Two Israeli men accused of being owners and operators of a website known as DeepDotWeb (DDW) are facing charges of money laundering for kickbacks on sales of drugs on the Darknet, federal officials said.
Tal Prihar, 37, an Israeli citizen living in Brazil, and Michael Phan, 34, an Israeli citizen living in Israel, were charged on April 24 in a one-count indictment by a federal grand jury in Pittsburgh, PA, according to an indictment unsealed Wednesday.
Prihar was arrested in Paris May 6 by French law enforcement authorities. Phan was arrested in Israel May 6. In addition, the FBI seized the DDW website.
The pair ended up indicted for money laundering conspiracy, relating to millions of dollars in kickbacks they received for purchases of fentanyl, heroin, and other illegal contraband by individuals referred to Darknet marketplaces by DDW, federal officials said.
“These defendants allegedly made millions of dollars by providing a gateway to illegal Darknet marketplaces, allowing hundreds of thousands of users to buy fentanyl, hacking tools, stolen credit cards, and other contraband,” said Assistant Attorney General Brian A. Benczkowski.
“This is the single most significant law enforcement disruption of the Darknet to date,” said U.S. Attorney Scott W. Brady. “While there have been successful prosecutions of various Darknet marketplaces, this prosecution is the first to attack the infrastructure supporting the Darknet itself.”
“For years, DeepDotWeb operated as a key gateway to the criminal underbelly of Darknet marketplaces, all while the website administrators profited from the Darknet economy,” said FBI Assistant Director Robert Johnson. “Although they believed that they could hide in plain sight, this case demonstrates nothing could be further from the truth.”
Starting in October 2013 and continuing through April this year Prihar and Phan owned and operated DDW, according to the indictment.
DDW provided users with direct access to numerous online Darknet marketplaces, not accessible through traditional search engines, at which vendors offered for sale illegal narcotics such as fentanyl, carfentanil, cocaine, heroin, and crystal methamphetamine, firearms, including assault rifles, malicious software and hacking tools; stolen financial information and payment cards and numbers; access device-making equipment and other illegal contraband, according to the indictment.
Prihar and Phan received kickbacks, representing commissions on the proceeds from each purchase of the illegal goods made by individuals referred to a Darknet marketplace from the DDW site, according to the indictment. These kickback payments were made in virtual currency, such as bitcoin, and paid into a DDW-controlled bitcoin “wallet.” To conceal and disguise the nature and source of the illegal proceeds, totaling over $15 million, Prihar and Phan transferred their illegal kickback payments from their DDW bitcoin wallet to other bitcoin accounts and to bank accounts they controlled in the names of shell companies.
Darknet marketplaces operated on the “Tor” network, a computer network designed to facilitate anonymous communication over the Internet, according to the indictment. Because of Tor’s structure, a user who wanted to visit a particular Darknet marketplace needed to know the site’s exact .onion address. DDW simplified this process by including pages of hyperlinks to various Darknet marketplaces’ .onion addresses.
Users who visited DDW were able to click on the hyperlinks to navigate directly to the Darknet marketplaces, the indictment said. Embedded in these links were unique account identifiers, which enabled the individual marketplaces to pay what they referred to as “Referral Bonuses,” to DDW. Kickbacks in the form of referral bonuses, paid in virtual currency, were a percentage of the profits of all of the activities conducted on the marketplace by any user who made purchases on the marketplace by using DDW’s customized referral link.
DDW’s referral links were used to access and then create accounts on Darknet marketplaces, including AlphaBay Market, Agora Market, Abraxas Market, Dream Market, Valhalla Market, Hansa Market, TradeRoute Market, Dr. D’s, Wall Street Market, and Tochka Market, according to the indictment. When AlphaBay was seized by law enforcement in 2017, it was one of the largest Darknet markets that offered illegal drugs, fraudulent identification materials, counterfeit goods, hacking tools, malware, firearms, and toxic chemicals. Approximately 23.6 percent of all orders completed on AlphaBay were associated with an account created through a DDW referral link, meaning DDW received a referral fee for 23.6 percent of all orders made on AlphaBay.
Over the course of the conspiracy, the defendants referred hundreds of thousands of users to Darknet marketplaces, according to the indictment.
The defendants grew and promoted the DDW site, which functioned to drive further traffic to the DDW referral links, generating additional income for the defendants, according to the indictment. Prihar functioned as the administrator of DDW. He registered the domain, made infrastructure payments and maintained control over site content. Phan was responsible for DDW’s technical operations, designing and maintaining the website’s day-to-day operation.
Starting in November 2014, the defendants controlled a bitcoin wallet they used to receive the kickback payments for purchases completed on the various Darknet marketplaces. Throughout the course of the conspiracy, DDW operated accounts on Darknet markets and communicated with the operators of various Darknet markets regarding kickback payments.
Between November 2014 and April 10 this year, DDW received approximately 8,155 bitcoin in kickback payments from Darknet marketplaces, worth approximately $8,414,173 when adjusted for the trading value of bitcoin at the time of each transaction, according to the indictment.
The bitcoin was transferred to DDW’s bitcoin wallet, controlled by the defendants, in a series of more than 40,000 deposits and was subsequently withdrawn to various destinations through over 2,700 transactions, according to the indictment. Due to bitcoin’s fluctuating exchange rate, the value of the bitcoin at the time of the withdrawals from the DDW bitcoin wallet came to $15,489,415. In seeking to conceal their activities and protect their enterprise and the proceeds it generated, the defendants set up numerous shell companies around the world, according to the indictment.