The FinCEN report highlights Bitzlato, a Russian virtual currency exchange that specializes in P2P services and exchange, as a primary concern for money laundering in connection with Russian illicit finance.
It is due to Bitzlato’s involvement in facilitating deposits and funds transfers for Russian ransomware groups and their affiliates, as well as facilitating transactions on Russian darknet markets for both customers and vendors.
The report claims two-thirds of Bitzlato’s top receiving and sending counterparties are linked to these illegal activities. Along with Binance, Hydra, a Russia-connected darknet market, and TheFiniko, a Russia-based Ponzi scheme, were among Bitzlato’s top three counterparties for both receiving and sending BTC between May 2018 and September 2022.
Additionally, Legkodymov, a senior executive of Bitzlato, was reportedly detained on January 17th in Miami, according to a press statement from the Department of Justice. U.S. Attorney Breon Peace said:
As alleged, Bitzlato sold itself to criminals as a no-questions-asked cryptocurrency exchange and reaped hundreds of millions of dollars worth of deposits as a result. The defendant is now paying the price for the malign role that his company played in the cryptocurrency ecosystem.
An investigation by Arkham Intelligence has revealed that large sums of money that passed through Bitzlato ended up in deposit wallets at Binance, according to January 19th report. It comes as it is reportedly under investigation by the Department of Justice for its compliance with AML laws.
Despite the world’s largest crypto exchange’s claims of implementing strict anti-money laundering standards, the movement of funds raises concerns about the effectiveness of their AML practices.
Furthermore, an outside AML vendor for Binance, Chainalysis, found that nearly half of Bitzlato’s cryptocurrency receipts between 2019 and 2021 were deemed “illicit or risky.”
It is worth noting that while Bitzlato’s highest crypto balance was valued at $6.6 million, Binance’s was valued at over $60 billion. However, the total flow of funds in and out of Bitzlato suggests it was being used as a transit point for users looking to keep their crypto in more established exchanges.