“Bitzlato may not be a household name, but according to Makarov & Shoar’s 2021 paper on Blockchain analysis, it was one of the highest-volume entities to interact with the Hydra dark net market, along with LocalBitcoins and Binance,” tweeted John Paul Koning, financial crime specialist.
Binance, the large cryptocurrency exchange, has already been in the hot seat many times. Accused of all wrongs, CZ will have to be pickier about the origin of the funds that go through its bag. Following the arrest of the CEO of Bitzlato, an obscure exchange dedicated to trafficking of all kinds, experts scrutinized transactions on the Blockchain.
According to the Financial Crimes Enforcement Network (FINCEN), Binance received bitcoins from Bitzlato between May 2018 and 2022. Other recipients included the Hydra exchange and Russia’s Finiko Ponzi (and many more).
An analysis by Crystal Blockchain indicated that there would have been $780 million in transactions between Binance and the Hydra exchange, dismantled in April 2022. Arkham Intelligence data confirms this.
A Little too Lax with the Source of Funds?
When any case of fraud is followed by a serious investigation, Binance, of course, cooperates with the authorities. However, petty scams are not well investigated by the police, and Binance does not appear to respond 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, gone unanswered.
Illegal funds come from scams, ransoms, trafficking, etc. It is obvious that laundering in dollars is vastly more important, but in cryptocurrencies it is expanding. This concerns everyone: in fact, the easier it is for scammers to use stolen crypto, the more scams there will be. Perpetrators move funds around to cover their tracks, but Blockchain can help track movements (when the mixer isn’t used).
Tens of millions of dollars flowed from Bitzlato to Binance via other crypto wallets, in an apparent effort to hide 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.
During Bitzlato’s four years of operation, $52 million was transferred directly from the exchange to Binance, according to the same data set.
What Is Binance Doing to Fight Dirty Money?
Binance CEO Changpeng Zhao is intent on safeguarding the reputation of his exchange. He claims to actively fight fraud and confiscate any illicit funds that may pass through it. Earlier this week, CZ announced that it had blocked millions of dollars’ worth of cryptocurrency linked to a North Korean hacking group called Harmony. However, Binance is known to have been under investigation for money laundering by the US DOJ (Department of Justice) for months.
The Commodity Futures Trading Commission (CFTC) is also investigating whether US citizens have been able to trade unregistered derivatives. The arrest of the CEO of Biztlato, the takedown of Hydra Market, as well as the strengthened KYC on Binance, have already reduced fraud considerably.
By Audy Castaneda
