# Exclusive-Binance moved $346 million for seized crypto exchange Bitzlato, data show
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-01-25
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Binance Processed $346 Million in Bitcoin for Alleged Money
Meta Description: Discover how Binance assisted Bitzlato, whose founder faces money laundering charges, in processing millions in bitcoin amid a crypto crackdown.
URL: https://financedigest.com/exclusive-binance-moved-346-million-for-seized-crypto-exchange-bitzlato-data-showhtml

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By Tom Wilson and Angus Berwick

LONDON (Reuters) -Crypto giant Binance processed almost $346 million in bitcoin for the Bitzlato digital currency exchange, whose founder was arrested by U.S. authorities last week for allegedly running a [“money laundering engine,” blockchain data](https://www.financedigest.com/your-money-is-safe-but-your-data-might-not-be.html "YOUR MONEY IS SAFE, BUT YOUR DATA MIGHT NOT BE") seen by Reuters show.

The Justice Department on Jan. 18 said it charged Bitzlato’s co-founder and majority shareholder Anatoly Legkodymov, a Russian [national living](https://www.financedigest.com/still-living-at-home-a-third-of-the-nation-cant-afford-to-rent.html "Still living at home? A third of the nation can’t afford to rent") in China, with operating an unlicensed money exchange business that “fueled a high-tech axis of cryptocrime” by processing $700 million in illicit funds.

Bitzlato had touted the laxity of its background checks on clients, the Justice Department said, adding that when the exchange did ask users for ID information, “it repeatedly allowed them to provide information belonging to “straw man” registrants.”

Binance, the world’s largest crypto exchange, was among Bitzlato’s top three counterparties by the amount of bitcoin received between May 2018 and September 2022, the U.S. Treasury’s [Financial Crimes](https://www.financedigest.com/australia-financial-crimes-regulator-opens-investigation-into-britains-entain.html "Australia financial crimes regulator opens investigation into Britain’s Entain") Enforcement Network (FinCEN) said last week.

[Binance was the only major crypto exchange](https://www.financedigest.com/streamrs-data-token-now-listed-on-leading-cryptocurrency-exchange-binance.html "Streamr’s DATA Token Now Listed on Leading Cryptocurrency Exchange, Binance") among Bitzlato’s top counterparties, FinCEN said. It said the others to transact with Bitzlato were the Russian-language darknet drugs marketplace 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.” FinCEN did not detail the scale](https://www.financedigest.com/russia-sharply-scales-back-far-east-war-games-with-china.html "Russia sharply scales back Far East war games with China") of the entities’ interactions with Bitzlato.

Hong Kong-registered Bitzlato was a “primary money laundering concern” related to [Russian illicit finance](https://www.financedigest.com/g7-finance-chiefs-agree-on-russian-oil-price-cap-but-level-not-yet-set.html "G7 finance chiefs agree on Russian oil price cap but level not yet set"), FinCEN added. It will ban the transmission of funds to Bitzlato by U.S. and other [financial institutions](https://www.financedigest.com/a-cloud-migration-guide-for-financial-institutions.html "A Cloud Migration Guide for Financial Institutions") from Feb. 1. FinCEN said. It did not name [Binance or other individual firms](https://www.financedigest.com/exclusive-crypto-giant-binance-moved-400-million-from-u-s-partner-to-firm-managed-by-ceo-zhao.html "Exclusive-Crypto giant Binance moved 0 million from U.S. partner to firm managed by CEO Zhao") among those subject to the ban.

A Binance spokesperson said via email it had “provided substantial assistance” to [international law](https://www.financedigest.com/international-law-firm-calls-in-viato-connect-uk-and-us-offices.html "INTERNATIONAL LAW FIRM CALLS IN VIATO CONNECT UK AND US OFFICES") enforcement to support their investigation of Bitzlato. The company is committed to [“working collaboratively”](https://www.financedigest.com/uk-based-bitfount-raises-5m-seed-to-streamline-collaboration-between-organisations-working-with-sensitive-datasets.html "UK-based Bitfount raises M seed to streamline collaboration between organisations working with sensitive datasets.") with law enforcement, they added, declining to give details about its dealings with Bitzlato or the nature of its cooperation with such agencies.

