Binance being sued for ‘aiding and abetting’ laundering of stolen funds

Binance, the crypto-trading giant which was welcomed with open arms in Malta, is being sued by a Japanese cryptocurrency exchange for “aiding and abetting” the laundering of stolen funds.

The company suing Binance, Fisco, had suffered a $60 million hack in 2018. Filing a complaint in the Northern California District Court on 14 September, the company alleged that shortly after losing almost 6,000 bitcoin in the hack, the thieves sent 1,451 bitcoin to an address belonging to Binance, a company worth $9.4 million at the time, Blockchain news site Coindesk reported on Thursday.

The hack, which occurred in September 2018, happened at a time when Binance had reportedly already opened a bank account in Malta and signed a Memorandum of Understanding with a subsidiary of Malta’s Stock Exchange to launch a new security token digital exchange.

Binance had announced the move to Malta months earlier – referring to regulatory issues in Japan. The opening of a bank account to conduct business had been a major stumbling block since banks in Malta were reluctant to get involved due to risk issues.

In 2018, Binance also announced an investment in Founders Bank, which was touted as the world’s first decentralised bank in Malta.

The crypto giants were welcomed with open arms by former Prime Minister Joseph Muscat in March earlier that year. He had tweeted that Malta would support Binance’s goal to become the “global trailblazers in the regulation of blockchain-based businesses”.

Fisco, called Zaif at that time, said the thieves subsequently laundered the funds on the world’s largest exchange platform because of its allegedly lax know-your-customer and anti-money laundering protocols that “do not measure up to industry standards,” the report said.

They claimed to have taken advantage of Binance’s policy which allowed new users to open accounts and make transactions on the platform in amounts less than two bitcoins, without needing to provide any meaningful information of identification.

Last February, the Malta Financial Services Authority (MFSA) issued a statement saying that Binance is not authorised by the MFSA to co-operate in the cryptocurrency sphere. It said it is assessing whether the company has any activities in Malta which may not fall within the realm of regulatory oversight.

According to Coindesk, the plaintiff said the stolen bitcoin was broken into thousands of separate transactions and accounts all valued below the threshold of 2-bitcoin, converting the bitcoin into other cryptocurrencies and transmitted the value from the Binance platform.

Fisco alleged that since Binance had “actual knowledge” that the stolen funds were sent to its platform, it “either intentionally or negligently failed to interrupt the money laundering process when it could have done so”. Now, Fisco is demanding Binance to pay for its loss of the laundered funds in addition to other punitive damages, the report said.

This is not the first crack in Malta’s ‘Blockchain Island’ image. In January, The Shift reported that blockchain company Omnitude, which partnered with the Maltese government to enhance public transport services, ceased operations after claiming that the company was misled by the authorities about funding.

In 2018, Europol had said that criminals in Europe were using cryptocurrencies to launder as much as $5.5 billion in illegal money.