Binance Named Counterparty In US Government Charge Against Crypto Exchange Bitzlato 

Binance Named Counterparty In US Government Charge Against Crypto Exchange Bitzlato 

Binance has been named a counterparty to receiving illicit funds sent through sanctioned crypto exchange Bitzlato. U.S authorities allege the P2P exchange to have laundered more than $700 million in cryptocurrencies for various Russian-linked darknet marketplaces and ransomware groups. 

On January 18, the US Department of Justice (DOJ) and the Treasury Department charged little known cryptocurrency exchange Bitzlato “for conducting money laundering business that transported and transmitted illicit funds that failed to meet U.S regulatory safeguards, including anti-money laundering requirements.” The Hong Kong-based crypto firm was shut down and its founder Anatoly Legkodymov was arrested in Miami, Florida.

Statement from the DOJ said the U.S Treasury’s Financial Crimes Enforcement Network (FinCEN) and French authorities were taking concurrent enforcement actions. Federal prosecutors allege that Bitzlato processed more than $700 million worth of illicit funds, including millions in ransomware proceeds. FinCEN issued an order identifying the exchange as a “primary money laundering concern”, the agency’s most serious charge that can lead to a company being cut off from the global financial system, due to its connections with Russian illicit finance. 

Bitzlato is a globally operated crypto exchange that offers peer-to-peer services requiring minimal user verification. The platform was used as a bridge where tokens were kept under custody for mere minutes before being transferred to their final destination. The purpose of Bitzlato is to conduct commission-free transactions without any intermediaries while hiding the origin of funds. The exchange also allowed users to register their accounts under “straw man” identities. 

Binance Named Counterparty In US Government Charge Against Crypto Exchange Bitzlato 

Federal prosecutors allege that Bitzlato facilitated transactions for ransomware actors operating in Russia, including Ransomware-as-a-Service (RaaS) group Conti and now shut down Russian-linked darknet marketplace Hydra. The company was also offering its services to other darknet markets, including BlackSprut, OMG!OMG!, DrakSide, and Mega.

The FinCEN order identified that two-thirds of Bitzlato’s top receiving and sending counterparties are associated with darknet markets or Ponzi schemes. The company’s top three receiving counterparties between May 2018, when it began operations, and September 2022 were cryptocurrency exchange Binance, darknet marketplace Hydra, and Russian Ponzi scheme “TheFinko”. During the same period, its top sending counterparties were Hydra, BTC exchange Local Bitcoin and TheFinko. 

Btizlato’s largest counterparty was Hydra Market, the once world’s largest and longest-running marketplace for narcotics, stolen information, fraudulent identification documents and money laundering services. The DOJ alleges that Hydra users exchanged more than $700 million worth of cryptocurrencies with the exchange, either directly or through intermediaries. It is also reported that Bitzlato received $15 million in ransomware proceeds. 

According to data provided by Arkham Intelligence, in 2022-23, $9.7 million worth of cryptocurrencies moved directly from Bitzlato to wallets on Binance. In the four years, the P2P exchange was operational, $52 million was moved to the world’s largest cryptocurrency exchange. Other reports reveal that in an apparent effort to conceal the origin of funds, tens of millions of dollars were transferred from Bitzlato through other crypto wallets to Binance. 

One transfer involved a Bitzlato whale transferring $21 million worth of Ether (ETH) and Tether USD (USDT) stablecoin from the platform to an intermediary wallet. From there, the wallet deposited around $15 million worth of assets on Binance over the course of four years. Arkham reports that five of the largest Bitzlato wallets sent more than $30 million directly to the exchange. Meanwhile, ten of the largest recipients of Bitzlato outflows received $45 million from wallets on other exchanges including, Huobi, Nexo, FTX, Poloniex, and WhiteBIT. 

Binance has not been directly connected to any criminal activity involving illicit funds, however, there are now raising concerns about the efficacy of its anti-money laundering (AML) practices. But CEO Changpeng “CZ” Zhao has always lauded the platform’s ability to seize suspicious funds. Earlier this week, Binance’s security team froze $2.5 million worth of Bitcoin (BTC) that was being laundered through the exchange by North Korea hacking organisation Lazarus Group. 

According to the FinCEN order, starting February 1, 2023, “covered” financial institutions will be prohibited from engaging in transactions with Bitzlato, or from any account or wallet address administered by or on behalf of the company. Legkodymov was scheduled to be arraigned in the U.S District Court for the Southern District of Florida for the indictment charges against him on Thursday. 

Also Read Japan Urge Regulators To Treat Crypto Exchanges Like Traditional Banks

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