‘Torrent of illicit funds’ flowed through Binance, even when set up in Malta, probe shows

A torrent of illicit funds flowed through the world’s largest crypto exchange, Binance between 2017 and 2021 – tallying with the period in which the company was in Malta – a new investigation by Reuters has found.

The latest scathing revelations about the company published on Monday show that throughout this period, Binance processed transactions totalling at least $2.35 billion stemming from hacks, investment frauds and illegal drug sales.

The calculations were made through the examination of court records, statements by law enforcement and blockchain data, that was compiled for the news agency by two blockchain analysis firms, Reuters said.

The investigation lists examples of such illicit funds that flowed through Binance during those years, including some $5.4 million in stolen virtual currency by a North Korean hacking group known as Lazarus, who broke into a small Slovakian crypto exchange. Several hours after the hack, the hackers opened at least two dozen anonymous accounts on Binance, enabling them to convert the stolen funds and obscure the money trail, according to correspondence between Slovakia’s national police and Binance seen by Reuters.

In March 2018, at the height of the government’s attempt to turn Malta into the ‘Blockchain Island’, disgraced former Prime Minister Joseph Muscat and his then head of communications Kurt Farrugia had announced the arrival of the company and boasted that it was setting up shop in Malta.

“Welcome to Malta, Binance. We aim to be the global trailblazers in the regulation of blockchain-based businesses and the jurisdiction of quality and choice for world class fintech companies,” Muscat tweeted at the time.

Binance’s money flow also extended to Malta’s social causes. In 2018, a Memorandum of Understanding was signed between then-President Marie Louise Coleiro Preca and the Binance Foundation, which pledged to give funds to the Community Chest Fund through its ‘Blockchain Charity Foundation’.

However since then, the pledged funds remain in limbo, and the Community Chest Fund has gone to court in a bid to enforce the cryptocurrency donation pledges – that have grown in value from a couple of hundred thousand euros to €7 million in less than three years – after Binance sought to liquidate its Maltese charity foundation, according to reports by The Times of Malta.

An investigation by The Shift in 2018 showed that cryptocurrency exchanges moving to Malta before October 2019 could operate until 2020 without having to comply with anti-money laundering and market manipulation rules.

It was just before that concession period expired that Binance informed the Malta Financial Services Authority that it had aborted its plan to relocate to Malta.

Yet Binance kept exploiting the coverage it got in Malta to tell its users across the globe that it was “governed under the laws of Malta”.

The Reuters’ investigation, which cited four people with direct knowledge of Binance’s decision making, said Changpeng Zhao, chief executive of Binance, was “spooked” by the requirements imposed by Malta’s legislation, leading to its decision to abort its licence application process altogether.

This is not the first time that Binance has been linked to aiding and abetting the laundering of stolen funds. In 2020, The Shift reported that a Japanese cryptocurrency exchange was suing Binance for “aiding and abetting” the laundering of stolen funds. In January, Reuters reported that Binance kept weak money-laundering checks on its users until mid-2021, despite concerns raised by senior company figures starting from at least 2018.

In January, a report by crypto monitoring platform Chainanalysis revealed that $8.6 billion worth of cryptocurrency was laundered in 2021– a 30% increase in money laundering activity since 2020,