Binance CEO Changpeng Zhao (CZ), who has repeatedly promised transparency, reiterated his vow in the wake of the FTX bankruptcy. However, Reuters this week accused Binance of hiding its liabilities and concealing financial details.
Reuters even questioned whether Binance executives have an interest in market-makers that trade against customers of the exchange — as was the case at BitMEX, FTX, and other exchanges sued by the Commodity Futures Trading Commission (CFTC).
The outlet cited a comprehensive review of regulatory filings around the world, including interview requests sent to dozens of regulators.
Binance produces little evidence of extraordinary claims
Over the years, Binance and CZ have famously roamed the globe since leaving China in an effort to avoid regulatory oversight. Indeed, Binance still refuses to disclose where its headquarters are located. All we do know is that CZ bought an apartment in Dubai, making it anyone’s best guess.
Binance doesn’t publicly release information on its finances, profits, or cash reserves, how much margin trading occurs on its platform, or even how much of its BNB token it has on its books. Nevertheless, it claims to have processed over $22 trillion worth of transactions over the past 12 months.
Reuters’ analysis of CryptoCompare data estimates that Binance earned approximately $4.6 billion in spot trading fees plus $6.4 billion in fees on its derivative trading platforms. However, those figures will remain rough estimates without a full financial disclosure from Binance. Despite CZ’s claims, transparent disclosure is not forthcoming.
It’s important to note that CZ does have a history of thumbing his nose at regulators and Binance’s history is littered with media reports of lax know-your-customer (KYC) and anti-money-laundering (AML) protocols. Reuters previously accused Binance of creating Binance.US to enter the American market without exposing Binance.com to domestic scrutiny. Reuters has also accused the exchange of enabling money laundering and skirting sanctions.
If true, Binance’s tactic of creating ‘country-specific’ subsidiary exchanges doesn’t always work. US authorities are currently investigating allegations of money laundering and sanctions violations on the Binance platform. Forbes also published a report on leaked Tai Chi documents outlining Binance’s plan to skirt regulations. Binance vehemently denied that report.
Binance denies Reuters’ allegations
Chief strategy officer Patrick Hillmann denied Reuters’ allegations that Binance is being deliberately opaque. Regulators don’t require privately-owned companies to disclose as much financial information as publicly-traded companies. Hillman says that Binance regularly files all the required information, as required by regulators.
“The amount of corporate and financial information that has to be disclosed to regulators in those markets is immense, often requiring a six-month-long disclosure process,” he said.
Although Hillman compared Binance to other privately-owned companies like the candy maker Mars, a Mars spokesperson retorted it “absurd” to say that Binance and Mars had comparable reporting and governance requirements.
Hillman claims that Binance fully backs user deposits and can liquidate positions if a customer makes a losing bet on its derivative trading platform. He also said that Binance has insurance against extreme market volatility that might cause users’ leveraged positions to turn negative. Hillman claimed these liquidation and risk mitigation policies were part of Binance’s risk-averse policy.
Reuters couldn’t independently verify those claims.
Binance claims to fully cooperate with law enforcement requests
Binance’s global head of intelligence and investigations, Tigran Gambaryan, claimed in a blog post that Binance had stepped up its efforts to cooperate with law enforcement. Gambaryan said that Binance increased the size of its security and compliance department by 500% and has responded to 47,000 requests from law enforcement since November 2021.
A Binance blog post co-authored by Gambaryan denied Reuters’ June 2022 report that the exchange enables money laundering for hackers, drug traffickers, and fraud rings. Binance says it can’t stop a potential malicious actor from sending funds to one of its deposit addresses. However, it can freeze funds once the transaction is confirmed to have broken the law. It then works with law enforcement authorities to settle the matter.
In April 2022, Binance published an email exchange between its staff and Reuters in which it objected to another special report alleging that it improperly shared user data with Russian regulators and FSB-controlled agencies. It alleged that Reuters violated its own editorial guidelines by publishing false information.
Despite Binance’s denials, Reuters hasn’t backed off from its reporting on Binance’s allegedly opaque finances and attempts to skirt regulations.