Japanese cryptocurrency exchange Fisco has filed a lawsuit against its competitor Binance for allegedly laundering the funds that were stolen from its wallets.
Calling Binance the “‘go-to’ location for cybercriminals to convert purloined cryptocurrency to other cryptocurrency,” Fisco’s complaint alleges that the thieves who stole $63 million in bitcoin, bitcoin cash, and monacoin laundered approximately $9.4 million of it through Binance.
Fisco—known at the time as Zaif—claims that thieves chose to launder their money on Binance because of the platform’s “shockingly lax” know-your-customer (KYC) and anti-money-laundering (AML) protocols, which it said “do not measure up to industry standards.”
The hackers allegedly exploited Binance’s policy allowing new users to open accounts and transact on the platform in amounts less than two BTC without going through KYC checks. The plaintiff explained:
“The thieves broke the stolen bitcoin into seven thousands of separate transactions and accounts, all valued below the 2-bitcoin threshold. In this way, the thieves converted the stolen Bitcoin into other cryptocurrencies and transmitted the value from the Binance platform.”
“Binance negligently or maliciously laundered money”
Fisco claims that Binance was notified that the stolen funds were sent to its platform so the firm “either intentionally or negligently failed to interrupt the money laundering process when it could have done so.” Because of this, the firm demands Binance to pay for the loss of the laundered funds and punitive damages.
The exchange cited a Chainalysis report that claimed that more than one quarter of all hacked funds are moved through Binance because of the two-bitcoin loophole.
As a result, Fisco claimed, “as soon as a hack of an exchange is reported Binance is on notice that the thieves will likely attempt to launder some or all of the stolen cryptocurrency through Binance.”
Fisco also claims that the trial should be carried out in California not just because that’s where the victims reside but also because “critical components” of Binance’s business are located in the U.S. state. More precisely, the firm explained that Binance uses Amazon’s AWS web hosting service, which is based out of the United States.
“A legal nightmare”
Stefano Capaccioli, an Italian accountant specialized in cryptocurrency and founder of local legal crypto advisory firm Coinlex, told Modern Consensus that the case is controversial and defined it “a legal nightmare.” Capaccioli said he believes that Binance is “not entitled to check all funds, for privacy reasons.”
Capaccioli also argued that even if Fisco warned Binance about the stolen funds being sent to its platform, it is not clear if the exchange should avoid processing them until a valid authority orders a freeze. He asked:
“Can an exchanger delay a transaction or refuse a transaction based on a third party declaration? These problems have no solution because cryptocurrencies are a [new] technological paradigm.”
Is suing Binance a new trend?
This is the second time in September—and there’s still half a month to go—that Binance and “lawsuit” shared a spot in the same headline. As Modern Consensus reported at the beginning of the current month, an early Binance investor claimed that the firm is undervaluing itself to pay out less for his shares and claimed that he is already preparing all the evidence to sue the company.
In April, a class action lawsuit was initiated against Binance for allegedly infringing on securities regulation. The lawsuit is open for the participation of anyone who “purchased any of the tokens or did business on any of Binance’s platforms” and could potentially cost the firm billions of dollars.
Updated on Sept. 15 at 11:18 a.m. to add link to filing in Fisco Cryptocurrency Exchange, Inc. v. Binance Holdings Ltd.