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Subpoenas issued in ongoing federal probe of crypto exchange Binance


Federal prosecutors are investigating a deal by an American hedge fund with cryptocurrency exchange Binance as part of a lengthy investigation into possible money laundering violations against one of the world’s leading cryptocurrency companies.

In a subpoena sent out in recent months, the U.S. Attorney’s Office for the Western District of Washington in Seattle directed investment firms to turn over records of their interactions with Binance, two people said. . Anonymity for discussing confidential matters.

A previously unreported subpoena does not necessarily mean that authorities are likely to file charges, legal experts said.Prosecutors are still discussing a potential settlement with Binance, considering whether there is enough evidence to charge the company, Reuters report last month.

Binance Chief Strategy Officer Patrick Hillman said in an interview that the company is in talks “with virtually every regulator around the world every day,” but declined to comment on the status of the U.S. investigation. Justice Department spokesman Joshua Steve also declined to comment.

The federal investigation into Binance is unfolding at a time of great uncertainty for the cryptocurrency industry. The collapse of FTX, a popular trading platform that authorities say has been a years-long plot to deceive investors, has raised concerns about the freewheeling and largely unregulated online marketplace where digital assets are bought and sold. I’m provoking

Crypto company failures have become more common and interrelated. Cryptocurrency platform Celsius, which went bankrupt in July, made a large loan to FTX affiliate Alameda Research, which went bankrupt five months later. Binance founder and CEO Changpeng Zhao was an early FTX backer, and his decision to sell most of his digital tokens at the company has caused customer panic. , helped FTX to run on bank deposits it was unable to meet.

As the world’s largest cryptocurrency exchange, Binance, gets the spotlight, Zhao has repeatedly criticized FTX and hailed himself as an advocate for tighter industry scrutiny. “It’s only natural that regulators will scrutinize the industry more closely, which is probably a good thing,” Zhao said at a conference in Indonesia in November.

But legal experts say Binance has long frustrated financial regulators and law enforcement. For years, Binance has allowed users to buy and sell cryptocurrencies on its platform without identifying themselves, making it an easy way for criminals to launder their ill-gotten money, Binance said. Former Justice Department prosecutor John Gorse, who specializes in cryptocurrency cases before joining, said: Private sector in 2021.

During his time as a prosecutor, Gorse said, “Binance did not have a reputation for being a responsible exchange.”

Binance’s Hillmann admitted that there were flaws in its approach to regulatory compliance during its first years of rapid expansion. More recently, however, Binance has invested heavily in its compliance program, working closely with law enforcement agencies and developing new techniques to catch criminals on its platform, he said.

“Over the past two years, the company has completely changed its stance,” says Hillmann. “Now that we have these resources, we have become one of the most active parties to identify, freeze and reclaim funds laundered by criminals,” he said. We believe that overall incidents of criminal activity in cryptocurrencies are declining.

Ah report Last year, data provider Chainalysis showed that cryptocurrency crime hit a record high in 2021. Fraudulent addresses have grown from $4.6 billion in 2017, when Binance was founded, to $14 billion. Over the same period, Chainalysis found that as the adoption of cryptocurrencies surged, the rate of illicit transactions dropped significantly.

Based on his experience with these types of incidents, Ghose requires financial institutions that Binance verify the identity of their customers and report any suspicious activity that could be an indication of money laundering, tax evasion. I believe prosecutors are investigating whether they violated the Bank Secrecy Act. or other crimes.

The recent subpoenas could mean prosecutors are scrutinizing Binance’s ties to U.S. investors, Gorse said, warning he had no direct knowledge of the Binance investigation. bottom.

“The basis for these charges is whether or not we have U.S. customers,” he said. “If you have US customers, there will be a charge to avoid money laundering requirements.”

As part of its response to growing regulatory concerns, Binance has launched a Washington charm attack. The company this fall formed a global advisory board chaired by former Democratic Senator from Montana and the Obama administration’s ambassador to China, Max Borkus. Last month, I joined the Digital Chamber of Commerce, a Washington-based crypto lobby group.

Baucus and Plouffe did not respond to requests for comment.

Meanwhile, Zhao-owned Palo Alto, Calif.-based trading platform Binance.US has hired two new outside lobbying firms, set up a political action committee, and raised funds from its own ranks. raised and enabled the proceeds to be distributed as campaign funds. Federal records show. He also hired BJ Kang, the former FBI agent who led a high-profile investigation into insider trading on Wall Street, as his first investigative director.

spokesperson for Binance.US The company said it currently has no plans to make donations to PAC.

