Binance, the biggest cryptocurrency exchange in the world, has been cited as a main counterparty engaged with Bitzlato, a lesser-known cryptocurrency exchange that is suspected of laundering $700 million in illicit funds, according to a recent report by the Financial Crimes Enforcement Network (FinCEN).
Aside from Binance, other notable exchanges that had engaged in transactions with Bitzlato include the Russia-linked darknet marketplace Hydra and the alleged Ponzi scheme Finiko, which is supposedly based in Russia, and Local Bitcoins. FinCEN stated:
Approximately two-thirds of Bitzlato’s top receiving and sending counterparties are associated with darknet markets or scams. For example, Bitzlato’s top three receiving counterparties, by total amount of BTC received between May 2018 and September 2022 were: (1) Binance, a VASP; (2) the Russia-connected darknet market Hydra; and (3) the alleged Russia-based Ponzi scheme The Finiko.
FinCEN
Although it is still unclear whether Binance was directly involved in any money laundering activities related to the Russian exchange, this news does raise some questions about its commitment to proper compliance processes.
The exchange has said, however, that it is pleased to have played a pivotal role in assisting international law enforcement authorities in their investigation.
According to a Binance spokesperson, this reflects the firm’s strong commitment to working together with government agencies at all levels around the globe.
The company says it takes its responsibility seriously and hopes that other industry players will follow suit in this effort to combat illicit activities.
The suspected participation of Binance in Bitzlato’s issue raises more worries about the operations of the exchange as well as possible relations with Russia.
Notably, Binance was one of the exchanges that decided to keep serving non-sanctioned Russians after the adoption of the eighth sanctions package by the European Union against the nation.
Authorities say Bitzlato is associated with scams
This disclosure comes at a time when many agencies in the United States have begun serious enforcement action against Bitzlato.
These authorities accuse the company of engaging in money laundering and allegedly assisting in the circumvention of sanctions imposed against Russia.
Anatoly Legkodymov, the creator of Bitzlato, was taken into custody by the Federal Bureau of Investigation on January 17 in Miami as part of the ongoing investigation into the company.
According to what FinCEN said in the order, about two-thirds of Bitzlato’s top receiving and sending counterparties are linked with frauds or darknet marketplaces.
The agency claimed that between 2019 and 2021, Bitzlato collected cryptocurrency worth a total of $406 million via frauds, $224 million from darknet marketplaces, and $9 million from ransomware perpetrators.
