According to an investigative report from Reuters published Monday, Binance was used as a conduit for money laundering as billions of dollars worth of criminal funds were processed through its platform, and have been unchecked in the last five years.
Binance, the largest exchange in the world, is said to have been an exchange of choice to launder money due to its previously loose Know Your Customer (KYC) requirements. Per the report, Binance processed over $2.35 billion of stolen funds between 2017 and 2021, with over $770 million of criminal funds processed in 2019 alone.
But, the exchange might not be culpable.
‘Binance had no idea who was moving money through their exchange’ because of the anonymous nature of the accounts.Eterbase co-founder, Robert Auxt
Partnering with blockchain analytics firms – Crystal Blockchain and Chainalysis, Reuters traced illicit funds from wallets to Binance. These funds were said to come from on-chain hacks, illegal drug sales and investment frauds.
The report also identified significant syndicates that laundered money through Binance. Lazarus Group, a North Korean cybercrime group behind the Ronin Bridge hack earlier this year, is said to have laundered funds through the exchange. Although Binance worked with law enforcement to identify and freeze $5 million from the hack, the amount that successfully passed through the exchange is unclear.
Furthermore, Hydra, a Russian-language darknet marketplace that used cryptocurrencies for the sale and purchase of drugs also laundered money through Binance. It is said to have used Binance to process more than $780 million since early 2018.
Traffic between Binance and Hydra dropped sharply after the KYC requirements were tightened in August 2021.
Also, European-organised crime groups that targeted pensioners in Germany, Austria and Spain laundered more than $800 million, funds obtained through fake trading websites, through Binance.
Notably, earlier in the year, a Reuters investigative report accused Binance of sharing users’ personal data with Russian authorities, potentially putting them at risk of reprisals.
Following that, Binance responded with a lengthy statement, claiming the article represented a “false narrative.”
Binance has, however, refuted Reuters’ money laundering claims. The exchange’s Chief Communications Officer – Patrick Hillmann said the figures were “inaccurate and overblown”.
Although he didn’t disclose Binance numbers for the accusations, he said the company was working to create “the most sophisticated cyber forensics team on the planet” which would “further improve our ability to detect illegal crypto activity on our platform.”
Hillmann stated that Binance utilises transaction monitoring and risk assessment tools to make sure any ill-gotten crypto is recovered as soon as possible and returned to the rightful owners. He further noted that the exchange will continue working with law enforcement to expose criminal syndicates using crypto.
Money laundering in crypto
Money laundering is a common theme among many crypto crimes. Criminal actors exploit the anonymity, lack of control and regulation of the blockchain in many regions to launder gains from both off-chain and on-chain crimes to obfuscate the sources of illicit funds and convert them into cash for bank deposits.
Although cryptocurrencies are still a long way from matching traditional financial channels in terms of the volume of value laundered, they are increasingly becoming one of the most favoured means for criminals to collect, store and clean criminal proceeds.
According to the 2022 Crypto Crime Report by blockchain data firm Chainalysis, cybercriminals laundered $8.6 billion worth of cryptocurrency in 2021, $6.6 billion in 2020 and $10.9 billion in 2019.
These criminal activities go on unchecked because there are countries where cryptocurrencies are either unregulated or under-regulated, effectively helping financial criminals conduct their activities unrestrained.
Financial institutions and regulators need to be more proactive to counter this misuse. Regulators across the world should invest time in creating effective regulations pertaining to the crypto space.
To help this, financial institutions can keep themselves a step ahead with futuristic technological innovations to prevent money laundering.
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