Bitzlato, whose website says it has been seized by French authorities, could not be reached by Reuters. Legkodymov, has not made any [public comment since](https://www.financedigest.com/japans-emperor-gives-first-public-new-years-greeting-since-2020.html "Japan’s emperor gives first public New Year’s greeting since 2020") his arrest in Miami last week and did not respond to emailed requests for comment.

A lawyer for Finiko’s founder, Kirill Doronin, said FinCEN’s statement was “unfortunate for him, as he continues to hope for the [return of the cryptocurrency to investors](https://www.financedigest.com/certainty-in-an-uncertain-world-post-brexit-investors-turn-to-commercial-property-and-fixed-returns.html "Certainty in an uncertain world – post-Brexit investors turn to commercial property and fixed returns") from the people that stole it.” Doronin did not use investors’ crypto while Finiko was operating, the lawyer, Dmitry Grigoriadi, said.

Hydra’s operator, who was indicted in the United States last year, did not respond to requests to comment.

Finland-based LocalBitcoins said it has never had “any kind of cooperation or relationship” with Bitzlato. Some peer-to-peer (P2P) [traders at LocalBitcoins “would also have been trading in BitZlato’s P2P market”](https://www.financedigest.com/analysis-bond-traders-get-their-swagger-back-in-rate-obsessed-markets.html "Analysis-Bond traders get their swagger back in rate-obsessed markets"), it said, adding that “there have practically been no transactions between LocalBitcoins and BitZlato since October 2022.

Reuters has no evidence that the Binance, LocalBitcoins or Finiko transactions with Bitzlato, which the Justice Department described as a “haven for criminal proceeds and funds intended for use in criminal activity,” broke any rules or laws.

However, one former U.S. [banking regulator](https://www.financedigest.com/exclusive-u-s-regulator-seeks-sale-of-silicon-valley-bank-signature-bank-portfolios-sources.html "Exclusive-U.S. regulator seeks sale of Silicon Valley Bank, Signature Bank portfolios-sources") and one former law enforcement official said Binance’s status as one of the top counterparties would focus Justice Department and U.S. Treasury [attention on Binance’s compliance](https://www.financedigest.com/boardroom-attention-to-tax-compliance-up-76-thanks-in-part-to-making-tax-digital-for-vat.html "Boardroom Attention to Tax Compliance Up 76%, Thanks in Part to Making Tax Digital for VAT") checks with Bitzlato.

I wouldn’t call it a warning shot over the bow, I would call it a guided missile,” said Ross Delston, an independent American lawyer and former banking regulator who is also an expert witness on [anti-money laundering](https://www.financedigest.com/anti-money-laundering-time-to-take-a-new-approach.html "ANTI-MONEY LAUNDERING: TIME TO TAKE A NEW APPROACH?") issues, referring to FinCEN’s citing of Binance and LocalBitcoins.

The Justice Department and FinCEN declined to comment.

Binance moved over 20,000 bitcoin, [worth $345.8 million at they time](https://www.financedigest.com/tough-times-and-risky-business-which-emerging-market-assets-are-a-bet-worth-taking.html "Tough times and risky business – which emerging market assets are a bet worth taking") they were transacted, across some 205,000 transactions for Bitzlato between May 2018 and its closure last week, according to a review of previously unreported data. The figures were compiled by leading U.S. blockchain researcher Chainalysis and seen by Reuters.

Bitcoin worth about $175 million was transferred to Binance from Bitzlato in that period, making Binance its largest receiving counterparty, the data show.

About $90 million of the total transfers took place after August 2021, when Binance said it would require users to submit identification to combat [financial crime](https://www.financedigest.com/ai-the-hidden-weapon-in-the-battle-against-financial-crime.html "AI – the hidden weapon in the battle against financial crime"), according to the data from Chainalysis, which declined to comment. Such checks, Binance said in a blog last year, tackle “the funding and [laundering of money](https://www.financedigest.com/money-laundering-made-easy-by-uk-financial-system.html "Money laundering made easy by UK financial system") from illicit activities.” Reuters could not determine whether Binance enforced its ID requirements with Bitzlato.

