Binance was the final destination for millions of Bitzlato funds – Reuters

Binance is the largest crypto exchange in the world, handling billions of dollars of trading volume every day.

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On Wednesday, federal prosecutors filed charges against a little-known cryptocurrency exchange called Bitzlato, alleging that it facilitated the laundering of $700 million in corrupt cryptocurrencies linked to the now-closed Hydra darknet marketplace and millions more into ransomware products.

Blockchain data shows that tens of millions of dollars passed through Bitzlato ended up in Binance’s custody wallets, despite Binance’s strict anti-money laundering standards. tune.

Binance, the world’s largest cryptocurrency exchange, has not been linked to any criminal activity and has not been charged by regulators with knowingly accepting illegal funds, although the exchange is reportedly the subject of the Department of Justice’s own criminal investigation into its compliance with anti-corruption laws. with money laundering or AML.

The movement of funds from Bitzlato raises questions about the effectiveness of Binance’s anti-money laundering practices, especially after BinanceChain’s own analysis in February 2022, a third-party anti-money laundering service provider, published a report estimating that 48% of cryptocurrency receipts from Bitzlato in 2019-2021 were “illegal or risky”.

According to Arkham Intelligence, the highest Bitzlato cryptocurrency balance is valued at just $6.6 million. By comparison, Binance’s maximum balance is estimated to be over $60 billion. But the total inflow and outflow of Bitzlato was in the hundreds of millions of dollars, suggesting that Bitzlato was a way station for users looking to store their cryptocurrency on more established exchanges.

On a larger exchange like Binance or Coinbasefor example, many clients choose to store their crypto tokens on the platform. But small exchanges can often act as a bridge of sorts between an organization wishing to transfer their coins and the final destination where the tokens will be held. Crypto can sit on any of these pre-platforms in just a few minutes.

how money flowed

A FinCEN report published on Wednesday notes that Binance is Bitzlato’s largest counterparty, but blockchain data shows rudimentary attempts to hide the origin of the funds before they got to Binance.

As in traditional finance, where money moves from bank to bank and between wallet companies, moving crypto assets across multiple wallets is a major way to confuse the flow of money. But tracking assets across the blockchain is a relatively simple process, as each transaction is recorded on a public ledger.

For all of 2022 and the short weeks that Bitzlato used in 2023, only $9.7 million was transferred directly from Bitzlato to Binance, according to Arkham Intelligence. According to the same data set, only $52 million went directly from the exchange to Binance in Bitzlato’s four years of operation.

But a quick look at some of Bitzlato’s largest exchange partners reveals that tens of millions more have moved from Bitzlato through other cryptocurrency wallets to Binance in an apparent attempt to hide the origin of the funds.

CNBC analyzed the transaction data of the top ten beneficiaries of the Bitzlato exit, which raised more than $45 million in funds from Bitzlato. These wallets have also received millions of additional funds from other exchanges, including Huobi, FTX, Poloniex, Nexo, and the Ukrainian exchange WhiteBIT.

Keith Bitzlato moved just over $21 million worth of cryptocurrencies, including ether and attached, a dollar-pegged stablecoin, from Bitzlato to an intermediate wallet. From there, according to Arkham Intelligence, this intermediate wallet transferred about $15 million worth of cryptocurrencies to the Binance platform over four years.

In total, the top five wallets connected to Bitzlato have sent over $30 million directly to Binance. Millions of other smaller transactions ended up in Binance wallets.

On-chain data cannot account for additional funds transferred to Binance from Bitzlato through mixers, services that allow users to hide the source and destination of their cryptocurrency. It also does not provide information on what enforcement action Binance may take to protect against nefarious deposits, including the confiscation of these funds once they have entered Binance wallets.

But Binance CEO Changpeng Zhao has often touted his exchange’s aggressive efforts to crack down on illegal funds flowing through the platform. Earlier this week, Binance announced the seizure of millions of dollars worth of cryptocurrency linked to North Korean hacker group Harmony.

CNBC reached out to Binance to ask the platform to share their approach to preventing tainted funds from entering the platform. We also asked if Binance is aware that Bitzlato is allegedly being used for money laundering and, if so, why Bitzlato funds are being held on its platform. We did not immediately respond to our request for comment.

However, Reuters reported in December that federal prosecutors were considering filing charges as part of a “protracted” criminal investigation into Binance and Zhao’s compliance with AML laws. The speed of enforcement action suggests that U.S. regulators are already monitoring the flow of illegal cryptocurrencies wherever it occurs.

“Working overseas or moving your servers outside of the continental United States will not protect you,” Deputy Attorney General Lisa Monaco said Wednesday. “Whether you’re violating our laws from China or Europe, or abusing our financial system from a tropical island, you can expect to answer for your crimes in a US court.”

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