Binance a ‘hotbed’ of illegal activity, bipartisan US senators allege

WASHINGTON – US senators representing both Democrats and Republicans are demanding that Binance and Binance.US provide a detailed accounting of their finances and efforts to maintain regulatory compliance, according to a letter signed by senators Elizabeth Warren, Chris Van Hollen and Roger Marshall.

“(What) little information about Binance’s finances available to the public suggests that the exchange is a hotbed of illegal financial activity that has facilitated over US$10 billion (S$13.5 billion) in payments to criminals and sanctions evaders,” the senators wrote in the letter, which was dated March 1.

The letter, addressed to Binance.US president Brian Shroder and Binance chief executive Zhao Changpeng, cited recent Reuters reporting that cast doubt on the extent to which the two entities were really independent of each other.

This line of questioning echoes a recent court filing from Texas officials related to the proposed Binance.US acquisition of bankrupt crypto broker Voyager Digital. Binance and Binance.US have the same majority owner in Mr Zhao, according to the details laid out in the Texas filing. The global entity had secret access to a bank account belonging to the US exchange, according to the Reuters report.

Binance is the world’s biggest crypto exchange, with nearly 60 per cent market share as at mid-February, according to research firm CryptoCompare. Over the past several years, it has faced investigations from United States agencies, including the Department of Justice, the Internal Revenue Service and the Securities and Exchange Commission (SEC).

The senators’ letter cited “investigations into criminal sanctions evasion, money laundering conspiracy, unlicensed money transmission, questions about its financial health, and increased scrutiny over its intentionally ‘opaque corporate structure’”.

The increasing scrutiny has also extended to Binance partners and counterparties. In February, the issuer of a Binance-branded stablecoin acknowledged that it had received a Wells notice from the SEC. Wells notices give potential defendants an opportunity to explain why civil charges should not be brought.

The company, Paxos Trust, had also been directed by the New York State Department of Financial Services to stop any further issuance of the BUSD stablecoin, which was at the time the third-largest in the market by circulation.

Earlier this year, investigators identified Binance as a counterparty to Bitzlato, a digital asset platform accused of processing millions of dollars in illegal funds.

The senators allege in the letter that Binance allowed US users to access its global site, which they are supposed to be prohibited from using. It likened Binance to the

collapsed FTX exchange, which filed for bankruptcy

in November after revealing that it misused customer funds.

“Mr Zhao’s assertion that Binance.US is fully independent is eerily similar to claims Sam Bankman-Fried made regarding the distinction between FTX US and FTX – claims that appear to be false, given that FTX US has filed for bankruptcy, its users have lost access to their funds, and its new CEO has declared that it is, in fact, insolvent,” the senators wrote.

“With this scheme in place, and in pursuit of profits, Binance has intentionally allowed US-based users to illegally access and trade unregulated products on the main exchange.” 

The letter criticised the exchange’s compliance efforts, saying: “Binance’s business strategy appears to depend, at least in part, on the maintenance of a laughably weak anti-money laundering compliance programme.”

“I think the letter is a nice summary of some of the issues at Binance. They are at the centre of crypto space and all its problems,” Dr John Griffin, a finance professor at University of Texas at Austin, said in an e-mail. “It is trying to play both sides of the coin.”

Binance chief strategy officer Patrick Hillmann said in a recent interview that the exchange had compliance “gaps” in the past, but had since addressed and closed them.

Mr Hillmann said the company was in settlement discussions with US regulators but could not provide a timeline or a potential settlement amount. Binance also hired a new chief compliance officer in January: Mr Noah Perlman joined the company after a stint at crypto exchange Gemini Trust. 

“Unfortunately, a lot of misinformation has been spread about our company and we look forward to correcting the record,” Binance said in a statement to Bloomberg.

“As a globally regulated exchange, we receive queries from officials in jurisdictions in which we operate on a regular basis and we always respond in an attempt to both explain our business operations and cooperate with our regulators.

“Binance.com does not operate in the US, nor do we have US-based customers. However, we appreciate the senators’ request and will provide information to help them better understand why we remain the most trusted platform with users across the globe.”

Binance.US said it “welcomes “engagement with policymakers and look forward to responding to the senators’ requests”. BLOOMBERG