DARKNET MARKET

Chainalysis, which is used by U.S. authorities to track illicit crypto flows, had [warned in February of last year](https://www.financedigest.com/eu-could-face-gas-shortage-next-year-iea-warns.html "EU could face gas shortage next year, IEA warns") that Bitzlato was high risk. In a report, Chainalysis said [nearly half](https://www.financedigest.com/nearly-half-of-parents-still-give-pocket-money-to-their-adult-children.html "Nearly half of parents still give pocket money to their adult children") of Bitzlato’s transfers between 2019 and 2021 were “illicit and risky,” identifying almost $1 billion in such transactions.

The U.S. action against Bitzlato comes as the Justice Department investigates Binance for possible money laundering and [sanctions violations](https://www.financedigest.com/u-s-charges-russian-oligarch-with-violating-sanctions-disrupts-botnet.html "U.S. charges Russian oligarch with violating sanctions, disrupts botnet"). Some federal prosecutors have concluded that the evidence collected justifies filing charges against executives including founder and CEO Changpeng Zhao, [Reuters reported](https://www.financedigest.com/indonesia-to-tighten-used-shoe-import-controls-after-reuters-report.html "Indonesia to tighten used shoe import controls after Reuters report") in December.

Reuters could not establish whether Binance’s dealings with Bitzlato are under review.

Binance, which does not reveal the location of its core exchange, has [processed at least $10 billion in payments](https://www.financedigest.com/are-your-payment-processes-in-cheque-for-the-new-legislation.html "ARE YOUR PAYMENT PROCESSES IN CHEQUE FOR THE NEW LEGISLATION?") for criminals and companies seeking to evade U.S. sanctions, Reuters found in a series of articles last year based on blockchain data, court and [company records](https://www.financedigest.com/what-happens-if-a-company-doesnt-have-any-records-of-its-rd-activities.html "What happens if a company doesn’t have any records of its R&D activities?").

The reporting also showed that Binance intentionally kept weak anti-money laundering [controls and plotted to evade regulators](https://www.financedigest.com/analysis-u-s-regulators-could-be-pressured-by-slim-republican-house-control.html "Analysis-U.S. regulators could be pressured by slim Republican House control") in the United States and elsewhere, according to former executives and company documents.

Binance disputed the articles, [calling the illicit-fund calculations inaccurate and the descriptions of its compliance controls](https://www.financedigest.com/eu-lawmakers-call-for-summit-to-control-very-powerful-ai.html "EU lawmakers call for summit to control ‘very powerful’ AI") “outdated.” The exchange said last year it is “driving higher industry standards” and that it is seeking to improve its ability to detect illegal crypto activity.

Both Binance and Bitzlato were significant counterparties of the world’s largest darknet drugs marketplace Hydra. The Russian-language site was shut down by U.S. and German authorities last year. The Justice Department said Bitzlato exchanged more than $700 [million in crypto](https://www.financedigest.com/ripple-buys-crypto-custody-firm-metaco-for-250-million.html "Ripple buys crypto custody firm Metaco for 0 million") with Hydra, either directly or through intermediaries.

In an article published last June, Reuters reviewed blockchain data that showed that buyers and sellers on Hydra used Binance to make and receive crypto [payments worth around](https://www.financedigest.com/virtual-accounts-leading-payment-expert-calls-for-major-changes-in-wolfsberg-group-guidance-around-on-behalf-of-payments.html "Virtual Accounts: leading payment expert calls for major changes in Wolfsberg Group guidance around “On behalf of” payments") $780 million between 2017 and 2022. A Binance spokesperson said at the time that the Hydra figure was “inaccurate and overblown.”

[(Reporting by Tom Wilson and Angus Berwick in London; Editing by Elisa Martinuzzi and Louise Heavens)](https://www.financedigest.com/london-reclaims-place-as-preeminent-global-financial-centre-for-the-first-time-since-2013-according-to-global-regulatory-outlook-report-from-duff-phelps.html "London reclaims place as preeminent global financial centre for the first time since 2013, according to Global Regulatory Outlook report from Duff & Phelps")


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