Binance Lawsuit: Fisco Alleges $9 Million in Stolen Crypto Was Laundered

Binance Lawsuit: Fisco Alleges $9 Million in Stolen Crypto Was Laundered

Cryptocurrency exchange Binance is facing a major legal challenge after being sued by Japanese crypto exchange Fisco. Fisco claims that Binance’s lax Know-Your-Customer (KYC) policies allowed cybercriminals to launder over $9 million in stolen cryptocurrency originating from the 2018 hack of the Zaif exchange.

The lawsuit, filed in the Northern District Court of California, brings into question Binance’s anti-money laundering (AML) protocols and its responsibility in preventing illicit activity on its platform. This article breaks down the details of the lawsuit, the allegations, and the implications for Binance and the broader crypto industry.

The Background: The Zaif Exchange Hack

In September 2018, Zaif, a Japanese cryptocurrency exchange owned by Fisco, was hacked. The breach resulted in a loss of approximately $63 million worth of cryptocurrency, including:

• Bitcoin (BTC)
• Monacoin (MONA)
• Bitcoin Cash (BCH)

The attackers managed to steal 1,451.7 BTC, which was valued at around $9.4 million at the time of the hack. Today, this amount of Bitcoin would be worth over $15 million, given the significant appreciation in Bitcoin’s price.

The Allegations Against Binance

In its 33-page complaint, Fisco accuses Binance of facilitating the laundering of the stolen cryptocurrency by failing to implement adequate KYC (Know-Your-Customer) and AML (Anti-Money Laundering) protocols.

1. Binance’s Allegedly Lax KYC Policies

Fisco alleges that Binance’s KYC procedures were insufficient and did not meet industry standards. Specifically:

• Binance allowed new users to open accounts and transact below 2 BTC without providing meaningful identification.
• The cybercriminals exploited this loophole by breaking the stolen bitcoin into thousands of smaller transactions and accounts, each valued under the 2-BTC threshold.

Fisco’s Claim:

“Binance served as both a receptacle and transmitter of criminal funds.”

By allowing transactions under the 2-BTC limit without thorough verification, Fisco claims Binance created an environment ripe for money laundering.

2. Failure to Act After Being Notified

Fisco asserts that it notified Binance shortly after the hack occurred, requesting the exchange to:

• Freeze transactions linked to the stolen funds.
• Block accounts involved in laundering the cryptocurrency.

However, the lawsuit states that Binance “either intentionally or negligently” failed to interrupt the laundering process, despite being in a position to take action.

This accusation raises questions about Binance’s response time and its commitment to cooperating with external parties in cases of cybercrime.

How the Hackers Used Binance to Launder Funds

According to Fisco, blockchain analytics traced the movement of the stolen Bitcoin, revealing the following process:

1. Hackers broke down the 1,451.7 stolen BTC into smaller transactions to avoid triggering Binance’s KYC requirements.
2. These smaller amounts were distributed across thousands of accounts on Binance.
3. The funds were then converted into other cryptocurrencies or withdrawn as cash, effectively laundering the stolen Bitcoin.

This method of breaking funds into smaller amounts—known as smurfing—is a common money laundering tactic. Fisco claims Binance’s lax policies allowed this to happen seamlessly.

Fisco’s Legal Claims Against Binance

Fisco’s lawsuit makes the following legal claims:

1. Negligence: Binance allegedly failed to implement adequate AML and KYC protocols, enabling the laundering of stolen funds.
2. Failure to Prevent Criminal Activity: Binance was notified about the stolen Bitcoin but did not act to freeze accounts or halt transactions.
3. Loss Recovery: Fisco seeks compensation for the $9.4 million worth of Bitcoin that was allegedly laundered through Binance’s platform.

The lawsuit also highlights Binance’s responsibility as a major global exchange to prevent its systems from being used for illicit activities.

Binance’s KYC and AML Policies: Industry Standards vs. Allegations

Binance, one of the largest cryptocurrency exchanges in the world, has often been criticized for its approach to regulatory compliance. While Binance has made efforts to strengthen its KYC and AML protocols, Fisco argues that its policies—particularly in 2018—fell short of industry standards.

Binance’s Two-BTC Rule

• Binance historically allowed users to create accounts and withdraw up to 2 BTC per day without full identity verification.
• While this policy was common in the crypto industry at the time, Fisco claims it enabled hackers to bypass KYC checks and launder stolen funds.

The Broader Implications of the Lawsuit

The outcome of this case could have significant consequences for Binance and the cryptocurrency industry as a whole:

1. Increased Regulatory Pressure

• If Fisco’s claims hold up in court, it may lead to greater scrutiny of exchanges’ KYC and AML policies.
• Regulators worldwide could push for stricter compliance measures to prevent similar incidents.

2. Binance’s Reputation

• Binance has already faced regulatory challenges in various jurisdictions. This lawsuit could further damage its reputation and impact user trust.
• Exchanges may need to prioritize compliance to maintain credibility and avoid legal risks.

3. Precedent for Victims of Crypto Hacks

• If Fisco is successful in its lawsuit, it could set a legal precedent for victims of crypto-related crimes to recover losses from exchanges that fail to prevent money laundering.

How Binance Responds to Crypto-Related Scams

In recent years, Binance has taken steps to enhance its regulatory compliance, including:

• Implementing stricter KYC verification processes for new and existing users.
• Partnering with blockchain analytics firms like Chainalysis to track suspicious transactions.
• Strengthening anti-money laundering measures to detect and freeze illicit funds.

Despite these efforts, the Fisco lawsuit highlights that Binance’s past policies may have left vulnerabilities that were exploited by cybercriminals.

How to Protect Yourself on Crypto Exchanges

As an investor, you can take steps to ensure security and avoid becoming a victim of cybercrime:

1. Use Trusted and Regulated Exchanges: Platforms with strong KYC and AML protocols are more secure.
2. Enable Two-Factor Authentication (2FA): Add an extra layer of protection to your accounts.
3. Monitor Wallet Activity: Regularly check for unauthorized transactions.
4. Avoid Large Withdrawals Without Verification: Follow platform guidelines for identity verification to secure your funds.

Conclusion: Binance Lawsuit and the Future of Crypto Security

The lawsuit filed by Fisco against Binance over the alleged laundering of $9 million in stolen cryptocurrency underscores the importance of robust KYC and AML policies in the crypto industry. While Binance has made strides in improving its compliance framework, the allegations highlight past vulnerabilities that need to be addressed.

The outcome of this case will set an important precedent for crypto exchanges’ responsibilities in preventing illicit activity. As the industry continues to mature, regulatory compliance and enhanced security will be critical in building trust and ensuring the safety of users’ assets.

For investors and traders, choosing trusted, transparent exchanges and following best practices can help mitigate risks in an increasingly complex digital asset landscape.

To learn more about the innovative startups shaping the future of the crypto industry, explore our article on latest news, where we delve into the most promising ventures and their potential to disrupt traditional industries.