Binance Accused of Becoming a Hotbed of Crime

The reporters point out that the North Korean hacking group known as Lazarus, who stole money from a small Slovakian exchange Eterbase in 2020, used Binance to launder it. It took the hackers just several hours to open at least two dozen anonymous accounts, according to correspondence between Slovakia’s national police and Binance.

“Binance had no idea who was moving money through their exchange” because of the anonymous nature of the accounts, said Eterbase co-founder Robert Auxt. His company was unable to recover the funds. 

Grandfex, a fraudulent company that stripped European retirees of cash, also used Binance for transferring the funds around while ‘kindly’ letting its clients know that “you will simply not receive your money.” 

According to Reuters estimates, confirmed by two independent industry experts, between 2017-2021, Binance processed transactions amounting to at least $2.35 billion, all of which come from hacks, investment fraud, and illegal drug sales. The exchange, however, dubs them inaccurate while also ignoring the request to provide their own data. It also claims to be building “the most sophisticated cyber forensics team on the planet” and is seeking to “further improve our ability to detect illegal crypto activity on our platform.”

Meanwhile, Chainanalysis, a company that tracks and analyzes data on the blockchain, concluded in its 2020 report that in 2019 Binance received the most illicit funds totaling $770 million. In response, the exchange’s CEO Changpeng Zhao, known as CZ, accused Chainalysis of “bad business etiquette.”

Lazarus and Grandfex are not the only entities that use Binance for illicit activities. As per the investigation, Hydra, a Russian-language narcotics marketplace, is among the top go-to sources for buyers and sellers to use Binance for transactions. The data shows that between 2017-2022 Hydra facilitated the exchange of crypto payments worth $780 million, a figure that is confirmed by another analysis firm.

Answering Reuters' question of how Binance views its responsibility to keep an eye on dirty money passing through the exchange, the company’s spokesperson replied, “what’s important to note is not where the funds come from – as crypto deposits cannot be blocked – but what we do after the funds are deposited.” He added that the exchange uses transaction monitoring and risk assessments to “ensure that any illegal funds are tracked, frozen, recovered and/or returned to their rightful owner”, saying that KYC is now “highly sophisticated” and that it views such rules as both “mandatory and welcome.”

These statements somewhat contradict Binance’s KYC checks policy, with CZ reportedly telling staff in 2020 that these rules are “unfortunately a requirement” of its business. Meanwhile, one of the team members said that it sufficed for one user to submit three copies of the same receipt from a meal at an Indian restaurant to open a Binance account.

Binance, however, underscores that it has tightened its KYC policy in 2021 and claims to be actively cooperating with law enforcement to bring down criminal networks that use cryptocurrencies for drug sales, including in Russia.  

While Binance prides itself on the fact that its community in Russia is hyperactive, recently it has emerged that the exchange has forged links with Russian government agencies. The company also refused to leave the Russian market after the Kremlin had decided to invade Ukraine, turning a blind eye to Kyiv’s efforts to financially isolate Moscow.