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According to a complaint filed by Fisco in the Northern California District Court on Sept. 14, the Japanese exchange alleged that soon after it lost nearly 6,000 bitcoin in the 2018 hack, the thieves sent 1,451 bitcoin to an address belonging to Binance, which was worth $9.4 million at the time.
Fisco – called Zaif at the time of the hack – added that the thieves subsequently laundered the funds on the world’s largest exchange platform, due to its allegedly lax know-your-customer (KYC) and anti-money laundering (AML) protocols that “do not measure up to industry standards.”
The thieves are claimed to have taken advantage of Binance’s policy that allowed new users to open accounts and transact on the platform in amounts less than 2 bitcoins without needing to provide any meaningful identifying information.
“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,” the plaintiff said.
Fisco alleged that since Binance was notified and had “actual knowledge” that the stolen funds were sent to its platform, it “either intentionally or negligently failed to interrupt the money laundering process when it could have done so.”
As such, Fisco is demanding Binance to pay for its loss of the laundered funds in addition to other punitive damages.
Zaif was sold by its then-parent entity Tech Bureau to Fisco shortly after the incident, which compensated users’ who had lost funds in the hack.
$41 million-worth of crypto assets from the hack belonged to Zaif customers including those based within the U.S. and California, according to the court filing.
Biannce has not yet responded to CoinDesk’s request for comment.
The case has the potential to draw further attention to cryptocurrency exchanges’ KYC and AML procedures, as the Financial Action Task Force is working towards bringing global regulators in line with its 2019 anti-money laundering guidance on “virtual asset service providers,” known as the Travel Rule.
Fisco also argued that the case should be brought to trial in the California court not only because there were victims who were based in the region, but also “critical components” of Binance’s business are located in the U.S. state.
The argument comes after repeated statements made by Binance that it has no traditional physical headquarters anywhere in the world.
“Upon information and belief, a significant portion if not all of the AWS servers Binance relies on for its operations are located in the State of California. Upon information and belief, the AWS Region and AWS Availability Zones housing Binance’s digital data used to run its technical platform are located in California,” Fisco said.
In addition to Binance having hired half a dozen employees in California, Fisco argued that a significant portion of Binance’s cryptocurrency reserves is also stored in offline hardware facilities located in the San Francisco Bay Area, which are controlled and managed by custodians headquartered in the region.
“For example, on July 7, 2020, Binance acquired cryptocurrency startup Swipe. Binance admits that Swipe uses Coinbase and Bitgo, both of which are located in the San Francisco Bay Area, to custody the cryptocurrency used in Swipe’s business,” the plaintiff said.
Fisco is seeking a jury trial over its allegations.
See the full court filing below: