The world’s largest cryptocurrency exchange, Binance, serves a significant number of users on a global scale. Until last year, Binance had radically expanded its service footprint, vowing to work in tandem with local regulators amid problems with governments. According to the documents, crypto giant Binance has kept its money laundering controls weak, despite promising tighter compliance. First of all, we need to know that these allegations came from one of the most important news sources in the world, such as Reuters.
Binance, Past to Present
In October 2018, Zhao was in Malta to find a new headquarters for the Binance exchange, and had left mainland China a year ago when regulators began cracking down on cryptocurrencies. Zhao praised Malta for opening its doors to crypto companies.
Zhao said in his past statements, “Binance was really lucky. Malta has come at a time when regulatory clarity is much needed,” he said. That same month, Binance notified Malta’s financial regulator that it plans to acquire a license to operate its exchange from the island (an important step towards mainstream legitimacy for the young firm), Zhao said, adding that the island will become Binance’s new base.
The relocation proposed by Binance crowned the Maltese government’s strategy to transform Malta into a “Blockchain Island”. Zhao promised that Binance will collect donations for local cancer patients. But this adventure did not last long.
While reviewing the terms of the license, Zhao was uneasy about the strict anti-money laundering protocols and the level of financial disclosure required, according to four people with direct knowledge of the license discussions. The following year, Binance privately informed the regulator that it was canceling its plan, the regulator told Reuters. A letter from Binance in 2020, seen by Reuters, shows that donations to the charity have also been shelved. Still, for several months, Binance continued to tell millions of its customers that their terms of use are “subject to the laws of Malta.”
According to a Reuters study, Zhao’s relations with the Mediterranean island fit a broader pattern. Zhao has repeatedly said in public that he welcomes regulatory oversight and praises Binance’s anti-money laundering program. But at the same time, Binance was hiding information about its financial condition and corporate structure from regulators, of whom at least eight had warned consumers of the risks of using the exchange. Binance maintained weak controls and acted against the recommendations of its own compliance department.
A Binance spokesperson told Reuters:
“As a cryptocurrency and blockchain ecosystem, we both lead and invest in future technologies and legislation that will make the crypto industry a well-regulated, secure industry.”
Reuters conducted dozens of interviews with Binance’s former senior employees, consultants and business partners, and reviewed hundreds of documents, including confidential correspondence and internal messages between Binance and national regulators.
The report shows that Binance enforces external rules governing traditional financial firms and many crypto competitors. An opaque corporate structure has allowed Binance to offer products that many national regulators do not allow locally registered firms to sell. Binance has repeatedly refused to specify what jurisdiction its main online exchange is based in, complicating regulators’ efforts to oversee its activities. And minimized costly client background checks.
Documents Deny Binance Exchange
Publicly, Binance said it welcomes government oversight. At the same time, a Reuters investigation found that the firm was withholding information from regulators, maintaining weak controls over customers, and acting against the recommendations of its own compliance department.
At least four times Binance has refused to provide detailed answers about its operations when asked by financial authorities and partners, according to legal filings and people with direct knowledge. In encrypted Telegram messages seen by Reuters, Binance staff, including Chief Compliance Officer Samuel Lim and former Global Money Laundering Reporting Officer Karen Leong, expressed concern about poor “know your customer” processes to prevent money laundering. Three former senior Binance employees told Reuters that Zhao had raised such concerns to him, but Zhao ignored them.
Binance went against its own compliance department’s assessment by continuing to hire clients whose money laundering risk was assessed as “excessive” in seven countries, including Russia and Ukraine, in an internal report released in early 2020 and seen by Reuters. Last year, Binance watered down compliance rules with a German partner, causing unrest among some Binance employees.
German police and lawyers representing more than 30 suspected scam victims sent Binance dozens of letters seen by Reuters, asking for information on several million euros they suspect had been laundered via the exchange.
Last year, German federal police requested information from Binance about two men suspected of aiding an Islamist gunman who killed four people in Vienna in November 2020. A letter from the police stated that one of the men had made unspecified transactions on Binance.
