Binance is the world’s largest cryptocurrency exchange and handles billions of dollars in trading volume on a daily basis.
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Federal prosecutors unsealed an indictment on Wednesday against a little-known cryptocurrency exchange called Bitzlato, alleging it helped launder $700 million in dirty cryptocurrency and millions in ransomware proceeds linked to now-shuttered dark web marketplace Hydra.
Blockchain data shows that tens of millions of dollars passing through Bitzlato eventually ended up in Binance deposit wallets, despite what Binance says are strict anti-money laundering standards. carried out.
Binance, the world’s largest cryptocurrency, has not been linked to any criminal activity and regulators have not accused it of knowingly accepting illegal funds, although the exchange is under its own criminal investigation by the Department of Justice over legal compliance. with anti-money laundering or AML laws.
Bitzlato’s flow of funds raises questions about the effectiveness of Binance’s AML practices, especially after Binance’s external AML vendor Chainalysis reported in February 2022 that 48% of Bitzlato’s 2019-2021 cryptocurrency inflows, or cryptocurrency inflows, were at risk given that it issued a report estimating.
Bitzlato’s top cryptocurrency evaluated in the balance sheet A total of $6.6 million, according to Arkham Intelligence. By comparison, Binance’s peak balance was valued at over $60 billion. But total flows into and out of Bitzlato were in the hundreds of millions of dollars, indicating that Bitzlato is a way station for users looking to hold their cryptocurrencies on more established exchanges.
On a bigger exchange like Binance or Coinbasefor example, many clients allow the platform to store their cryptotokens. But smaller exchanges can often act as a kind of bridge between the entity that wants to transfer its coins and the final destination where the tokens will be stored. Crypto can sit on one of these temporary platforms for a few minutes.
How the money flowed
A FinCEN report on Wednesday noted that Binance was Bitzlato’s largest partner, but blockchain data revealed initial efforts to hide where the funds came from before they came under Binance’s control.
As with traditional finance, where money moves from bank to bank and between holding companies, moving cryptocurrencies through multiple wallets is an elementary way to hide the flow of money. But tracking assets via blockchain is a relatively simple process, as each transaction is recorded in a publicly available ledger.
According to data from Arkham Intelligence, in all of 2022 and during the short weeks of Bitzlato’s operation in 2023, only $9.7 million moved directly from Bitzlato to Binance. During Bitzlato’s four years of operation, a total of $52 million moved from the exchange directly to Binance, the same data set shows.
But a face-to-face look at some of Bitzlato’s biggest exchange partners shows that tens of millions more have flowed into Binance through other crypto wallets to hide the origin of funds from Bitzlato.
CNBC reviewed transaction data for ten of the largest Bitzlato stream buyers, who have raised more than $45 million in Bitzlato-derived funds. These wallets also received millions from other exchanges, including Huobi, FTX, Poloniex, Nexo, and WhiteBIT, a Ukrainian exchange.
One Bitzlato whale has transferred just over $21 million in cryptocurrency. ether and close it, a dollar-pegged stablecoin from Bitzlato to an intermediary wallet. According to data from Arkham Intelligence, in the four years since then, that intermediary wallet has deposited about $15 million worth of cryptocurrency into the Binance platform.
In total, the five largest Bitzlato-linked wallets sent more than $30 million directly to Binance. Millions more small transactions eventually ended up in Binance wallets.
On-chain data cannot account for any additional funds transferred from Bitzlato to Binance through services that allow users to confuse the origin and destination of their cryptocurrencies. Nor does it provide any information on the measures Binance can take to defend against dirty deposits, including seizing those funds once they are in Binance’s wallets.
But Binance CEO Changpeng Zhao has often highlighted his exchange’s aggressive efforts to crack down on illicit funds flowing on the platform. Earlier this week, Binance announced that it had seized millions of dollars worth of cryptocurrency linked to a North Korean hacking group called Harmony.
CNBC reached out to Binance and asked the platform to share its approach to preventing tainted funds from entering the platform. We also asked if Binance was aware that Bitzlato was being used for money laundering and, if so, why Bitzlato’s funds were being held on its platform. We did not immediately respond to a request for comment.
Still, Reuters reported in December that federal prosecutors were considering filing charges in a “long-running” criminal investigation into Binance and Zhao’s compliance with AML laws. The pace of enforcement actions suggests that US regulators are already focused on tracking illicit cryptocurrency flows, regardless of where they occur.
“Working offshore or moving your servers out of the continental United States will not protect you,” Deputy Attorney General Lisa Monaco noted Wednesday. “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 in a US courtroom.”