Carlos Gomez, chief investment officer of the Berobaba Crypto Asset Fund, which invests in Binance’s platform, said Zhao has met with government leaders, advocated for regulation, and faced other challenges. He said he was “trying to do the right thing” by proposing to bail out cryptocurrency companies. “He’s trying to position himself as a trustworthy person.”

However, there are signs that Zhao, a cryptocurrency superstar with 8 million Twitter followers, is losing the trust of some customers. In his 24 hours in December, investors withdrew $3 billion more than they deposited from Binance, according to crypto analytics firm Nansen. This is his highest single-day net withdrawal from the exchange since June.

“People are scared,” said Carol Alexander, a cryptocurrency expert and professor of finance at the University of London. Sussex. “whale” or Professional traders are “starting to move away from Binance as regulatory pressure mounts,” she said.

Zhao says Binance has sufficient reserves to back all user deposits, a fact he said was substantiated by an independent auditor. review last month. “All users will be able to withdraw their assets from Binance and the company will continue to function as normal,” a Binance spokesperson said in an email.

However, nine days after announcing the assessment, Paris-based audit firm Mazars said in a statement that it had suspended work with cryptocurrency firms “due to concerns about the way these reports are generally understood.” said to do. I had binance Mention In response to its work with Mazars as a “third-party audit,” the auditor said its evaluation did not constitute a legally binding guarantee or audit opinion.

“Providing an audit opinion and assurance on Binance’s reserve review significantly reduces the risk of a lawsuit being filed against Mothers if it later turns out that Binance does not have sufficient funds to cover its customers’ assets. “The University of Minnesota.

One of the challenges facing US prosecutors is to prove that Binance is subject to US law.

Zhao founded Binance in China, but later moved the company to Japan and then to Malta. Since 2020, he insists the business does not have a single headquarters. Binance Holding Ltd. is a shell company that operates multiple subsidiaries of Binance and is based in the Cayman Islands, while Zhao is a global subsidiary, including the British Virgin Islands, Singapore, Ireland, Liechtenstein and Seychelles. We are also connected to dozens of business units. , according to to Reuters.

Industry experts believe that part of Binance’s success lies in marketing risky financial products such as cryptocurrency derivatives that allow users to place high-leverage bets on speculative digital tokens such as Dogecoin. I’m here. Such products are generally prohibited in the United States, and since 2019, Binance has prohibited Americans from accessing major offshore exchanges where derivatives can be bought and sold. (Zhao-owned American exchange, his Binance.US, offers US residents a limited menu of investment options and operates independently from the main his Binance exchange. He says he is.)

Binance’s website The United States is listed as one of its “restricted jurisdictions” along with Cuba, the Crimean region, Iran, Syria and North Korea.

Some Americans claim they can get around Binance’s limits. A discussion thread on Reddit and a video on his YouTube share tips on how crypto traders can access the site from the United States. His one content his creator known as Full Value Dan tutorial For “How I Beat Binance KYC” (abbreviation for “Know Your Customer” verification method), it involved setting up a paper business in Taiwan and obtaining residency documents from that country.

In the video, Full Value Dan claims that he used these documents to gain approval to trade on Binance despite being a US citizen. He didn’t respond to a request for comment.

Binance executive Hillmann said the company tested loopholes and other supposed loopholes to access the trading platform and found them to not work. “Today, there are no features accessible to users in the United States Binance.comsaid Hillman, without committing fraud.

In an interview with The Washington Post, several large US crypto-focused hedge funds either do not use Binance or only have accounts on the more restricted Binance.US trading platform. Some said they preferred Coinbase, a publicly traded cryptocurrency exchange that provides quarterly financial statements to investors.

The CEO of a New York investment firm that manages $2.5 billion in assets said his firm is traded on Binance’s offshore exchange through an entity it owns outside the United States. Binance has a strict ban on US citizens trading, but “a company and a citizen are very different,” said the executive, who requested anonymity.

Binance says it complies with all US laws and is assisting law enforcement investigations.but it is not registered Binance.comTreasury’s Financial Crimes Enforcement Network, or major offshore exchanges with FinCEN, Records show that it is a basic requirement to comply with the Bank Secrecy Act.

because Hillman said it doesn’t do business in the United States and doesn’t believe it needs to be registered with the Treasury Department. FinCEN spokesperson declined to comment.

That defense didn’t work for others. Last year, his three co-founders of BitMEX, another offshore cryptocurrency exchange, plead guilty “deliberately” failing to verify the identity of the customer; BitMEX, a Seychelles-based exchange that claims to have no American users, has attracted thousands of American investors, according to the indictment.

BitMEX agrees to pay up to $100 million to settle claims, co-founder ordered Pay $10 million each. Arthur Hayes, who resigned as CEO after being indicted, was sentenced to six months of house arrest and two years of probation.

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