Binance Involved in the Bitzlato Scandal
According to FinCEN, Binance ranks alongside the Hydra marketplace as a major counterparty that receives bitcoins from the platform.
FinCEN has linked the largest cryptocurrency exchange Binance to the illegal crypto platform Bitzlato and the darknet marketplace Hydra.
What is FinCEN?
FinCEN is the Financial Crimes Enforcement Network.
It is a bureau of the US Treasury Department that collects and analyzes information about financial transactions to disrupt money laundering, terrorist financing, and other financial abuses.
FinCEN also issues guidance and regulations related to the Bank Secrecy Act (BSA) and other anti-money laundering laws. The organization works closely with other government agencies, including the U.S. Internal Revenue Service (IRS), the FBI, and the Securities and Exchange Commission (SEC), as well as financial institutions, and other stakeholders to detect and prevent financial crimes.
What does the investigation state?
In an order published on January 18, FinCEN pointed out that Binance is among the “top three receiving counterparties” of bitcoin from Bitzlato.
The authority commented on receiving bitcoins from Bitzlato between May 2018 and September 2022. Other counterparties included the Russia-linked marketplace Darknet Hydra and the alleged Russia-based Ponzi scheme known as “Finiko.”
On the other hand, FinCEN did not mention Binance among the top three sending counterparties in the order. According to the document, the largest senders of BTC to Bitzlato between May 2018 and September 2022 were Hydra, LocalBitcoins, and Finiko.
“Approximately two-thirds of Bitzlato’s largest receiving and sending counterparties are associated with darknet markets or scams” said FinCEN in the order. The agency noted that between 2019 and 2021, Bitzlato received $206 million worth of cryptocurrencies from darksnet markets, $224 million from scams and $9 million from ransomware attacks.
Bitzlato’s illegal activity
The news comes amid multiple U.S. authorities launching a major enforcement action against Bitzlato, accusing the firm of money laundering and allegedly facilitating the circumvention of sanctions against Russia. As part of the case against Bitzlato, the Federal Bureau of Investigation arrested founder Anatoly Legkodimov on January 17 in Miami.
Bitzlato reportedly processed over $700 million in illicit funds.
The firm required minimal identification from its users, which allowed it to become a “haven for proceeds of crime and funds intended for use in criminal activity” prosecutors allege.
They state the firm was aware of the problems, citing an internal document that described Bitzlato as processing “dirty money” without standard customer verification procedures.
Authorities said the firm was closely linked to the Hydra Market, a darknet marketplace for drugs, money laundering and stolen financial information that international authorities shut down last year.
Bitzlato claimed it did not accept U.S. customers, but prosecutors said it actually did business with Americans.
The platform, founded in 2016, reportedly had an office in the Federation skyscraper in Moscow where it accepted transactions of $100,000 or more.
A Binance spokesman said the firm was cooperating with regulators.
“Binance is pleased to provide significant assistance to international law enforcement partners in support of this investigation. This is an example of Binance’s commitment to working cooperatively with law enforcement partners around the world.”