Top cryptocurrency exchange Binance is said to have processed ~$346M in bitcoin (BTC-USD) for trading platform Bitzlato, whose founder Anatoly Legkodymov was charged with money laundering and ransomware. Bitzlato allegedly processed over $700M of illicit funds, including ~$15M in ransomware proceeds. The U.S. Justice Department said Bitzlato touted the laxity of its background checks on clients.
All this noise around Bitzlato just puts more focus on Binance. The news also follows a strange week in federal crypto enforcement. Last Wednesday, the U.S. Department of Justice made a big deal about charges they planned to drop regarding some kind of major international crypto bust. After all the drama surrounding the collapse of FTX and arrest of its founder Sam Bankman-Fried, the crypto community sat on the edge of their seats.
During a press conference, Deputy Attorney General Lisa Monaco said they arrested Anatoly Legkodymov, a Russian national living in China who was the lead at the crypto exchange Bitzlato. Alongside FinCEN, he was charged with facilitating money laundering for crypto criminals.
There were more than a few people deep in the crypto community who collectively shrugged and asked “wait, who is that?” Bitzlato was a small exchange, barely on the register of most of the western crypto community. The other parties Bitzlato allegedly used to transact funds included Hydra, an all-in-one darknet drug shop, as well as TheFiniko, which FinCEN described as an “alleged Russia-based Ponzi scheme.” Beyond Legkodymov though, Reuters cited former banking regulator Ross Delta who said this would just force more prosecutorial attention on Binance, especially its compliance check and know-your-customer systems.
The US Treasury’s Financial Crimes Enforcement Network (FinCEN) reported that Binance was among Bitzlato’s top three counterparties by the amount of bitcoin received between May 2018 and September 2022. The reporting also showed that Binance intentionally kept weak anti-money laundering controls and plotted to evade regulators in the United States and elsewhere.
FinCEN noted that Binance was the only major crypto exchange among Bitzlato’s top counterparties. The other entities that transacted with Bitzlato were a Russian-language darknet drugs marketplace called Hydra, a small exchange called LocalBitcoins, and a crypto investment website called Finiko, which FinCEN described as “an alleged crypto Ponzi scheme based in Russia.”
However, FinCEN did not provide any details about the scale of these entities’ interactions with Bitzlato.
FinCEN has classified Hong Kong-registered Bitzlato as a “primary money laundering concern” related to Russian illicit finance. As a result, FinCEN will ban the transmission of funds to Bitzlato by US and other financial institutions from February 1. FinCEN did not name any individual firms among those subject to the ban. A Binance spokesperson stated that the company had “provided substantial assistance” to international law enforcement to support their investigation of Bitzlato.
