Binance, the largest crypto exchange globally, has allegedly been a hub for illegitimate transactions, according to a report published by Reuters. Miscreants have used the exchange as a conduit for channelling illicit funds originating from drug trades, hacks, and fraud. According to the report, at least $2.35 billion in illegally siphoned funds have been routed through the network since 2017.

Among many other findings, the report also mentions that a North Korean hacking group named Lazarus also used Binance to launder its ill-gotten funds. The fraudulent outfit hacked into and stole cryptocurrency worth $5.4 million from a Slovakian crypto exchange, Eterbase, in September 2020.

They then created dozens of anonymous accounts on Binance and used these accounts to swap out a portion of the stolen funds for other currencies. By doing so, they stopped the money trail dead in its tracks.

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In 2019, the USA had already called out Lazarus over reported cyber-attacks. They also established ties between the hacking group and the North Korean nuclear program. The USA called it a tool used by the North Korean intelligence service and accused Pyongyang of "vicious slander."

The hackers from the Lazarus group took only 9 minutes to create these anonymous accounts. When questioned, Binance revealed that the only information they had on these fake accounts was their e-mail IDs, which were again fake. The hackers also used virtual private networks to hide their location.

However, only a portion of the stolen Eterbase funds was laundered through the Binance, while the rest was rerouted through Huobi, another crypto exchange headquartered in Seychelles.

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The Reuters investigation also found that this incident was a small part of the Lazarus salvo. By 2020, Lazarus had embezzled $1.75 billion worth of crypto and manoeuvred it through ‘unidentified exchanges.’

In March 2022, Lazarus was also accused of breaching the gaming platform Axie Infinity and escaping with crypto worth $600 million. Again, an indeterminate amount was routed through Binance. However, the exchange maintains that it identified $5 million from the heist and froze them.

In January 2021, Reuters reported that the anti-money laundering (AML) systems used by Binance were flimsy at best and easy to leverage unlawfully.

Moreover, despite repeatedly voiced concerns by senior company officials for three years, Binance did not upgrade to stringent checks until August 2021. This entire time, central banks, policymakers, and regulators across the globe had been vociferously expressing their concerns about money laundering and terror financing through crypto trades.

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The report also revealed that most of the malfeasance was traced back to the 'darknet' – a secluded part of the web wherein users are required to mask their identities through virtual private networks.

Data from analysis firm Crystal Blockchain showed that Hydra, the biggest drug-dealing platform on the dark web, funnelled $780 million worth of unauthorised funds through Binance. Another crypto analysis firm also corroborated this.

The data compilation also showed that the siphoned crypto made pit stops at multiple crypto wallets before parked with Binance. The Financial Action Task Force (FATF), which spearheads the global battle against financial crime, stated that such "indirect" flows originating from known suspicious wallets are glaring red beacons themselves.

In response to Reuters, Patrick Hillman, the Chief Communication Officer at Binance, said the $780 million number linked with Hydra activity was "inaccurate and overblown."

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In a conversation with Reuters about these indirect fund flows, Hillman said, "What's important to note is not where the funds come from – as crypto deposits cannot be blocked - but what we do after the funds are deposited." He added that Binance works with law enforcement authorities every day to track, monitor, and restore funds stolen through fraudulent activity.

Binance also published the entire coverage of its official response on its official blog this morning. It shared the e-mail communication between Reuters and the exchange that also included an elaborate response by the Binance team to all raised concerns.

Most importantly, Binance said they were implementing stringent KYC compliance norms as a mandatory part of registering with the exchange. It explicitly mentioned that there were entities that still opined against the move, but Binance would steadfastly continue to implement the same.