From SBF to CZ: Why crypto trading institutions are always suspected of money laundering accusations

Source: Beosin

Currently, both FTX founder SBF and Binance founder CZ are involved in criminal cases involving money laundering charges. Although the term "money laundering" may sound familiar, it has a precise legal definition.

According to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network,Money laundering is “the process by which criminals attempt to conceal the true source of their illegally obtained funds or proceeds of crime.”

The definition states that the money laundering process usually includes three steps:

First, illegal funds are secretly introduced into the legal financial system. The funds are then moved multiple times via wires or transfers from multiple accounts, creating chaos. Finally, these funds are integrated into the financial system by making additional transactions until the "dirty money" becomes "clean."

Why are crypto trading institutions from SBF to CZ always accused of money laundering? How do crypto mixers like Bitcoin Fog to Tornado Cash facilitate money laundering? How can virtual asset service providers avoid suspected money laundering transactions and meet compliance requirements? Today we will explain it to you one by one.

The U.S. Department of Justice in November 2023 charged Binance with money laundering, operating as an unregistered money transfer business, and violating sanctions, triggering a massive repercussions across the cryptocurrency space. Binance agreed to pay a $4.3 billion fine, while company CEO Changpeng Zhao (CZ) resigned and pleaded guilty to money laundering to settle the charges.

Binance founder and CEO Changpeng Zhao agrees to plead guilty to money laundering violations and exit the world's largest cryptocurrency exchange as part of a comprehensive settlement with U.S. law enforcement and financial regulators .

The announcement by the Justice Department, Treasury Department and Commodity Futures Trading Commission comes less than a month after federal prosecutors convinced a jury to find CZ’s one-time rival andFTX founder SBF guilty of seven counts. criminal charges, including fraud and fraud, and money laundering. The jury deliberated for just four hours before reaching its verdict, finding SBF guilty of wire fraud, securities fraud and conspiracy to commit money laundering.

From SBF to CZ, why are crypto trading institutions or their founders always suspected of Money laundering charges?

First, crypto exchanges have experienced rapid growth and widespread adoption in the past. This growth has attracted the attention of regulators and law enforcement agencies, who have begun to closely monitor activities in the crypto-asset space and intensify their efforts to combat money laundering and other illegal activities. Due to the anonymity and cross-border nature of crypto transactions, they are thought to potentially provide a convenient means for money laundering.

Secondly, crypto trading institutions often involve large amounts of capital flows, which may come from a variety of sources, both legal and illegal. This makes crypto trading institutions a focus of regulatory attention. In some cases, specific crypto exchanges may fail to fully comply with compliance requirements such as anti-money laundering (AML) and know your customer (KYC), or may not have effective monitoring and reporting mechanisms in place, leaving them vulnerable to accusations of money laundering. Behavior.

From Bitcoin Fog to Tornado Cash, why crypto mixers are regulated

Besides exchanges, mixers It is also the target of regulatory attention. Bitcoin Fog founder Roman Sterlingov was arrested in Los Angeles in April 2021 on charges of operating the notorious cryptocurrency mixer Bitcoin Fog, which moved over a decade Approximately $400 million in Bitcoin.

Stringoff was found guilty of“conspiracy to commit money laundering, inducement to launder money, operating an unlicensed money transmission business, and violating Washington’s Money Transmission Act.”

Law enforcement has recently set its sights on the infrastructure that allows cybercrime to thrive. Pertsev, the co-founder of Tornado Cash, faces a criminal trial this year for allegedly facilitating more than $1 billion in money laundering transactions.

Documents released on Tuesday showed that Pertsev will go on trial in the Dutch city of 's-Hertogenbosch starting on March 26, with prosecutors listing 36 alleged crimes from going to the center. protocol to Tornado Cash for illegal transactions. For example, after Ronin suffered a $625 million hacker attack in 2022, hackers used Tornado Cash for money laundering operations.

One of the main goals of money laundering is to hide the true source of funds. Crypto mixers make it more difficult to track the flow of funds by mixing different users’ crypto assets together. This facilitates individuals who seek to commingle illegally obtained funds with legitimate funds, making them more difficult to monitor and trace.

Secondly, the operation of crypto-mixers often involves anonymity and privacy protection. This allows users of mixers to hide their true identities and trading activities,increasing the risk of money laundering activities. Because of the way crypto mixers operate, it is difficult for regulators and law enforcement agencies to track and monitor these transactions, making them a potential tool for money laundering. These are all reasons why crypto mixers are regulated.

Currently, the main reasons why cryptocurrency mixers are suspected of money laundering accusations include hiding the source of funds, anonymity and privacy protection, lack of compliance requirements, and the existence of some abuse cases. Increased oversight of crypto mixers by regulators and law enforcement agencies is aimed at reducing money laundering risks and ensuring compliance requirements are adhered to.

How virtual asset service providers can avoid suspected money laundering transactions

Virtual asset service providers (VASPs) play an important role in the cryptocurrency ecosystem. , butDue to the anonymity and decentralized nature of virtual assets, virtual asset service providers (such as cryptocurrency exchanges, crypto wallet providers, crypto asset payment processors, etc.) are also faced with anti-money laundering and anti-terrorist financing. challenge. The following are some solutions and suggestions:

1. Implement strict KYC and AML regulations

Virtual asset service providers should require users Conduct comprehensive identity verification and ensure they comply with KYC and AML regulations. This includes collecting user identification information, address verification and other necessary information.

2. Monitor trading activities

Virtual asset service providers should implement real-time monitoring systems to detect and analyze suspicious trading activities . This includes monitoring information such as transaction amount, frequency, source and destination.

3. Establish a reporting mechanism

Virtual asset service providers should establish a reporting mechanism to report any suspicious transactions or activities through the risk control system. Virtual asset service providers should promptly address these reports and cooperate with regulators in their investigations.

4. Strengthen cooperation and communication

Virtual asset service providers should actively cooperate with security companies and regulatory agencies Cooperate with law enforcement agencies to combat money laundering. It is foreseeable that criminals will continue to adjust and improve their money laundering strategies to adapt to changes in regulatory measures and AML tools. They may decentralize transactions, use covert transaction routes, or exploit technological vulnerabilities to hide illicit financial flows. Virtual asset service providers should regularly cooperate and communicate with security companies to identify and respond to these changes in a timely manner.