A Japanese crypto-exchange that suffered a $ 2018 million attack in 60 sued Binance on charges of "helping and facilitating" the laundering of part of the stolen funds.
The dynamics of hacking
According to a complaint filed by the Japanese exchange Fisco with a district court in Northern California on September 14, shortly after losing nearly 6.000 bitcoins in the 2018 hack, the thieves sent 1.451 bitcoins to a Binance-owned address, worth $ 9,4 million at the time.
Fisco - known as Zaif at the time of the hack - added that the thieves subsequently laundered the funds on the largest exchange platform in the world, due to its alleged KYC and AML protocols that "are not up to industry standards" .
In the complaint, it is alleged that the thieves took advantage of Binance's policy that allowed new users to open accounts and transact on the platform to invest amounts less than 2 bitcoins without having to provide any significant identification information. “The thieves distributed the stolen bitcoins in seven thousand separate transactions and accounts, all valued below the 2 bitcoin threshold.
In this way, they converted the stolen bitcoins into other cryptocurrencies and then transferred the sum off the Binance platform, ”a spokesperson said. Fisco said that because Binance was informed and had "actual knowledge" that the stolen funds were being sent to its platform, it "intentionally or negligently failed to stop the money laundering process when it could have."
As such, Fisco asks Binance to pay for the loss of the laundered funds in addition to other non-financial penalties. Zaif was sold by the then parent company Tech Bureau to Taxation shortly after the incident, managing in part to compensate for the losses of users who had lost their funds in the hack.
Why a California lawsuit
Fisco argued that the case should be brought to a California court not only because there are victims residing in the region, but also because "critical components" of Binance's business are located in California.
For example, Fisco said Binance uses Amazon Web Services (AWS) to host its servers and has the ability to select an AWS data center for its operations. The issue emerged after repeated statements made by Binance that it does not have a physical location anywhere in the world.
"According to some information, a significant portion if not all of the AWS servers that Binance relies on for its operations are located in the State of California," Fisco said.
Additionally, Fisco said that a substantial portion of Binance's cryptocurrency reserves are stored in offline hardware facilities located in the San Francisco Bay Area, which are controlled and managed by entities based in the region.
