Binance, this huge cryptocurrency exchange, has already been in the hot seat many times. Accused of all evils, CZ will have to be more punctilious about the origin of the funds passing through its exchange. This time, after the arrest of the CEO of Bitzlato, an obscure exchange dedicated to trafficking of all kinds, the experts scrutinized the transactions on the blockchain. Let’s see what they found.
The arrest this week of the CEO of Bitzlato does not seem to move investors. They obviously do not feel concerned by this darknet exchange, unknown to the general public. Yet they probably should be. Because if their preferred exchange has been too lax, it will be sanctioned by the American policeman. If CZ has repeatedly refuted the accusations of money laundering, it does not seem to have always been very vigilant about the origin of the funds passing through it.
Binance, Bitzlato and Hydra
According to FINCEN, Binance received bitcoins from Bitzlato between May 2018 and 2022. Other recipients included the marketplace Hydra and the Russian Finiko Ponzi (and many more). An analysis by Crystal Blockchain indicated that there would have been $780 million in transactions between Binance and Hydra market, dismantled in April 2022. Data from Arkham Intelligence confirms this. A survey of Reuters specifies the amounts and nature of the fraud in an article from June 2022. Binance’s response is also available.
A little too lax on the origin of the funds?
KYC did not exist in the early days of Binance and until August 2021, all it took was an email to open an account. Easy to send anything from anywhere. This is how the reinforced KYC, introduced under pressure from the authorities, made it possible to arrest one of our national scammers, Aurélien Michel. He was depositing his stolen funds on Binance. When the fraud is followed by a serious investigation, Binance of course cooperates with the authorities. But for smaller flights, this is not the case. Small-time scams are not well investigated by law enforcement and Binance does not appear to be responding to complaints from users who have identified their stolen funds. Some victims testify to their scam on Telegram and their complaints have, for the moment, remained unanswered. One of the victims identified the address of his stolen funds: 1JkMFrK8L93PCcUXjjELo4dg4pQKbF8d9D. He would have lost a few hundred euros, but it seems that there are many other victims.
Illegal funds transit on various exchanges
Illegal funds come from scams, ransoms, trafficking and so on. It is obvious that the dollar laundering is immensely more important, but that in cryptocurrencies is in full expansion. This concerns us all: in fact, the easier it is for scammers to use stolen cryptos, the more scams there will be. Perpetrators move funds to cover their tracks, but blockchain can help trace movements (when there is no use of mixer).
- Tens of millions of dollars have flowed from Bitzlato to Binance via other crypto wallets, in an apparent effort to disguise the origin of the funds. These would include Huobi, FTX, Poloniex, Nexo and WhiteBIT (a Ukrainian exchange);
- In 2022 and 2023, $9.7 million was transferred directly from Bitzlato to Binance, according to data from Arkham Intelligence;
- Over the four years of Bitzlato operation, $52 million was transferred directly from the exchange to Binance, according to the same dataset.
What is Binance doing to fight dirty money?
Binance CEO Changpeng Zhao intends to safeguard the reputation of his exchange. He claims to actively fight against fraud and confiscate illicit funds that may pass through it. Earlier this week, CZ announced that it had blocked millions of dollars worth of crypto linked to a North Korean hacker group called Harmony. Nevertheless, it is known that Binance is under investigation by the DOJ (Department of Justice) American for months (for money laundering). The Commodity Futures Trading Commission (CFTC) is also investigating whether US citizens have been able to trade unregistered derivatives. L’arrest of the CEO of Biztlatothe dismantling of Hydra Market and the strengthened KYC on Binance have already led to a significant reduction in fraud.
Two years ago, Binance filed a complaint against two journalists from Forbes who claimed that CZ used subterfuge to circumvent regulations. The complaint was dropped and the article is still online. Still, if CZ wants to save the reputation of his company, he has no choice but to refuse any illicit transaction on his exchange. Stolen funds must be blocked urgently, even modest sums. And why not provide a compensation fund for victims identified through a simplified process. It is also necessary to clarify the legal situation between Binance and Binance.us entities. But that’s another story…
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