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Nested exchanges have become the tool of choice for money launderers. Learn all about nested exchanges/services and what steps we are taking to combat them, how to avoid them, and why accounts are blocked or frozen because of them.

Main points:

• Nested exchanges provide crypto mercantilism services through AN accounts or cases on existing host exchanges.
• Nested exchanges provide an attractive encryption platform for money launderers who want to bypass KYC and AML necessities.

• In this article, you will learn how to avoid nested exchanges, common security issues, and our tendency to overcome this defect at Binance.

A new trend is emerging in the cryptocurrency field, but it is not pretty. They are called nested exchanges, and they are the latest alternative tool for money launderers around the world. In short, nested exchanges provide crypto merchandising services through AN accounts or cases on AN’s existing host exchanges. Nested exchanges usually run on QT and are never related to host exchanges. So why do people use them?

Some users like nested exchanges because they perform a symbolic understanding of your customer (KYC) and anti-money laundering (AML) necessity. Maybe they live an anonymous life away from the grid, or worse, they do something evil. Normally, this is the latter case. However, this is the job of nested exchanges:

• Person A deposits into a nested exchange and decides to trade BTC with ETH
• Person A deposits ETH in the nested exchange.
• The nested exchange sends ETH to their account/wallet on the host exchange to complete the conversion.
• The nested exchange returns the newly converted funds to person A, and the transaction is completed.

However, for dangerous actors who want to hide their traces of illegally obtained funds and bypass the necessities of centralized exchanges (such as Binance), loose necessities create a very attractive entry point for this approach. In this article, you will learn how to avoid nested exchanges, common security issues, and our tendency to overcome this defect at Binance.

How to avoid nested swaps

Nested exchanges look a bit like your old encrypted exchanges. Some may have a wrong program, but this is usually not very common. Users can usually grasp the nested service they are abusing, but most people will not see or grasp the host exchange it is running on.

If you want to avoid nested exchanges and each associated risk, we tend to recommend the use of regulated centralized exchanges or nested services that incorrectly comply with the correct KYC and AML procedures.

If your cryptocurrency exchange requires little verification checks or mercantilist restrictions, this will be a wake-up call. If you think your supplier may be a nested exchange, then you will always use the blockchain for someone to track the case of whether your funds come from another exchange.

Security Question

The major risks of these services reflect the lack of management of custodial exchanges. Please remember that by using golf to completely trust your funds in the AN exchange with symbolic security, you have also seized many obvious risks at the same time. Dangerous actors deliberately use these services to avoid AML/KYC procedures for hosting services. Although you are using nested exchanges for crypto trading every day, you will accidentally fund criminal and terrorist activities. In this case, the nested exchange is likely to be forced to delete. Your funds are likely to be seized or frozen indefinitely, betting on jurisdiction and length. If law enforcement has reason to believe that the nested exchange is performing illegal operations and can request legal action against it, the service and its assets may also be frozen and/or taken. There are many reasons why law enforcement agencies can take such actions, but users should worry that their funds will not be recovered due to legal proceedings against a certain service. Even if they measure redeemability, given the time and financial resources, the trouble is likely to be serious.

How Binance fights nested transactions

In most cases, host exchange compliance staff can contact customers about the exposure of nested exchanges. Of course, in addition to simple nested exchanges, this also applies to several other alternatives. If you encounter this situation, please work with the compliance department to produce any required documents and answer all inquiries truthfully. At Binance, we tend to frequently audit our business and private accounts that appear to be operating the business. These audits reflect risk assessment and capital flow analysis. We recently jointly implemented a coordinated universal time laboratory chain analyzer, an industry-leading security tool that can identify nested services that exist in macro exchanges.

If the nested service appears to be operating in a dangerous religion, acceptable actions will be taken, along with delisting and enforcement, and restrictive notices. Currently, nested exchanges are very popular in Ukraine and Russia. Among all customers, each geographic region has the highest concentration of cash washing. Until recently, we have tended to de-platform multiple accounts related to Suex.io (an illegally operated Russian cryptocurrency exchange) and share all relevant information with relevant authorities.

As an industry leader, we have a responsibility to combat dangerous actors and protect cryptocurrency programs. Although we tend to do our best to identify and label nested exchanges on our platform, these accounts will not always claim to be nested exchanges. We tend to recommend that our users follow best security practices and trade on KYC and AML-compliant exchanges, and there are nested exchange red flags.