LONDON – Crypto giant Binance processed almost US$346 million (S$456 million) in Bitcoin for the Bitzlato digital currency exchange, whose founder was arrested by the United States authorities last week for allegedly running a “money laundering engine”, blockchain data seen by Reuters shows.
The US Justice Department on Jan 18 said it charged Bitzlato’s co-founder and majority shareholder Anatoly Legkodymov, a Russian national living in China, with operating an unlicensed money exchange business that “fuelled a high-tech axis of cryptocrime” by processing US$700 million in illicit funds.
Bitzlato had touted the laxity of its background checks on clients, the Justice Department said, adding that when the exchange did ask users for identification, “it repeatedly allowed them to provide information belonging to ‘straw man’ registrants”.
Binance, the world’s largest crypto exchange, was among Bitzlato’s top three counterparties by the amount of Bitcoin received between May 2018 and September 2022, the US Treasury’s Financial Crimes Enforcement Network (FinCEN) said last week.
Binance was the only major crypto exchange among Bitzlato’s top counterparties, FinCEN said. It added that others which transacted with Bitzlato were the Russian-language Dark Net drugs marketplace Hydra, a small exchange called LocalBitcoins and a crypto investment website called Finiko, which FinCEN described as “an alleged crypto Ponzi scheme based in Russia”.
Hong Kong-registered Bitzlato was a “primary money laundering concern” related to Russian illicit finance, FinCEN said. The agency will ban the transmission of funds to Bitzlato by US and other financial institutions from Feb 1. FinCEN did not name Binance or other individual companies among those subject to the ban.
A Binance spokesman said via e-mail that the exchange had “provided substantial assistance” to international law enforcement to support their investigation of Bitzlato. The company is committed to “working collaboratively” with law enforcement, the spokesman added, declining to give details about its dealings with Bitzlato or the nature of its cooperation with such agencies.
Reuters has no evidence that the Binance, LocalBitcoins or Finiko transactions with Bitzlato broke any rules or laws.
However, one former US banking regulator and one former law enforcement official said Binance’s status as one of the top counterparties would focus Justice Department and US Treasury attention on Binance’s compliance checks with Bitzlato.
“I wouldn’t call it a warning shot over the bow, I would call it a guided missile,” said Mr Ross Delston, an independent American lawyer and former banking regulator who is also an expert witness on anti-money laundering issues, referring to FinCEN’s citing of Binance and LocalBitcoins.
The Justice Department and FinCEN declined to comment.
The US action against Bitzlato comes as the Justice Department investigates Binance for possible money laundering and sanctions violations. Some federal prosecutors have concluded that the evidence collected justifies filing charges against executives, including founder and chief executive Zhao Changpeng, Reuters reported in December.
Binance, which does not reveal the location of its core exchange, has processed at least US$10 billion in payments for criminals and companies seeking to evade US sanctions, Reuters found in a series of articles in 2022 based on blockchain data, court and company records.
The reporting also showed that Binance intentionally kept weak anti-money laundering controls and plotted to evade regulators in the US and elsewhere, according to former executives and company documents.
Binance disputed the articles, calling the illicit-fund calculations inaccurate and the descriptions of its compliance controls “outdated”. The exchange said in 2022 that it was “driving higher industry standards” and seeking to improve its ability to detect illegal crypto activity. REUTERS
