The laundered funds came from the hack of the Japanese exchange Zaif. In 2018, Binance allowed anonymous users to withdraw up to 2 BTC per day.
A Japanese exchange called Fisco sued renowned exchange Binance for allegedly allowing the laundering of more than USD 9 million hacked on Japanese exchange Zaif in 2018. It is important to mention that Fisco acquired Zaif after the hack.
The lawsuit that Fisco filed in a California court last September 14th holds Binance responsible for 7 charges. These include fraud, conversion, aid in the conversion of illicit funds illicit competition, violation of the criminal code, illicit enrichment, and negligence.
Fisco expects to receive as compensation the recognition of all damages and losses to which the actions (or inaction) of Binance subjected them, as well as the reimbursement of the more than USD 9 million, with interest. Additionally, they await the allocation of part of the profits that Binance has obtained as a result of the operations with the illicit money generated, as well as compensation for the legal expenses resulting from the introduction of the lawsuit in the US courts.
Upon acquiring exchange Zaif after the hack, Fisco also acquired the responsibility of returning to the affected customers the more than USD 41 million that they lost. The Japanese exchange accuses Binance of “being a place where criminals go to convert stolen cryptocurrencies into other cryptocurrencies or into cash.”
“Binance Could Have Prevented the Laundering But Did Not Do It”
In the lawsuit, Fisco says that Binance “has extremely lax anti-money laundering policies” although it is one of the largest cryptocurrency exchanges. For example, any anonymous user can mine up to 2 BTC a day on Binance, as they state.
According to Fisco, this capacity allowed the hackers to launder 1,451.7 BTC, which they sent to hundreds of Binance addresses and progressively withdrew. The Japanese exchange alleges that Zaif contacted Binance in 2018 to alert them about what was happening. However, Binance took no action and allowed the thieves to continue trading money from addresses that had stolen Bitcoin.
For this reason, Fisco says that the criminals used Binance as a receptacle and transmitter of the funds since they could trade the affected customers’ bitcoins for other cryptocurrencies or fiat money on its platform.
Fisco also wonders whether Binance acted intentionally or was just negligent. Also, they state that “Binance has significant monetary incentives to facilitate and allow as many transactions as possible through its exchange, including transactions with stolen cryptocurrencies.”
California-Based Binance Servers Are Something Similar to Physical Headquarters
Concerning Fisco’s decision to sue Binance in California, it shows several reasons. First, part of the affected customers (which Fisco redistributed later) are in California and they want to pursue their claim against Binance.
The second reason is that Binance stores its reserves in “cold wallets” of US providers such as Bitgo and Coinbase, which are in California. Besides, Binance has hired senior executives living in San Francisco, who directly report to the CEO of the exchange.
The most important reason seems to be that the hackers conducted “the money laundering through Binance servers” that Amazon Web Services host in California. For this reason, they believe that the AWS servers would be the “nervous brain” where the criminals conducted their operation, even though Binance does not have formal offices in the United States.
Binance has a daily trading volume of more than USD 8 billion, which makes it one of the main cryptocurrency exchanges in the world, according to data from CoinMarketCap. Concerning Zaif, it barely reaches a trading volume of USD 15 million per day, according to the same source.
By Alexander Salazar