© Reuters. A smartphone with the Binance logo displayed and a cryptocurrency representation on the keyboard is positioned in this illustration taken November 8, 2022. REUTERS/Dado Ruvic/Illustration
Written by Tom Wilson and Angus Berwick
LONDON (Reuters) – Blockchain data seen by Reuters shows that crypto giant Binance processed nearly $346 million in bitcoin for cryptocurrency exchange Bitzlato, whose founder was arrested by US authorities last week for allegedly running a “money laundering engine.”
The Justice Department said on January 18 that it charged Bitzlato co-founder and majority shareholder Anatoly Legkodymov, a Russian national living in China, with running an unlicensed money exchange business that “fueled a high-tech hub in crypto” by processing $700 million. in illegal money. The DOJ said Bitzlato promoted lax background checks for customers, adding that when the exchange asked users for identity information, it “repeatedly allowed them to provide information that belonged to ‘deceptive’ registrants.”
Binance, the world’s largest cryptocurrency exchange, was among the three largest counterparties to Bitzlato in terms of the amount of bitcoin received between May 2018 and September 2022, the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) said last week.
FinCEN said that Binance was the only major cryptocurrency exchange among large Bitzlato peers. Others doing business with Bitzlato, she said, are Russian-language dark drug market Hydra, a micro-exchange called LocalBitcoins, and a crypto investment site called Finiko, which she described as a “crypto Ponzi scheme based in Russia.” FinCEN did not disclose the extent of the entities’ interactions with Bitzlato.
FinCEN added that Hong Kong-registered Bitzlato was a “primary money laundering concern” related to illicit Russian financing. It will ban the transfer of funds to Bitzlato by US and other financial institutions from February 1st. FinCEN said. It did not name Binance or other individual companies among the companies subject to the ban.
A Binance spokesperson said via email that it has “provided significant assistance” to international law enforcement authorities in their investigation into Bitzlato. They added that the company is committed to “working cooperatively” with law enforcement, declining to elaborate on its dealings with Bitzlato or the nature of its cooperation with these agencies.
Reuters was unable to reach Pizzellato, whose website says it was seized by French authorities. Legkodimov, has not made any public comment since his arrest in Miami last week and did not respond to emailed requests for comment.
The operator of Hydra, which has been indicted in the US, and a lawyer representing the founder of Finiko did not respond to requests for comment. Nor did Finland’s LocalBitcoins.
Reuters has no evidence that Binance, LocalBitcoins, or Finiko’s transactions with Bitzlato, which the Department of Justice described as “a haven for criminal proceeds and funds intended for use in criminal activity,” violated any rules or laws.
However, a former US banking regulator and former law enforcement official said that Binance’s status as a major counterparty would focus the Department of Justice and the US Treasury on examining Binance’s compliance with Bitzlato.
“I wouldn’t call it a warning shot over the bow, I’d call it a homing missile,” said Ross Delston, an independent US attorney and former banking regulator who is also an expert witness in anti-money laundering cases, referring to Ross Delston, an independent US attorney and former banking regulator, citing FinCEN. Binance and LocalBitcoins.
The Ministry of Justice and FinCEN declined to comment.
Binance moved more than 20,000 bitcoins, worth $345.8 million at the time of the transaction, across about 205,000 Bitzlato transactions between May 2018 and its closing last week, according to a previously unreported data revision. The figures were compiled by a leading American researcher in the field of blockchain Chainalysis and seen by Reuters.
Nearly $175 million was transferred to Binance from Bitzlato in that period, making Binance its largest futures peer, according to the data.
About $90 million of the total transfers took place after August 2021, when Binance said it would require users to provide identification cards to combat financial crimes, according to data from Chainalysis, which declined to comment. Binance said in a blog post last year that such checks deal with “the financing and money laundering of illicit activities”. Reuters was unable to determine whether Binance has enforced its identity requirements with Bitzlato.
Chainalysis, which is used by US authorities to track illicit cryptocurrency flows, warned in February last year that Bitzlato represented a high risk. In a report, Chainalysis said nearly half of Bitzlato’s transfers between 2019 and 2021 were “illicit and risky,” identifying nearly $1 billion in such transactions.
The US action against Bitzlato comes as the Department of Justice is investigating Binance for possible money laundering and sanctions violations. Some federal prosecutors have concluded that the evidence gathered warrants charges against the executives, including founder and CEO Changpeng Zhao, Reuters reported in December.
Reuters was unable to establish whether Binance’s dealings with Bitzlato were under review.
Binance, which did not disclose the location of the underlying exchange, processed at least $10 billion in payments to criminals and companies seeking to evade US sanctions, Reuters found in a series of articles last year based on blockchain data and court and corporate records.
The reports also showed that Binance deliberately maintained weak anti-money laundering controls and schemed to evade regulators in the US and elsewhere, according to former executives and company documents.
Binance disputed the articles, calling illicit funds accounts inaccurate and describing their compliance controls as “outdated.” The exchange said last year that it was “leading higher industry standards” and that it was seeking to improve its ability to detect illegal crypto activity.
Binance and Bitzlato were important counterparts to the world’s largest dark cryptocurrency marketplace, Hydra. The Russian-language site was shut down by US and German authorities last year. The Department of Justice said that Bitzlato exchanged more than $700 million in cryptocurrency with Hydra, either directly or through intermediaries.
In an article published last June, Reuters reviewed blockchain data that showed buyers and sellers on Hydra used Binance to make and receive crypto payments worth about $780 million between 2017 and 2022. A Binance spokesperson said at the time that Hydra’s number was “inaccurate and exaggerated.” In which “.