Crypto giant Binance prepared about $346m in Bitcoin for the Bitzlato digital currency exchange, whose founder was arrested by the United States authorities last week for running a “money laundering engine”, Reuters reports citing blockchain data.
The US Department of Justice on January 18 said that the case co-founded Bitzlato and the majority shareholder Anatoly Legkodymov, a Russian citizen living in China, and the use of unlicensed money exchange business that “encouraged the technological control of crypto-crime” and processing. $700m in illicit funds.
Bitzlato exposed the vulnerability of its customers, the Department of Justice said, adding that when the exchange asked users for ID information, it “repeatedly allowed them to provide the information of “grass” subscribers”.
Binance, the world’s largest crypto exchange, was among Bitzlato’s top three counterparties with the amount of Bitcoin received between May 2018 and September 2022, the US Treasury Financial Crimes Enforcement Network (FinCEN) said last week.
Binance is the only major crypto exchange among Bitzlato’s top institutions, FinCEN said. They said that others who did the exit with Bitzlato were the Russian language “darknet” drug market Hydra, a small exchange called LocalBitcoins and a crypto currency website called Finiko, which FinCEN described as “alleged crypto Ponzi scheme based in Russia”. FinCEN did not detail the scope of the agency’s agreement with Bitzlato.
Hong Kong-registered Bitzlato was a “major money laundering concern” linked to Russia’s illicit finances, FinCEN added. It will stop sending money to Bitzlato and the US and other financial institutions starting February 1, FinCEN said. It did not name Binance or other companies as among those banned.
A Binance spokesperson said via email that it had “provided extensive assistance” to international law enforcement to assist in their investigation of Bitzlato. The company is committed to “working cooperatively” with law enforcement, they added, declining to provide details of its dealings with Bitzlato or the nature of its cooperation with such organizations.
Bitzlato, whose website is said to have been seized by French authorities, could not be reached by Reuters. Legkodymov has not spoken publicly since his arrest in Miami last week and did not respond to an emailed request for comment.
A lawyer for Finiko’s founders, Kirill Doronin, said FinCEN’s comments were “sad to him. [Doronin]while he continues to wait for the return of cryptocurrency to investors from the people who stole it”. Doronin did not use crypto currency when Finiko was working, the lawyer, Dmitry Grigoriadi, said.
The Hydra operative, who was indicted in the US last year, did not respond to a request for comment.
Finland-based LocalBitcoins said it never had “any kind of agreement or relationship” with Bitzlato. Some peer-to-peer (P2P) traders at LocalBitcoins “may also have been trading on BitZlato’s P2P market”, it said, adding that “there have been no transactions between LocalBitcoins and BitZlato since October 2022”.
Reuters has no evidence that Binance, LocalBitcoins or Finiko’s dealings with Bitzlato, which the Department of Justice described as “a depository and money laundering facility”, violated any laws or regulations.
However, one former US bank regulator and one former law enforcement official said that Binance’s status as one of the top institutions will be subject to Justice Department and US Treasury checks on Binance and Bitzlato checks.
“I wouldn’t call it a bow warning, I’d call it a guided missile,” said Ross Delston – an independent US attorney and bank regulator who is also a well-known witness in the fight against money laundering – about FinCEN’s mentions of Binance and LocalBitcoins.
The Justice Department and FinCEN declined to comment.
Binance moved more than 20,000 Bitcoin, worth $345.8m at the time of sale, passing another 205,000 exiting Bitzlato between May 2018 and its closure last week, according to a review of the data previously reported. The figures were compiled by leading US blockchain researcher Chainalysis and seen by Reuters.
Bitcoin worth about $175m was transferred to Binance from Bitzlato in that period, making Binance its biggest receiving partner, the data shows.
About $90m of total transfers took place after August 2021, when Binance said it would require users to provide identification to fight financial crime, according to data from Chainalysis, which declined to comment. Such checks, Binance said in a blog post last year, to deal with “money and money laundering from illegal activities”. Reuters could not determine whether Binance met the ID requirements with Bitzlato.
The Darknet Market
Chainalysis, which is used by US authorities to track illegal crypto transactions, warned in February last year that Bitzlato was at high risk. In a report, Chainalysis said that almost half of Bitzlato’s transfers between 2019 and 2021 were “illegal and risky”, identifying around $1bn in such transactions.
The US action against Bitzlato comes as the Justice Department is investigating Binance for money laundering and sanctions violations. Some government prosecutors have confirmed that the evidence gathered will allow for the prosecution of executives including founder and CEO Changpeng Zhao, Reuters reported in December.
Reuters was unable to determine whether Binance’s and Bitzlato’s actions were under review.
Binance, which does not disclose its exchange, prepared at least $ 10bn in payments to criminals and companies trying to escape US sanctions, Reuters found in a series of articles last year based on blockchain data, court records and company records.
The report also revealed that Binance deliberately maintained anti-money laundering weaknesses and conspired to evade regulators in the US and elsewhere, according to former officials and company documents.
Binance disputed the document, calling the calculation of the illegal fund inaccurate and the explanation of its compliance “outdated”. The exchange said last year that it is “driving the industry’s highest standards” and wants to improve its ability to detect illegal crypto activities.
Both Binance and Bitzlato were key to the world’s largest dark drug market Hydra. The Russian-language site was closed by US and German authorities last year. The Justice Department said Bitzlato exchanged more than $700m in crypto with Hydra, either directly or through intermediaries.
In an article published last June, Reuters reviewed blockchain data showing that buyers and sellers on Hydra used Binance to generate and receive around $780m worth of cryptocurrencies between 2017 and 2022. A Binance spokesperson said at the time that this number was ” wrong and right. explosion”.
