As the trial of the former leaders of cryptocurrency exchange FTX continues, a new scandal has hit the digital asset market. Blockchain data reveals that Binance has managed nearly $346 million worth of bitcoin for exchange Bitzlato, whose founder was arrested by US authorities last week for “allegedly operating a money laundering engine.” This is further destroying confidence in this highly volatile market which just ended a disastrous 2022, with tens of billions of dollars siphoned off investors.
On Jan. 18, US authorities filed an indictment against little-known cryptocurrency exchange Bitzlato, claiming it facilitated the laundering of $700 million in damaged cryptocurrencies linked to dark web market Hydra. now closedand millions of additional dollars in products ransomware. Oddly enough, blockchain data shows that tens of millions of dollars that passed through Bitzlato ultimately ended up in Binance’s custodial wallets, despite the stringent anti-money laundering standards that Binance claims it has in place.
According to the US Treasury’s Financial Crimes Enforcement Network (FinCEN), Binance, which is the largest cryptocurrency exchange in the world, was among the top three counterparties of Bitzlato based on the number of bitcoins received between May 2018 and September 2022. Binance, FinCEN’s published report indicates that Bitzlato’s other counterparties were Russian-language drug exchange Hydra, a small exchange called LocalBitcoins, and a cryptocurrency investment website called Finiko. The latter has been described as “an alleged Russia-based cryptocurrency Ponzi scheme.”
FinCEN has not detailed the extent of the entities’ interactions with Bitzlato. Hong Kong-based Bitzlato was a major money laundering concern linked to illicit Russian financing, FinCEN notes. It will ban the transmission of Bitzlato funds by the United States and other financial institutions from February 1. The agency did not name Binance or any other individual companies among those targeted by the ban. In addition, Anatoly Legkodymov, co-founder and majority shareholder of Bitzlato, is a Russian citizen living in China. But he was arrested in Miami last week by American justice.
The operator of Hydra, who has been charged in the United States, and a lawyer representing the founder of Finiko have no comment on the case. LocalBitcoins, based in Finland, said they have never had any kind of cooperation or relationship with Bitzlato. The data reveals that Binance moved more than 20,000 bitcoins, worth $345.8 million at the time of their transaction, across approximately 205,000 transactions for Bitzlato between May 2018 and its closure last week. The data was compiled by Chainalysis, an American blockchain analytics company based in New York, and seen by Reuters.
Approximately $90 million of the total transfers occurred after August 2021, when Binance announced which would require users to present ID to fight financial crime. Binance said in a blog post last year that these controls target funding and money laundering from illicit activities. However, Binance has been under tight scrutiny by regulators since the collapse of FTP extension. She is Under criminal investigation by the United States Department of Justice (DOJ) for compliance with anti-money laundering laws.
In his case, Sam Bankman-Fried, founder and former CEO of FTX, plaid not guilty of felony charges of deceiving hundreds of investors and looting billions of dollars through FTX. After the disastrous management of FTX, which led to the mysterious disappearance of client funds, Bankman-Fried is currently pitcher in the United States where he faces up to 115 years in prison. He was charged with two counts of wire fraud and six counts of conspiracy, including money laundering and violating campaign finance rules.
The movement of Bitzlato’s funds raises questions about the effectiveness of Binance’s anti-money laundering practices, especially since Binance’s external anti-money laundering provider, Chainalysis, released a report in February 2022 estimating that 48% of Binance’s 2019-2021 cryptocurrency revenue Bitzlato was “illegal or risky”. According to Arkham Intelligence, Bitzlato’s largest cryptocurrency balance was valued at just $6.6 million. By comparison, Binance’s highest balance was worth over $60 billion.
But Bitzlato’s total inflows and outflows were in the hundreds of millions of dollars, suggesting that Bitzlato was a gateway for users looking to hold their cryptocurrencies on more established exchanges, such as Binance or Coinbase. . On these exchanges, clients choose to let the platform hold their tokens. But smaller exchanges can often act as a bridge between the entity looking to transfer its coins and the destination where the tokens will be held. Assets can only stay on any of these intermediate trades for a few minutes.
A cursory review of some of Bitzlato’s major exchange partners indicates that tens of millions of additional dollars have flown from Bitzlato to Binance via other cryptocurrency wallets, in an apparent attempt to disguise the origin of the funds. In total, Bitzlato’s top 5 connected wallets have sent over $30 million directly to Binance. The smaller transactions eventually ended up in Binance wallets. On-chain data cannot account for additional funds that have been moved from Bitzlato Binance through the mixers.
Mixers allow users to hide the origin and endpoint of their cryptocurrency. Furthermore, the data does not provide insight into the type of actions Binance may take to defend against malicious deposits, including seizing those funds once they are placed in Binance wallets. But Binance CEO Changpeng Zhao has often touted his exchange’s aggressive efforts to crack down on illicit funds flowing through the platform. This month, Binance announced that it had seized millions of dollars in cryptocurrency linked to a North Korean hacker group called Harmony.
Reuters determined last year that Binance, which does not revealed not the location of its main stock exchange, it processes payments of at least $10 billion to criminals and companies trying to evade US sanctions, Reuters found in a series of articles last year. According to former executives and company documents, Binance has intentionally kept anti-money laundering controls weak and conspired to evade regulators in the United States and elsewhere. Binance disputed the reports, calling the illicit fund calculations inaccurate. He also said the allegations are unfounded.
Last month, Binance it was taken in flagrante delicto of mixing of funds between the American and international bodies of the stock exchange. He was suspected of insolvency after his blockchain data showed he was financially bailing out its subsidiary Binance.US, which is said to be “independent” of the major exchange. Binance.US was allegedly designed to deceive US regulators and customers. Indeed, reports claim that Binance.US is a ploy to entice US regulators to focus on the compliant local exchange, while the parent company was free to conduct its business.
The cryptocurrency market as a whole is plagued by rampant fraud. Primarily in 2022, investors have lost tens of billions of dollars in scams of all kinds and relentless stock market failures. The spectacular failure of FTX, and of the 130 companies that compose it, he trained the declaration of bankruptcy of dozens of other operators in the sector, in particular BlockFi and Genesis. the same thing it is observed in the non-fungible token (NFT) market in 2022. The NFT market literally collapsedNFT like that of the first tweet in history Not having now almost no value.
And she ?
What is your opinion on the matter?
What do you think of the Binance cryptocurrency exchange?
What do you think about the links between Binance and Bitzlato?
What is your opinion on the anti-money laundering systems Binance says it has in place?
Do you think Binance knew about Bitzlato’s illegal activities, but chose to turn a blind eye?
What do you think about the digital asset market in general? Would you recommend investing in cryptocurrencies and NFTs?
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