Crypto exchange Binance has repeatedly failed to tighten up its anti-money laundering (AML) checks despite making big promises about enhancing compliance, according to an exhaustive investigation by Reuters.
The investigation, which involved hundreds of Binance documents and eyewitness interviews, detailed how weak AML practices necessitated the exchange shuffling its headquarters around the world in an ongoing game of regulatory arbitrage.
These constant movements have made it difficult to obtain licenses from regulators.
Indeed, the report compounded a bad few weeks for Binance, not to mention news that the firm’s compliance officers offered a $220,000 senior job to someone with no credentials.
Zhao avoided Malta, citing pesky disclosure laws
Binance left China in 2017 due to government crackdowns on crypto exchanges. After a brief stint in Tokyo, it sought a new base in another crypto-friendly jurisdiction.
In 2018, the company applied for a license to operate in the tax haven Malta. At the time, chief exec Changpeng Zhao praised the country for its regulatory clarity and warm embrace of the crypto industry.
Bloomberg recently ranked him among the world’s 20 wealthiest billionaires. Protos covered his rise to prominence last month.
Reuters reported that, after studying the qualification documents in detail, Zhao advised against proceeding with Binance’s Maltese application.
This was apparently all down to Malta’s “stringent anti-money laundering protocols and the level of financial disclosure required” (via Reuters).
Subsequent regulatory filings show that Binance has established offices in the Cayman Islands, Uganda, Jersey, the UK, Singapore, and elsewhere.
The company does not currently disclose the location of its corporate headquarters. However, it has established a series of subsidiaries in the countries in which it operates.
Zhao’s recent purchase of an apartment in Dubai and positive comments about Bahrain may indicate he’s starting to change his tune about Binance putting down roots.
He previously opposed the idea of personally owning illiquid assets such as homes or cars. Zhao told Bloomberg he’s decided on a new location for Binance’s headquarters, to be announced once he’s gained regulatory approval.
Crypto exchange Binance effectively chased into Dubai
In a bid to map Binance’s paper trail, Reuters itemized accelerating regulatory actions against the ephemeral crypto entity.
Thailand’s Securities and Exchange Commission pursued a criminal case against Binance for operating in the country without a license, while regulators in the United Kingdom, Cayman Islands, Canada, Nigeria, the Netherlands, and Japan have issued warnings.
The exchange hasn’t fared any better in the US. New York State’s attorney general confirmed a probe into Binance’s operations after it declined to respond to a survey, claiming it did not operate in the state.
The Commodities Futures and Exchange Commission, Internal Revenue Service, and Justice Department are also probing Binance.
The US agencies are looking into possible breaches of the Bank Secrecy Act, tax, and other registration issues.
And in Canada, the Ontario Securities Commission (OSC) warned that Binance was operating in the province without registration.
Binance initially said it would cease operations in Ontario by the end of 2021, asking users to close their accounts.
The company later claimed it was registering as a Money Services Business and would continue operations across Canada. OSC regulators subsequently reiterated that Binance is not registered and cannot continue serving Ontario residents.
Then there’s Singapore, where regulators gave Binance a “grace period” to operate in the country while it reviewed Binance’s license application.
Singaporean authorities later denied Binance’s application to continue doing business in the city-state, emphasizing that they would follow up to enforce the ban.
Binance has since moved to shutter its Singaporean wing altogether by February 13. Binance Singapore had listed just eight cryptocurrencies, a minuscule amount to the hundreds of tokens available on its flagship platform.
Weak anti-money laundering policies worried insiders
While Binance retained a legal team that includes a former Treasury Department official to assist with responding to government probes, insiders haven’t been totally convinced.
According to records obtained by Reuters, Binance’s compliance team members repeatedly expressed concerns about weak AML practices at the exchange.
- Chief Compliance Officer Samuel Lim and former Global Money Laundering Reporting Officer Karen Leong cited weak Know-Your-Customer (KYC) checks in a private Telegram group.
- Reuters claims Binance disobeyed recommendations of its compliance department by continuing to recruit traders in countries like Ukraine and Russia.
- The outlet also said Binance weakened money laundering requirements with a German business partner.
Reuters also found Binance occasionally failed to assist in the recovery of funds when fielding inquiries from certain enforcement officers and attorneys representing fraud victims.
For what it’s worth, Zhao denied most of Reuters’ claims, labeling them ‘FUD’ (short for ‘Fear, Uncertainty and Doubt’).
He purports that Binance’s AML and KYC checks are robust, and uses “the same or stronger AML tools as banks,” however failed to cite which ones.
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