Regulatory scrutiny<\/a> post-FTX\u2019s dramatic implosion has prompted a crisis of confidence<\/a> in other industry actors.<\/p>\n Perhaps no other firm has bee affected more so than rival cryptocurrency exchange Binance<\/a>, itself in no small way responsible for the chain of events that led to FTX\u2019s multi-billion-dollar evaporation<\/a> in November of last year.<\/p>\n This, as the world\u2019s largest cryptocurrency exchange publicly admitted that management<\/a> of its customer funds \u201chas not always been perfect,\u201d and a Reuters report<\/a> published Tuesday (Jan. 24) revealed that Binance had served for years as one of the top thoroughfares for crypto exchange Bitzlato, which recently got a federal citation.<\/p>\n The U.S. Treasury\u2019s Financial Crimes Enforcement Network (FinCEN) stated in its \u201cImposition of Special Measure Prohibiting the Transmittal of Funds Involving Bitzlato<\/a>\u201d order that Binance was among Bitzlato\u2019s top three counterparties by the amount of digital assets received between May 2018 and September 2022.<\/p>\n Binance was the only major cryptocurrency exchange among the list of top counterparties per the FinCEN report, which also listed Russian-language darknet drugs marketplace Hydra Market, a smaller exchange called LocalBitcoins, and Russia-based Finiko as Bitzlato\u2019s biggest partners by transaction volume.<\/p>\n FinCEN described Finiko in the special measure order as \u201can alleged crypto Ponzi scheme.\u201d<\/p>\n Hydra, which has since been seized and shut down, was the world\u2019s largest and longest running darknet marketplace, per a U.S. Department of Justice (DOJ) report<\/a>. The platform allowed users to purchase illicit drugs and other services anonymously using cryptocurrency.<\/p>\n \u201cThe Department of Justice will not allow darknet markets and cryptocurrency to be a safe haven for money laundering and the sale of hacking tools and services,\u201d said Deputy Attorney General Lisa O. Monaco in a release<\/a> announcing Hydra\u2019s closure.<\/p>\n Not the most reassuring company for Binance to keep, particularly as the global exchange\u2019s U.S. arm is currently under federal investigation<\/a> for unlicensed money transmission, conspiracy and criminal sanctions violations.<\/p>\n According to a separate Reuters investigation<\/a> in June of last year that referenced available blockchain data, buyers and sellers on Hydra\u2019s darknet marketplace used Binance to make and receive crypto payments totaling more than three-quarters of a billion dollars, or $780 million.<\/p>\n The enigmatic exchange, which does not disclose its parent company\u2019s location or headquarters, has allegedly processed a minimum of $10 billion in payments to-date for criminals and companies seeking to evade U.S. sanctions.<\/p>\n Binance has not replied to a request from PYMNTS for comment as of this writing.<\/p>\n In total, $346 million of digital assets ran between Binance and Bitzlato across some 205,000 transactions. Per the Reuters report, the numbers were compiled by leading U.S. blockchain researcher Chainalysis, which regularly works with governments on crypto industry data and analysis.<\/p>\n Over a quarter of that amount, or $90 million, was transferred after Binance had said it would require its users to submit valid identification<\/a> in order to transact across its platform so as to help combat the funding and laundering of money from illicit activities.<\/p>\n As reported<\/a> by PYMNTS,\u00a0Bitzlato<\/a> has had assets seized, and its founder was arrested last week (Jan. 17) in Miami.<\/p>\n The transmission of funds to Bitzlato by the U.S. and other financial institutions will be effectively cut off as of Feb. 1, according to the FinCEN filing.<\/p>\n Read more: Binance Skeptics Seek Answers Concerning Similarities With FTX Crypto Business Model<\/a><\/strong><\/p>\n Crypto firms\u2019 management of their customers\u2019 reserves held in custody has become a hot-button topic for the digital asset industry following FTX\u2019s alleged misappropriation of its own user bases\u2019 assets to fuel bad bets that resulted in a disastrous multi-billion-dollar bankruptcy and a historic disintegration of wealth.<\/p>\n That context is what makes it so surprising, and potentially unnerving, that Binance<\/a>\u00a0reportedly kept collateral for tokens in the same wallet as customer assets as well.<\/p>\n That\u2019s per a PYMNTS report<\/a> Tuesday (Jan. 24) that also relayed the exchange is aware of the issue and planning to change its procedures to address the comingling of assets.<\/p>\n This, as New York\u2019s top financial watchdog the New York State Department of Financial Services<\/a>\u00a0(NYDFS) is cautioning crypto firms to segregate customers\u2019 cryptocurrency assets<\/a> from their own, something traditional financial leaders, including Stifel<\/a> CEO and Chairman Ron Kruszewski<\/a>, are calling<\/a> on the crypto industry to do as well.<\/p>\n \u201cDFS\u2019s virtual currency regulation has protected New Yorkers since 2015,\u201d said NYDFS Superintendent\u00a0Adrienne Harris<\/a>. \u201c[Agency] guidance reminds DFS-regulated virtual currency companies of our expectations regarding the safekeeping of customer assets.\u201d<\/p>\n While leading crypto actors have repeatedly said they are aware of their mistakes, it remains to be seen if that have learned from them.<\/p>\nBinance Gets an \u201cF\u201d for Its Finances<\/h4>\n
![\"\"](\"https:\/\/securecdn.pymnts.com\/wp-content\/uploads\/2018\/11\/PYMNTS-Study-December-2022.jpg\")
<\/a><\/div>\n