LONDON, Jan 24 (Reuters) – Crypto giant Binance processed about $346 million in bitcoin for the Bitzlato digital currency exchange, whose founder was arrested last week by US authorities for allegedly running a “money laundering engine”. which blockchain data seen by Reuters shows.
On January 18, the Justice Department said it charged Bitzlato co-founder and majority shareholder Anatoly Legkodimov, a Russian national living in China, with operating an unlicensed money exchange business that committed “a high-profile crime of cryptocrime.” technical axis boosted” by $700 million processing. Illegitimate money
The Justice Department said Bitzlato had been lax in its background checks on customers, saying that when the exchange asked users for ID information, “it repeatedly allowed them to provide information related to “straw man” registrants.” Gave.”
The US Treasury’s Financial Crimes Enforcement Network (FinCEN) said last week that the world’s largest crypto exchange, Binance was among Bitzlato’s top three counterparts based on the amount of bitcoin received between May 2018 and September 2022.
FinCEN said that Binance was the only major crypto exchange among Bitzlato’s top counterparts. It said others transacting with Bitzlato were the Russian-language darknet drugs marketplace Hydra, a smaller exchange called LocalBitcoins and a crypto investment website called Finiko, which FinCEN called “an alleged crypto Ponzi scheme based in Russia.” described as. FinCEN did not provide details on the scale of the entities’ interactions with Bitzlato.
FinCEN said Bitzlato, registered in Hong Kong, was a “primary money laundering concern” related to Russian illicit finance. It will ban the transfer of funds to Bitzlato by the US and other financial institutions from February 1. FinCEN said. It did not name Binance or other individual firms among those subject to the ban.
A Binance spokesperson said via email that it has “provided substantial assistance” to international law enforcement to support the investigation of Bitzlato. The company committed to “working cooperatively” with law enforcement, declined to provide details about its dealings with Bitzlato or the nature of its cooperation with such agencies.
Bitzlato, whose website says it has been seized by French authorities, could not be reached by Reuters. Legkodimov has made no public comments since his arrest in Miami last week and did not respond to email requests for comment.
An attorney for FinCo’s founder, Kirill Doronin, said FinCen’s statement was “unfortunate for them, as they are expecting the return of cryptocurrency to investors from those who stole it.” Doronin did not use investors’ crypto while Finiko was operating, said lawyer Dmitry Grigoriadi.
The operator of Hydra, which was indicted in the United States last year, did not respond to requests for comment.
Finland-based LocalBitcoins said it has never had “any kind of association or relationship” with Bitzlato. It added that some peer-to-peer (P2P) traders on LocalBitcoins “may also be trading on BitZlato’s P2P market”, adding that “there have been practically no transactions between LocalBitcoins and BitZlato since October 2022″. Is.”
Reuters has no evidence that Binance, LocalBitcoins or Finiko transactions with Bitzlato, which the Justice Department described as a “shelter of criminal proceeds and funds for use in criminal activity,” violated any regulations. or broke the law.
However, a former US banking regulator and a former law enforcement official said that Binance’s status as one of the top counterparties will focus the attention of the Justice Department and the US Treasury on Binance’s compliance investigation with BitzLato.
“I wouldn’t call it a warning shot across the bow, I’d call it a guided missile,” said Ross Dalston, an independent US attorney and former banking regulator. FinCEN cited Binance and LocalBitcoins.
The Justice Department and FinCEN declined to comment.
During nearly 205,000 transactions for Bitzlato between May 2018 and last week’s closure, Binance moved more than 20,000 bitcoins, worth $345.8 million. The data was compiled by leading US blockchain researcher Chainalysis and seen by Reuters.
About $175 million worth of bitcoin was transferred from Bitzlato to Binance during that period, making Binance its largest counterparty, the data show.
Nearly $90 million of total transfers occurred after August 2021, when Binance said it would require users to present identification to combat financial crime, according to data from Chainalysis, which declined to comment. Such checks, Binance said in a blog last year, deal with “funding and laundering of funds from illicit activities”. Reuters could not determine whether Binance enforced its ID requirements with Bitzlato.
Chainalysis, which is used by US authorities to track illegal crypto flows, warned in February last year that Bitzlato was high-risk. Nearly half of Bitzlato’s transfers between 2019 and 2021 were “illegal and risky,” Chainalysis said in a report, identifying nearly $1 billion in such transactions.
The US action against Bitzlato comes as the Justice Department investigates Binance for possible money laundering and sanctions violations. Some federal prosecutors have concluded that the evidence collected justifies charges filed against executives including founder and CEO Changpeng Zhao, Reuters reported in December.
Reuters could not establish whether Binance’s dealings with Bitzlato are under review.
Binance, which does not disclose the location of its core exchange, has paid at least $10 billion to criminals and companies seeking to avoid US sanctions, Reuters reported last year after analyzing blockchain data, court and company reports. Based on the records found in a series of articles.
The reporting also suggests that Binance knowingly put in place weak anti-money laundering controls and conspired to evade regulators in the United States and elsewhere, according to former executives and company documents.
Binance disputed the articles, calling the illicit-funds count inaccurate and the description of its compliance controls “outdated”. The exchange said last year that it was “driving to higher industry standards” and that it was seeking to improve its ability to detect illegal crypto activity.
Both Binance and Bitzlato were significant antagonists of Hydra, the world’s largest darknet drug marketplace. The Russian-language site was shut down last year by authorities in the US and Germany. The Justice Department said BitzLato exchanged more than $700 million in crypto with Hydra, either directly or through intermediaries.
In an article published last June, Reuters reviewed blockchain data that showed buyers and sellers on Hydra used Binance to make and receive crypto payments worth about $780 million between 2017 and 2022. Was. A Binance spokesperson said at the time that the Hydra figure was “incorrect”. And overblow.”
Reporting by Tom Wilson and Angus Berwick in London; Editing by Alyssa Martinuzzi and Louise Heavens
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