For years, Binance founder Changpeng Zhao and other top employees of the cryptocurrency exchange knew that some of its users were criminals. However, despite regular warnings from some of its own employees that some transactions on Binance.com violated anti-money laundering laws, the company was reluctant to stop them.
Those allegations, which became public Tuesday in a wide-ranging federal case against Binance and Zhao, show how completely he and his aides understood that criminals were using their trading platform, and how little they did to stop them.
In many cases, they worked hard to prevent the Financial Crimes Enforcement Network, an arm of the Treasury Department that combats money laundering and other illicit financial transactions, from learning about their most notorious users, according to a FinCEN regulatory filing. Zhao and Binance pleaded guilty on Tuesday to violations of the Bank Secrecy Act and agreed to pay heavy fines.
In April 2019, representatives of a technology company working with Binance approached one of Zhao’s aides to inform him that Hamas’ military wing, the Qassam Brigades, was raising funds for what he described as “Palestinian resistance” by soliciting bitcoin donations. and that he had received funds through transactions on Binance.com. The Binance official acknowledged the report and then tried to persuade the tech company’s representatives to downplay Binance’s role in the transactions, according to the document, which FinCEN posted on its website on Tuesday.
In July 2020, another company working with Binance flagged users of Binance.com, the trading platform, as being associated with Hamas and others in the Islamic State. A senior Binance employee acknowledged that these clients were “extremely dangerous to our company,” but told his subordinates to check whether one of them was considered a VIP (a user who did enough business on the exchange to warrant special treatment) beforehand. to close your account.
“Let him take your money and leave,” the employee wrote, according to the filing, “tell him that third-party compliance tools flagged him.”
Lawyers for Mr. Zhao and a Binance spokeswoman did not respond to requests for comment.
Carl Tobias, a professor at the University of Richmond School of Law, said the government’s actions against Binance were designed in part to send a message to the rest of the crypto industry about the consequences of not following US laws. While it was a smart move, Tobias said, it is unlikely to completely solve the problem.
Ordinary people who tried to participate in the industry recently suffered huge losses and watched as one of the most prominent figures in cryptocurrencies, Sam Bankman-Fried, the founder of the FTX exchange, was exposed as a scammer.
“The question is: Is there a chance for cryptocurrencies to regain public trust?” Mr. Tobias said.
Not everyone sees such a crisis of confidence in the industry.
“There are many other smaller companies seeking to follow the letter of the law in the United States without assuming that the United States is incapable of protecting its citizens,” said Ron S. Geffner, partner at Sadis & Goldberg. who leads the law firm’s Financial Services group.
Geffner said the illicit activity on Binance’s trading platform was part of the natural evolution of the industry, which grew too quickly for early entrants to handle. Binance was founded during a period of “hypergrowth,” he said, before concern about U.S. laws became widespread and before anyone really understood how to build the necessary controls into their businesses to eliminate bad behavior. It was the perfect environment for criminals to thrive.
Geffner said other companies, such as the US-based exchange Coinbase, took US laws more seriously. They employed people with more traditional financial industry experience and a different attitude toward compliance, he added.
Still, Coinbase also settled regulators’ allegations that it violated anti-money laundering laws, but has not faced criminal charges.
“Some of the people at Coinbase came from brokerage backgrounds and had an idea of the regulatory regime,” Geffner said. “It wasn’t someone sitting in another country saying, ‘Well, America, who do they think they are?’ Why do you govern me when I’m sitting in another part of the world?’”
Court documents filed Tuesday in the US case against Binance illustrated the tension Geffner described. At times, Mr. Zhao seemed to want to avoid having to deal with American regulators, such as when he ordered his employees to figure out how to classify users in the United States as if they were somewhere else in the world so that they are not under the scrutiny of US authorities. But on other occasions, the documents show, Zhao appeared to agree with his deputy’s suggestions that Binance should try to block access to its platform by users from countries or organizations that were under government sanctions.
People still hoping to profit from cryptocurrencies appear to have left troubled companies like Binance behind. Geffner said he had attended a monthly “crypto salon” on Tuesday night in New York, where about 25 people gather to discuss an industry-related topic—”taken care of,” he added—and that no one had even mentioned it. the Binance. case.
“Binance is old news,” Geffner said. The topic of Tuesday’s hall was “the development of quantum computing and data security.”
