange founded in late 2019 and originally registered in Estonia. Garantex allows customers to buy and sell virtual currencies using fiat currencies. The majority of Garantex’s operations are carried out in Moscow, including at Federation Tower, and St. Petersburg, Russia, where other sanctioned virtual currency exchanges have also operated, reported the U.S. OFAC department.

Analysis of known Garantex transactions shows that over $100 million in transactions would be associated with illicit actors and darknet markets, reported the U.S. Treasury. In February 2022, Garantex lost its license to provide virtual currency services after supervision by Estonia’s Financial Intelligence Unit revealed critical AML/CFT deficiencies and found connections between Garantex and wallets used for criminal activity. Estonian authorities coordinated closely with the U.S. Treasury Department during this process. This is the second time in the last six months that U.S. authorities has partnered with the Estonian government in relation to a virtual currency exchange facilitating malicious cyber activity. Despite losing its Estonian license to provide virtual currency services following the Estonian Financial Intelligence Unit’s investigation, Garantex continues to provide services to customers through unscrupulous means.

OFAC sanctions implications

As a result of today’s OFAC sanctions, all property and interests in property of the individuals and entities described above that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked. All transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or otherwise blocked persons are prohibited unless authorized by a general or specific license issued by OFAC, or exempt. These prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person and the receipt of any contribution or provision of funds, goods, or services from any such person.

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