In a special report, Reuters points out that Binance served as a tool to launder at least $2.35 billion during its five years of existence. Of these, $834,037,805 would be related to black markets, another $1,098,736,746 million to scams, $375,299,008 million to breaches from its Indian affiliate WarzirX, and a small fraction, $26,896,428 million to hacks from other exchanges. What Changpeng Zhao, founder and CEO of Binance, declined to comment on the case, Patrick Hillmann, director of communications at Binance, represented the company. On the occasion, he commented that some numbers are incorrect and exaggerated. Going further, he also stated that while the exchange freely receives deposits, it is how Binance handles these amounts afterward that is important.
KYC implementation curbed suspicious deposits
From its founding in June 2017 to August 2021, Binance allowed its users to make deposits and withdrawals without verifying their identity. Such ease and privacy helped the company grow, however, it also attracted illicit money. According to the Reuters report, Binance received $40.6 million from Hydra Market, a black market where various illicit products can be found, in just one month. In total, Binance reportedly received $771,605,454 million from Hydra over its five years. What stopped the use of Binance as a tool to process this type of funds was the implementation of KYC (Identity Verification). As Reuters shows, the numbers have since plummeted.
Hydra Market funds earmarked for Binance, dropping after exchange’s KYC implementation. Furthermore, Binance also made strong signings in the following months. As an example, it hired a former US IRS agent who worked on the Silk Road case, showing an interest in combating such activities.
The damage was already done
Despite good intentions in implementing identity verification and heavy recruitment, the damage had already been done. In total, Reuters notes that at least $2.3 billion passed through the exchange from black markets, hacks and other scams. Another giant case highlighted by the investigation is the Finiko pyramid scheme. In this, Binance would have received another $834,040,844 million between 2019 and 2021. In addition, there are smaller ones, such as Cyber Storm in Pakistan, of $99,876,391 million in 2021, as well as other smaller ones, based in various jurisdictions. In response to Reuters, Binance spokesman Patrick Hillmann claimed that some numbers are incorrect and exaggerated. He then mentioned that such funds can be frozen by the company.
“What is important to consider is not where the funds come from, as cryptocurrency deposits cannot be blocked, but what we do after the funds are deposited.”
Despite this, it is hard to believe that Binance was so strict before August 2021. After all, users were able to withdraw large amounts of crypto daily without having to submit any documents to Binance. Added to this, the sheer volume and liquidity of the exchange may have been another draw for those people. Ultimately, however, this Reuters investigation puts pressure not only on the Binance, but also on international regulators. Therefore, this may be a reason for the authorities to review these complaints.
