For years, giant cryptocurrency exchange Binance has dodge the regulator and get around financial rulesall without serious consequences.
The world’s largest cryptocurrency exchange is currently facing increasing legal pressure.
Binance founder and CEO Changpong Zhao has hired a white-collar attorney from law firm Latham & Watkins to bolster his ties as he and his company face a tightening legal web. Represented him personally. Justice Department prosecutors are investigating the exchange for money laundering violations as the Securities and Exchange Commission investigates the company’s business practices. , accusing them of non-compliance that allowed criminals to launder money on Binance.
The convergence of legal threats has created one of the most volatile moments in Binance history.Criminal charges against Mr. Zhao or his company could spark mass panic in crypto markets reeling from last year’s FTX Exchange collapse and arrest of company founder Sam Bankman-Fried. Binance is several times bigger than his FTX and is processing tens of billions of dollars in daily trading.
Hillary Allen, a cryptocurrency expert at American University, said, “This is the biggest exchange for cryptocurrencies and it would be a disaster if they cracked down.” “It’s hard to imagine the rest of the cryptocurrency industry going unscathed.”
Zhao, 46, responded by hiring a government-qualified compliance officer and promising to help law enforcement stop cryptocurrency crime.Binance executives have met with reporters to promote the company’s compliance efforts, and the exchange’s U.S. arm political action committee We will push that agenda forward in Washington.
Mr. Zhao called It said the CFTC lawsuit was “unexpected and disappointing” and “an incomplete account of the facts.” A company spokeswoman declined to comment on other investigations. Officials for the Justice Department, CFTC and SEC also declined to comment.
Increasing pressure on Binance has already sent trembling Through the crypto market. The exchange’s U.S. operations recently lost its main banking partner, Signature Bank. Binance lost external audit firm Mazars last year. Said I was pausing my crypto client work. (A spokesperson said Binance has hired a new audit firm, but declined to identify them.)
Some of Binance’s customers seem frightened. According to cryptocurrency data tracker Nansen, more than $2 billion in cryptocurrencies built on the popular Ethereum network were withdrawn from exchanges in seven days in late March. About $1 billion has left the platform so far this month. Binance still holds an estimated $66.5 billion in client assets, he said.
CFTC Lawsuit Raises Alarm Bells About Binance’s Serious Legal Situation. The complaint, citing internal documents and emails, alleges that the company allowed criminals to launder money. Some customers were able to avoid significant background checks by taking advantage of loopholes left to preserve the exchange’s profits, the complaint says. A Binance employee personally joked that terrorists were moving money on the platform and admitted that the company “facilitated potentially illegal activities,” the CFTC said in its complaint.
Aitan Goelman, a partner at law firm Zuckerman Spaeder and former CFTC Enforcement Officer, said of the extent of the conduct described: in a suit Set Binance apart from its crypto peers.
“The misconduct is so egregious that the Department of Justice seems to be concerned,” Goleman said.
The Justice Department’s criminal investigation is led by the Money Laundering and Asset Recovery Section, three people familiar with the investigation said. The officials are working with prosecutors at the U.S. Attorney’s Office in Seattle, and the SEC is conducting a parallel investigation, according to people familiar with the matter.Details of the incident were previously reported Reuters.
Binance has a suite of law firms coordinating its defenses. Mr. Cho has hired at least four Latham & Watkins attorneys, who have represented six Gibson Dunn attorneys in discussions with the Justice Department and U.S. regulators, according to court records and people familiar with the matter. ing.
Founded in 2017, Binance offers a marketplace for a wide selection of experimental cryptocurrencies, allowing customers to place risky and highly leveraged bets on crypto prices that remain illegal in the United States. According to Binance, about two-thirds of all cryptocurrency trades take place on the Binance platform. CC Dataa data analytics company.
In the crypto world, Zhao is as famous and influential as Bankman-Fried before his arrest. But Zhao, better known in the crypto community as CZ, is a more elusive figure.
A Chinese-born Canadian citizen, Mr. Zhao has flew from country to country, now mainly between Dubai and Paris, according to people familiar with the matter. Zhao said he will visit the United States at least once in 2022.
Binance has long been plagued by allegations that it circumvented international money laundering rules and tried to circumvent regulations in the countries in which it operates. It also operates in Singapore. The company now has major regional offices in Dubai and Paris, and he has 8,000 full-time employees worldwide, the spokesperson said.
Since Binance is not licensed to operate in the United States, Zhao said he runs a small business serving U.S. users called Binance.US, which functions separately from the global exchange. However, the company’s US-based customer was able to use a virtual private network to access its main platform and disguise its location.
Binance has faced US regulatory scrutiny for years. In February, the company’s chief strategy officer, Patrick Hillman, revealed that the exchange is in talks with regulators about settlements to resolve various legal investigations that carry fines and other penalties. did he Said The company said it was “very confident and feels very good” about the talks.
A month later, the CFTC filed a lawsuit.
The agency sued Binance affiliates based in the Cayman Islands and Ireland, which they said were “directly or indirectly owned” by Zhao and dozens of other businesses controlled by the exchange. He said it has something to do with the body. In the complaint, Zhao said he was personally responsible for Binance’s failure to comply, and described a meeting that acknowledged the existence of loopholes that allowed users to circumvent the Know Your Customer protocol.
The CFTC also sued Binance’s former chief compliance officer, Samuel Lim, claiming he helped US customers circumvent systems designed to prevent money laundering. Lim’s attorney did not respond to a request for comment.
The lawsuit added that Binance had allowed three unnamed U.S. trading firms to operate on its platform despite rules barring U.S. companies from doing so. , these companies were Jane Street Group, Tower Research Capital and Radix Trading. companies previously identified It is under investigation by federal authorities, according to Bloomberg News.
A spokeswoman for Jane Street declined to comment. He reached out to Radix and Tower Research representatives for comment but did not hear back.
Allegations that Binance allowed money laundering to become pervasive have also surfaced in several private lawsuits, some of which have been dismissed in court. claiming to have been defrauded by a crypto trader who
Florida attorney David Silver, who sued Binance last year, said the CFTC lawsuit is likely to be the first of several law enforcement actions against Zhao’s company.
“The truth will come out,” Silver said. “And Binance will be found guilty.”
A Binance spokesperson said the company “works closely with law enforcement to freeze funds identified as possibly obtained illegally.” Last year, Binance helped law enforcement “stop over 40,000 cybercriminals worldwide,” he said.
Binance has aimed to build a more robust compliance infrastructure. He currently has more than 750 employees in the compliance department, with hundreds more hired last year, according to a company spokesperson. In January, former federal prosecutor Noah Perlman was named the new global compliance chief.
Binance has also hired former law enforcement officers, including Tigran Gambarian, a former Internal Revenue Service investigator who worked on some of the government’s most high-profile early crypto cases.
In an interview, Gambalyan said the accusations against Binance are a holdover from the exchange’s early days when it was a small start-up focused on growth.
Binance “sees itself as a technology company,” he said, adding: All exchanges have done it. ”
