Binance, one of the world’s largest cryptocurrency exchanges, has come under fire again for an alleged role in facilitating money laundering. Earlier this week, Japanese exchange Fisco sued the company, accusing it of aiding money launderers through its weak security policies.
Weak KYC Procedures
The lawsuit, which was filed in the Northern California District Court on September 14, alleged that Binance had implemented weak Know-Your-Customer (KYC) procedures that allowed hackers cash out of the exchange.
Fisco currently operates Zaif, a local exchange that suffered a hack in September 2018. At the time, the exchange was one of Japan’s largest exchanges. Sadly, the security breach happened, and hackers managed to steal 4.5 billion yen (worth $40.09 million at the time) from its hot wallets and another 2.2 billion yen ($19.61 million) in company assets.
Fisco bailed out the company, providing a 5-billion-yen safety net in exchange for majority ownership in the exchange last April. Zaif has since rebranded. In this week’s filing, the Japanese exchange confirmed that the hackers had sent the stolen money to a Binance wallet address. The exchange pointed out that Binance’s lax security protocols led to the hackers being able to cash out of its platform and go home happy with their ill-gotten wins.
The thieves allegedly took advantage of Binance’s policy, which allowed new users to open accounts and make transactions less than 2 BTC without needing to provide any significant identity verification documents.
Fisco’s document added, “The thieves broke the stolen bitcoin into seven thousands of separate transactions and accounts, all valued below the 2-bitcoin threshold. In this way, the thieves converted the stolen bitcoin into other cryptocurrencies and transmitted the value from the Binance platform.”
Fisco also added that it had notified Binance that hackers moved funds to its platform. Since the company knew what happened, it failed to interrupt the hackers from processing heir transactions — whether unwittingly or intentionally.
As such, the Japanese exchange asked for compensation for Fits losses and some additional punitive damages payments.
Binance’s Incorporation Comes Into Question Again
Fisco’s case also included arguments as to why it had chosen to sue Binance in California. The argument is pertinent, given that there have been issues with Binance’s incorporation site. In its complaint, Fico pointed out that the exchange’s custodians are based in the state and that it has posted openings for several jobs in the San Francisco bay area.
While the claim can be argued, Fisco appears resolute in its belief that Binance had a hand to play in the $9.4 million theft.
The allegation against Binance is coming off fresh criticism from the Financial Action Task Force (FATF). This week, the Anti-Money Laundering (AML) regulator published a report indicating red flags involving crypto transactions. In the report, the FATF pointed out an exchange that moved jurisdictions several times to avoid oversight. It was most likely referring to Binance and its aforementioned incorporation issues.
Binance has so far been based in China and Malta. However, Maltese regulators disavowed it in February, and its base of operations has been a mystery since then. Some have placed the exchange’s base somewhere in Africa, although some have also pointed out the Cayman Islands and Seychelles as possible bases.
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