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Home » Binance pays $346 M in Bizlato Crypto confiscation affair
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Binance pays $346 M in Bizlato Crypto confiscation affair

For the confiscated cryptocurrency exchange Bitzlato, Binance transferred $346 million.

The co-founder of Bitzlato, a Russian living in China, was accused of operating a shelter for money laundering by the US DOJ last week.

According to blockchain data cited by Reuters, crypto giant Binance processed about $346 million worth of Bitcoin for the Bitzlato digital currency exchange, whose CEO was detained by American authorities last week on suspicion of running a “money laundering engine.”

On January 18, the US Justice Department announced that it had charged Anatoly Legkodymov, a Russian citizen living in China and the majority shareholder of Bitzlato, with running an unlicensed money-exchange business that “fueled a high-tech axis of crypto-crime” by processing $700 million in illegal funds.

When the exchange did ask users for ID information, “it routinely permitted them to supply information belonging to’straw man’ registrants,” according to the Justice Department, Bitzlato had boasted about how weak its background checks on clients were.

The largest cryptocurrency exchange in the world, Binance, ranked among Bitzlato’s top three counterparties in terms of the amount of Bitcoin it received between May 2018 and September 2022, according to data released last week by the US Treasury’s Financial Crimes Enforcement Network (FinCEN).

Among Bitzlato’s top counterparties, FinCEN reported that Binance was the only significant cryptocurrency exchange. Other participants in the transactions with Bitzlato, according to FinCEN, were the Russian-language “darknet” drug market Hydra, the minor exchange LocalBitcoins, and the cryptocurrency investment website Finiko, which it referred to as “an alleged crypto Ponzi scheme situated in Russia.” The extent of the interactions between the entities and Bitzlato was not specified by FinCEN.

According to FinCEN, Bitzlato, which is registered in Hong Kong, was a “major money laundering concern” associated with Russian illegal finance. From February 1, US and other financial institutions will not be permitted to transfer payments to Bitzlato, according to FinCEN. It did not specifically mention Binance or any other specific companies as being among those susceptible to the ban. A spokesman for Binance claimed through email that the company had “offered substantial assistance” to foreign law authorities in support of their investigation into Bitzlato. They continued by denying to elaborate on their interactions with Bitzlato or the nature of their collaboration with such organizations, but that the company was dedicated to “working collaboratively” with law authorities.

Reuters was unable to contact Bitzlato, whose website claims to have been taken by French authorities. Legkodymov has not made any public remarks since his detention in Miami last week, and he has not answered inquiries for comment sent via email.

Kirill Doronin’s attorney referred to FinCEN’s statement as “unfortunate for him [Doronin], since he continues to expect for the recovery of the bitcoin to investors from the people who stole it,” saying that Doronin is the founder of Finiko. According to Dmitry Grigoriadi, a lawyer, Doronin did not use cryptocurrency from investors while Finiko was in operation.

The person in charge of Hydra, who was charged in the US last year, did not reply to demands for comment.

LocalBitcoins, situated in Finland, said that it has never engaged in “any form of cooperation or partnership” with Bitzlato. According to the statement, some of LocalBitcoins’ peer-to-peer (P2P) traders “would also have been dealing in BitZlato’s P2P market,” and “there have basically been no transactions between LocalBitcoins and BitZlato since October 2022.”

There is no proof, according to Reuters, that the transactions between Binance, LocalBitcoins, or Finiko and Bitzlato, which the Justice Department called a “shelter for criminal proceeds and funds intended for use in criminal activities,” violated any rules or laws.

However, a former US banking regulator and a former law enforcement official claimed that because Binance is one of the most important counterparties, the US Treasury and Justice Department will pay close attention to the company’s compliance checks with Bitzlato.

In response to FinCEN’s citation of Binance and LocalBitcoins, independent US lawyer and expert witness on anti-money laundering problems Ross Delston said, “I wouldn’t call it a warning shot over the bow, I would call it a guided rocket.”

Neither FinCEN nor the Justice Department would comment.

A examination of previously unreported data shows that between May 2018 and its termination last week, Binance handled more than 20,000 Bitcoin, valued at $345.8m at the time they were transacted, across about 205,000 transactions for Bitzlato. Reuters was shown the statistics, which were gathered by renowned US blockchain researcher Chainalysis.

During that time, Bitzlato sent Bitcoin worth about $175 million to Binance, becoming Binance its biggest receiving counterparty, according to the data.

A little over $90 million of the total transfers occurred after August 2021, when Binance announced it would require users to provide identification in order to combat financial crime, according to statistics from Chainalysis, which declined to comment. In a blog post from last year, Binance stated that these checks target “the funding and laundering of money from illegal operations.” Whether Binance implemented its ID requirements with Bitzlato could not be ascertained by Reuters.

Bitzlato was flagged as high-risk by the darknet market Chainalysis in February of last year, which US officials employ to trace illegitimate cryptocurrency transfers. In a research, Chainalysis identified roughly $1 billion in transactions that were “illicit and dangerous,” accounting for nearly half of Bitzlato’s transfers between 2019 and 2021.

The US’s move against Bitzlato comes at the same time that the Justice Department is looking into Binance for potential money laundering and sanctions violations. According to Reuters, several federal prosecutors have determined that the information gathered supports charging executives, including founder and CEO Changpeng Zhao.

Whether Binance’s transactions with Bitzlato were under investigation was unknown to Reuters.

According to a series of articles published by Reuters last year based on blockchain data, court documents, and company records, Binance, which withholds the location of its primary exchange, has processed at least $10 billion in payments for criminals and businesses trying to skirt US sanctions.

According to former executives and business records, the reporting also revealed that Binance set out to deceive regulators in the US and internationally by maintaining lax anti-money laundering standards.

The illicit-fund calculations in the publications were disputed by Binance, which also referred to the descriptions of its compliance systems as being “outdated.” The exchange stated that it is “pushing greater industry standards” and attempting to enhance its capacity to recognize unlawful cryptocurrency activity last year.

Significant counterparties of Hydra, the largest darknet drug market in the world, including both Binance and Bitzlato. US and German authorities took down the Russian-language website last year. According to the Justice Department, Bitzlato engaged in direct or indirect cryptocurrency exchanges worth more than $700 million with Hydra.

In a report from last June, Reuters examined blockchain data that revealed Hydra buyers and sellers used Binance to send and receive cryptocurrency payments totaling nearly $780 million between 2017 and 2022. This number was “inaccurate and overstated,” according to a spokeswoman for Binance at the time.

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