On Wednesday, federal prosecutors unsealed an indictment against Bitzlato, a little-known crypto exchange, accusing it of aiding the laundering of $700 million in corrupted cryptocurrency linked to the now-defunct dark-web market Hydra, as well as millions more in ransomware earnings.
Despite the strong anti-money laundering (AML) procedures that Binance claims to have established, blockchain evidence demonstrates that tens of millions of dollars moved through Bitzlato eventually wound up in Binance deposit wallets.
The movement of Bitzlato's assets calls into doubt Binance's AML measures, especially because Binance's own outside AML vendor, Chainalysis, issued a report in February 2022 stating that 48% of Bitzlato's 2019-2021 cryptocurrency revenues were "illicit or risky."
Binance was listed as Bitzlato's largest counterparty in a FinCEN report from Wednesday, although blockchain data reveals crude attempts to hide the origin of payments before they entered Binance custody.
According to data from Arkham Intelligence, just $9.7 million went from Bitzlato to Binance directly for the entire year of 2022 and the few weeks that Bitzlato was in operation in 2023. Only $52 million was sent directly from the exchange to Binance over the four years that Bitzlato was in operation, according to the same information.
However, a cursory examination of some of Bitzlato's biggest exchange partners reveals that, in an apparent effort to hide the source of the cash, tens of millions more went from Bitzlato through other cryptocurrency wallets to Binance.
In total, the five largest Bitzlato-connected wallets contributed more than $30 million to Binance directly. Millions more in smaller transactions eventually made their way into Binance's wallets.
The on-chain statistics do not account for any additional monies transferred to Binance via Bitzlato via mixers, which allow users to conceal the origin and destination of their cryptocurrency. It also provides no information on the type of enforcement action Binance might take to fight against fraudulent deposits, such as confiscating funds once they are in Binance's wallets.
Changpeng Zhao, CEO of Binance, has frequently lauded his exchange's robust initiatives to restrict the flow of illicit cash on the network. Binance revealed earlier this week that it has confiscated cryptocurrency valued at millions of dollars linked to the Harmony hacking gang from North Korea.
The biggest cryptocurrency exchange in the world, Binance, has not been linked to any criminal conduct, and officials have not charged it with willfully taking illegal cash. The Department of Justice is reportedly conducting a separate criminal investigation into the exchange's adherence to AML regulations.