Binance Was Used by Bitzlato to Launder $346m in Bitcoin - Will CZ’s Exchange be Banned

The Binance cryptocurrency exchange processed nearly $346 million worth of Bitcoin for the seized Bitzlato cryptocurrency exchange. Authorities arrested the Russian national who founded the exchange over money laundering charges.

Binance processed $346M worth of Bitcoin for Bitzlato

On January 18, the US Justice Department filed charges against Bitzlato and the founder for operating an unlicensed exchange. The DoJ said that Bitzlato facilitated the movement of illicit funds worth around $700 million. The exchange had lax customer identification requirements that made it attractive to criminals.

Binance was one of the three top counterparties that interacted with the Bitzlato exchange. Between May and September 2022, Binance received funds from the Bitzlato exchange. The US Financial Crimes Enforcement Network (FinCEN) said that Binance was the only leading exchange among the top counterparties of Bitzlato.

The other parties that transacted with the Bitzlato exchange include the Hydra darknet marketplace, LocalBitcoins exchange, and the Finiko crypto investment website. Bitzlato was the largest money laundering platform used to conduct illicit finance in Russia. FinCEN noted that it would ban US institutions and other parties’ transfer of funds to Bitzlato.

Binance transferred more than 20,000 BTC valued at $345.8 million for Bitzlato from May 2018 to the time the exchange was closed last week. Around $90 million of the transferred funds were transacted after August 2021, when Binance said it was imposing stringent user identification measures to deal with illicit finance.

The Binance exchange has responded to the claims, with a spokesperson from the exchange saying that it would offer assistance to global law enforcement to support the investigations into the exchange. However, the exchange has not explained its nature of business with Bitzlato.

Counterparties refute ties to Bitzlato

The lawyer representing the founder of Finiko, Kirill Doronin, has responded to the claims made by FinCEN, calling them “unfortunate.” Doronin hopes that the investors who lost funds from Finiko will be reimbursed by those who stole the funds.

Finland-based exchange LocalBitcoins has refuted its ties with LocalBitcoins. It noted that some of these transactions could be attributed to some peer-to-peer (P2P) traders on LocalBitcoins who traded with the Bitzlato P2P marketplace. However, it also added that there had been no transactions between Bitzlato and LocalBitcoins since October last year.

Binance was one of the top counterparties for Bitzlato. As one of the largest exchanges, there could be a probe into how the exchange ensures compliance with anti-money laundering laws. The affiliation between Binance and Bitzlato comes at a time when the US Justice Department is investigating Binance for involvement in money laundering and sanctions violations.

Some federal prosecutors have previously said that the money laundering charges facing Binance are adequate to impose charges against the executives of the exchange, including the CEO, Changpeng Zhao.

Last year, Chainalysis issued a report warning that Bitzlato was a “high risk.” The Chainalysis report also said that around half of the Bitzlato transfers between 2019 and 2021 were risky and illicit funds and detected nearly $1 billion of these transactions.

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