US holds HK Bitzlato exchange 'co-founder'

US authorities say they have arrested the majority shareholder and co-founder of Hong Kong-registered virtual currency exchange Bitzlato Ltd for allegedly processing $US700 million ($A1.0 billion) in illicit funds.

Anatoly Legkodymov, a Russian citizen living in China, was arrested in Miami on Tuesday on charges that he operated the exchange as an unlicensed money exchange business that "in his own words, catered to 'known crooks'", a top Justice Department official said.

Prosecutors said Bitzlato exchanged more than $US700 million in cryptocurrency with Hydra Market, which they described as an illicit online marketplace for narcotics, stolen financial information, fraudulent identification documents and money laundering services that US and German law enforcement shut down in April 2022.

"Whether you break our laws from China or Europe or abuse our financial system from a tropical island - you can expect to answer for your crimes inside a United States courtroom," Deputy Attorney General Lisa Monaco told reporters at a news conference at the Justice Department.

Bitzlato also received more than $US15 million in ransomware proceeds, prosecutors said.

It was not immediately possible to contact Hydra Market for comment.

Authorities described Legkodymov as the cryptocurrency exchange's co-founder, saying the 40-year-old Russian helped run the company from the Chinese city of Shenzhen.

Legkodymov did not immediately respond to an email with questions and messages left on Bitzlato's automated Telegram support chat service were answered with the phrase, "Oops, sorry".

Bitzlato has processed $US4.58 billion worth of cryptocurrency transactions since May 3, 2018, prosecutors said, adding a substantial portion constitutes "the proceeds of crime."

It also broke rules requiring significant vetting of customers and failed to meet requirements aimed at preventing money laundering, authorities said.

Archived versions of Bitzlato's website noted that the site's clients could register using "only your email".

The charges were filed in conjunction with the US Treasury Department's Financial Crimes Enforcement Network (FinCEN), which said it has prohibited certain transmittals of funds involving Bitzlato by any covered financial institution after labe;ling Bitzlato Ltd a "primary money laundering concern" related to Russian illicit finance.

Bitzlato knowingly serviced US customers, conducted transactions with US-based exchanges, was run using US online infrastructure - and, for at least some period of time, was being managed by the defendant while he was in the United States, prosecutors said.

By midday on Wednesday, Bitzlato's website was replaced by a notice saying that the service had been seized by French authorities "as part of a coordinated international law enforcement action".