US federal prosecutors have asked Binance, the world’s largest cryptocurrency exchange, to provide extensive internal records of anti-money laundering checks, along with related contact information. to CEO and founder Changpeng Zhao, according to a late 2020 written request issued by Reuters.
The Justice Department’s anti-money laundering division has asked Binance to voluntarily hand over messages from Zhao and 12 other executives and partners on issues including the exchange’s detection of illegal transactions. and recruiting US customers. It also looks for any company records with instructions that “documents destroyed, altered, or removed from Binance’s files” or “transferred from the United States.”
The December 2020 request, which has not been previously reported, is part of an ongoing Justice Department investigation into Binance’s compliance with US financial crime laws, four people familiar with the matter said. investigation said.
US authorities, the people said, are investigating whether Binance violated the Bank Secrecy Act. This requires crypto exchanges to register with the Treasury Department and comply with anti-money laundering requirements if they conduct “substantial” business in the United States. The law, designed to protect the US financial system from illicit financing, provides for prison terms of up to 10 years.
Reuters was unable to determine how Binance and Zhao, one of the most prominent figures in the crypto space, responded to a request from the department’s crime division.
Responding to questions from Reuters about the letter and the investigation, Binance Communications Director Patrick Hillmann said, “Regulators globally are reaching out to every major crypto exchange for a better understanding. This is a standard procedure for any regulated organization, and we regularly work with agents to resolve any questions they may have.” Binance has “industry-leading global security and compliance team” with more than 500 employees, including former managers and law enforcement agents, Hillmann added.
He did not say how Binance responded to the Justice Department request. A ministry spokesman declined to comment.
The wide-ranging disclosure request of the US investigation into Binance. The existence of the probe was reported by Bloomberg last year but so far little has been known about it. A Binance spokesperson told Bloomberg at the time, “We take our regulatory obligations very seriously and interact with regulators and law enforcement in a collaborative manner.”
The letter made 29 separate requests for documents issued since 2017, covering regulatory, structural, financial, anti-money laundering and sanctions compliance as well as business operations. business in the United States. Binance said: “Binance is required to provide all documentation and documentation in response to this letter.
Binance was launched by Zhao, known as CZ, in Shanghai in 2017 and as of July controls more than half of the world’s crypto exchange market, processing over 2k worth of transactions. billion dollars that month. Born in China and trained in Canada, where he holds his citizenship, Zhao told Bloomberg in March that he will be working for the “near future” in Dubai, where that month issued Binance a license. permission to perform certain activities.
A series of Reuters articles this year revealed how Binance fueled its explosive growth while keeping its client checks weak and withholding information from regulators. Reuters found that loopholes in Binance’s compliance program allowed criminals to launder at least $2.35 billion illegally through the exchange, which also serves traders in Iran. despite US sanctions. Until mid-2021, Binance customers can trade cryptocurrencies by signing up with just an email address.
Binance refuted Reuters’ findings, calling them “outdated”. The exchange said it is “promoting higher industry standards” and looking to “further improve the detection of illegal crypto activity on our platform.” It said it did not consider Reuters calculations of illicit money flows to be accurate.
SCIENCE USA
Cryptocurrency exchanges are under increasing scrutiny in the United States, where top government figures including Treasury Secretary Janet Yellen this year have publicly advocated for greater regulation of the sector. this area. In February, the Justice Department established a national crypto enforcement team to “address the rise of crime related to these technologies,” with a focus on exchanges.
That month, the founders of another exchange, BitMEX, pleaded guilty to violating the Bank Secrecy Act and were subsequently sentenced to two and a half years of probation. BitMEX has agreed to pay a $100 million fine to settle separate fees for violating the Act. BitMEX now says it is “fully committed to operating its business in compliance with all applicable laws” and has made “substantial investments” in its compliance program.
The Justice Department’s 2020 letter was sent to Binance Holdings Ltd., a company in the Cayman Islands, and Roberto Gonzalez, a Washington-based attorney at the law firm Paul, Weiss. Binance Holdings owns the Binance brand and is, according to legal filings, owned by Zhao. Gonzalez and Paul, Weiss did not respond to requests for comment.
Binance has an ambiguous corporate structure. It declined to provide details about the ownership or location of its main exchange Binance.com, which has not been accepting customers in the United States since mid-2019. goods there were redirected to a separate US-based exchange called Binance.US, also controlled by Zhao, regulatory filings show. Binance.US registered with Treasury in 2019; The main exchange never did.
Since last year, more than a dozen financial regulators around the world have issued warnings about Binance, saying it is serving unlicensed users or violating anti-money laundering rules. In July, the Dutch central bank said it had fined Binance more than 3 million euros for its activity in violation of financial crime laws. A Binance spokesperson said at the time that the fine marked a “turning point in our continued cooperation” with the central bank.
In the 2020 request, the Department of Justice searched all documents identifying Binance employees responsible for compliance with the Bank Secrecy Act, detailing policies against illegal and illegal financing. any reports of suspicious financial activity they have submitted to the authorities. Binance has been asked to provide information about any transactions between the exchange and users involving ransomware, terrorism, and darknet markets, along with targeted US sanctions.
The department also requires documents related to “business premises” for the establishment of Binance.US. It requested communication with 13 executives and partners – including Zhao, co-founder Yi He and his chief compliance officer, Samuel Lim – on the topic of “the birth of Binance.US and the relationship its relationship with Binance.” Lim and He are still at Binance.
Reuters reported in January that Lim and other senior employees were aware that Binance’s money laundering checks were not rigorous, according to company announcements reviewed by the news agency. Neither Lim nor Binance commented on the messages.
In addition to the Justice Department’s request, the Securities and Exchange Commission issued a subpoena against the operator of Binance.US, BAM Trading Services, that same month. The subpoena, reviewed by Reuters, asks BAM to hand over documents showing whether any of its employees also work for the main Binance exchange and what services it is providing the Chinese company. Ky.
Binance.US did not respond to Reuters questions. The SEC said it does not comment on possible investigations.
