US Federal Prosecutors Seek Records on Binance CEO Changpeng Zhao for Cryptocurrency Money Laundering Investigation

A series of articles from Reuters this year revealed how Binance fueled its explosive growth while withholding weak customer scrutiny and information from regulators.

A series of articles from Reuters this year revealed how Binance fueled its explosive growth while withholding weak customer scrutiny and information from regulators.

According to a late-2020 written request seen by Reuters, U.S. federal prosecutors asked the world’s largest cryptocurrency exchange, Binance, communications involving its chief executive and founder Changpeng Zhao, as well as extensive information about its anti-money laundering checks. Asked to provide internal records.

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The Money Laundering Section of the Justice Department asked Binance to voluntarily hand over messages from Mr. Zhao and 12 other executives and partners, including the detection of illegal transactions by exchanges and recruiting US clients. It also asked for records of any companies with instructions that “documents be destroyed, altered, or removed from Binance’s files” or “moved from the United States.”

The December 2020 request, which was not previously reported, was part of a Justice Department investigation into Binance’s compliance with US financial crime laws, four people familiar with the investigation said.

US officials, the people said, are investigating whether Binance violated the Bank Secrecy Act. It requires crypto exchanges to register with the Treasury Department and comply with anti-money laundering requirements when conducting “substantial” business in the United States. The law, designed to protect the US financial system from illicit finance, provides for a prison sentence of up to 10 years.

Reuters could not establish how Binance and Mr. Zhao, one of the most prominent figures in the crypto sector, responded to a request from the Department of Criminal Justice.

Responding to Reuters questions about the letter and the investigation, Binance’s Chief Communications Officer Patrick Hillman said, “Regulators around the world are reaching out to every major crypto exchange to better understand our industry. There is a standard procedure for the organization and we work regularly with agencies to address any questions they may have.”

Hillman added that Binance has “an industry leading global security and compliance team” with over 500 employees, including former regulatory and law enforcement agents.

He did not specify how Binance reacted to the Justice Department’s request. A spokesman for the department declined to comment.

The request reveals the broad scope of the US investigation into Binance. The existence of the probe was reported by Bloomberg last year but little has been known about it so far. “We take our legal obligations very seriously and engage with regulators and law enforcement in a collaborative manner,” a Binance spokesperson told Bloomberg at the time.

The letter made 29 separate requests for documents produced since 2017, covering the company’s management, structure, finances, anti-money laundering and sanctions compliance, and business in the United States. “Binance is requested to place all the documents and materials responsible for this letter in its possession, custody or control.”

Binance was launched by Mr. Zhao, better known as CZ, in Shanghai in 2017 and controlled more than half of the world’s crypto trading markets as of July, processing more than $2 trillion worth of transactions that month. . Born in China and educated in Canada, where he holds citizenship, Mr. Zhao told Bloomberg in March that he would be based in Dubai “for the foreseeable future”, which granted Binance a license to conduct some operations that month.

A series of articles from Reuters this year revealed How Binance Drives Its Explosive Growth Keeping vulnerable customer checks and withholding information from regulators. Reuters found that gaps in Binance’s compliance program enabled criminals to launder at least $2.35 billion worth of illicit funds through the exchange, which served traders in Iran despite US sanctions. As of mid-2021, Binance customers could trade crypto simply by registering with an email address.

Binance disputes Reuters’ findings, calling them “outdated”. The exchange said it is “running high industry standards” and seeks to “further improve our ability to detect illegal crypto activity on our platform”.

It said it did not consider Reuters’ calculations of illegal fund flows to be accurate.

US investigation

Crypto exchanges are under increasing scrutiny in the United States, where this year top government figures including Treasury Secretary Janet Yellen have publicly supported greater regulation of the sector. In February, the Justice Department established a national cryptocurrency enforcement team to “deal with the development of crime involving 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 later sentenced to two and a half years of probation. BitMEX agreed to pay a $100 million fine to settle separate charges for violation of the Act. BitMEX now says that it is “fully committed to conducting its business in compliance with all applicable laws” and has made a “substantial investment” in its compliance program.

The Justice Department’s 2020 letter was addressed to Binance Holdings Ltd., a Cayman Islands-based company, and Roberto Gonzalez, a Washington-based attorney for the law firm Paul, Weiss. Binance Holdings owns the Binance trademark and is owned by Mr. Zhao, according to regulatory filings. Mr. Gonzalez and Paul, Weiss did not respond to requests for comment.

Binance has an opaque corporate structure. It has declined to provide details of the ownership or location of its main exchange, which has not accepted customers in the United States since mid-2019. Instead customers are directed to a separate US-based exchange called Binance.US, which is controlled by Mr. Zhao, regulatory filings show. Binance.US registered with Treasury in 2019; The main exchange never did this.

Since last year, more than a dozen financial regulators around the world have issued warnings about Binance, saying it is either serving unlicensed users or violating anti-money laundering regulations. In July, the Dutch central bank said it had fined Binance more than 3 million euros for operating in violation of its financial crime laws. A Binance spokesperson said at the time that the fines were “a pivot in our ongoing collaboration” with the central bank.

In the 2020 request, the Justice Department sought all documents identifying Binance employees responsible for compliance with the Bank Secrecy Act, details of its policies for dealing with illicit finance and any reports of suspicious financial activity recorded to authorities. Report. Binance was asked to provide information on the exchange and users involved in ransomware, terrorism and darknet marketplaces, as well as any transactions targeted by US sanctions.

The department also requested documents relating to the “business justification” for setting up Binance.US. It asked for communications to include 13 executives and partners, including Mr. Zhao, his co-founder Yi He, and his chief compliance officer, Samuel Lim – on the topic of “the creation of Binance.US and its relationship with Binance”. . Mr. Lim and Ms. He are still in Binance.

According to company messages reviewed by the news agency, Reuters reported in January that Mr. Lim and other senior employees were aware that Binance’s money-laundering investigation was not rigorous. Neither Mr. Lim nor Binance have commented on the messages.

In addition to the Justice Department’s request, the Securities and Exchange Commission issued a subpoena in the same month to BAM Trading Services, the operator of Binance.US. The summons, reviewed by Reuters, required BAM to hand over documents showing whether an employee also worked for the main Binance exchange and what services it was providing to the US company.

Binance.US did not respond to questions from Reuters. The SEC said it does not comment on a possible investigation.

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