US officials requested internal Binance money laundering documents

According to a late-2020 written request seen by Reuters, U.S. federal prosecutors asked Binance, the largest cryptocurrency exchange in the world, to provide extensive internal records about its anti-money laundering checks and communications involving its chief executive and founder Changpeng Zhao.

According to four people familiar with the investigation, the Justice Department was looking into whether Binance was following U.S. financial crime laws when it made the December 2020 request, which had not previously been publicised.

Binance was asked to voluntarily provide over messages from Mr. Zhao and 12 other executives and partners to the Justice Department’s money laundering division on topics like the exchange’s identification of illicit transactions and the solicitation of U.S. clients. Additionally, it was looking for any corporate records that contained directives to “delete, alter, or remove documents from Binance’s archives” or “transfer from the United States.”

The persons said that US officials are looking into allegations that Binance broke the Bank Secrecy Act. In order to operate “substantially” in the United States, cryptocurrency exchanges must register with the Treasury Department and adhere to anti-money laundering regulations. Up to 10 years in prison are possible under the statute, which is intended to safeguard the American financial system against criminal financing.

Binance Chief Communications Officer Patrick Hillmann responded to Reuters’ inquiries over the letter and investigation with the following statement: “Regulators from all around the world are contacting the biggest cryptocurrency exchanges to learn more about our sector. Any regulated organisation must follow this procedure, and we frequently collaborate with agencies to answer any queries they may have.”

Reuters was unable to determine how Binance and Mr. Zhao, one of the most well-known leaders in the cryptocurrency industry, replied to the department’s criminal division’s request.

Over 500 personnel, including former regulators and law enforcement officials, make up Binance’s “industry leading global security and compliance team,” according to Mr. Hillmann.

He didn’t mention how Binance handled the request from the Justice Department. An official from the department declined to comment.

The request indicates the extensive nature of the American inquiry into Binance. Bloomberg revealed the probe’s existence last year, but little is now known about it. “We take our legal obligations extremely seriously and cooperate with authorities and law enforcement in a collaborative approach,” a Binance representative said to Bloomberg at the time. The letter made 29 distinct requests for papers created since 2017 that addressed the company’s management, organisational structure, financial situation, compliance with anti-money laundering and sanctions laws, and US operations. Binance was told that they had to provide over “any records and materials that are related to this letter in their possession, custody, or control.”

Mr. Zhao, also known as CZ, founded Binance in Shanghai in 2017. As of July, Binance controlled more than half of the global cryptocurrency trading markets and processed transactions totaling more than $2 trillion. Mr. Zhao, who was born in China and had his education in Canada, where he also holds citizenship, said in a March interview with Bloomberg that he will be based in Dubai for the “foreseeable future.” Dubai had earlier that month given Binance a licence to carry out some operations. This year, a series of Reuters articles exposed how Binance fueled its rapid expansion while maintaining lax customer controls and hiding information from regulators. According to Reuters, Binance’s compliance programme had holes that allowed criminals to use the exchange, which also catered to Iranian merchants despite U.S. sanctions, to launder at least $2.35 billion in illegal funds. Customers of Binance might trade cryptocurrencies by signing up with just an email address until the middle of 2021.

Reuters’ findings were rejected by Binance as being “outdated.” The exchange claimed it is working to “drive greater industry standards” and “further strengthen our ability to detect unlawful crypto activity on our platform.” It said it did not consider Reuters’ calculations of illicit fund flows to be accurate.

U.S. scrutinyCrypto exchanges are under increasing scrutiny in the United States, where top government figures including Treasury Secretary Janet Yellen this year have publicly backed greater regulation of the sector. In February, the Justice Department established a national cryptocurrency enforcement team to “tackle the growth of crime involving these technologies,” with a focus on exchanges. That month, the founders of another exchange, BitMEX, pleaded guilty to violating the Bank Secrecy Act and were later sentenced to up to two and a half years of probation. BitMEX agreed to pay a $100 million fine to settle separate charges for breaching the Act. BitMEX now says it “fully committed to operating its business in compliance with all applicable laws” and has made “substantial investments” in its compliance programme.

The Justice Department’s 2020 letter was addressed to Binance Holdings Ltd., a company in the Cayman Islands, and to Roberto Gonzalez, a Washington-based attorney at law firm Paul, Weiss. Binance Holdings owns the Binance trademark and, according to regulatory filings, is owned by Mr. Zhao. Mr. Gonzalez and Paul, Weiss did not respond to requests to comment. Binance has an opaque corporate structure. It has declined to give details of the ownership or location of its main Binance.com exchange, which has not accepted customers in the United States since mid-2019. Clients there are instead directed to a separate U.S.-based exchange called Binance.US, which also is controlled by Mr. Zhao, regulatory filings show. Binance.US registered with the Treasury in 2019; the main exchange never did so.

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