US sought records on Binance CEO in late 2020 for crypto money laundering probe

LONDON – US federal prosecutors asked Binance, the world’s largest cryptocurrency exchange, to provide extensive internal records about its anti-money laundering checks, along with communications involving its chief executive and founder Zhao Changpeng, according to a late-2020 written request seen by Reuters.

The Justice Department’s money laundering section asked Binance to voluntarily hand over messages from Mr Zhao and 12 other executives and partners on matters including the exchange’s detection of illegal transactions and recruitment of US customers. It also sought any company records with instructions that “documents be destroyed, altered, or removed from Binance’s files” or “transferred from the United States”.

The December 2020 request, which has not been previously reported, was part of a Justice Department investigation into Binance’s compliance with US financial crime laws that remains ongoing, four people familiar with the inquiry said.

The US authorities, the people said, are investigating whether Binance violated the Bank Secrecy Act. This requires crypto exchanges to register with the Treasury Department and comply with anti-money laundering requirements if they conduct “substantial” business in the US. The law, designed to protect the US financial system from illicit finance, provides for jail terms of up to 10 years.

In response to Reuters’ questions about the letter and investigation, Binance chief communications officer Patrick Hillmann said: “Regulators across the globe are reaching out to every major crypto exchange to better understand our industry. This is a standard process for any regulated organisation and we work with agencies regularly to address any questions they may have.”

Binance has “an industry-leading global security and compliance team” with more than 500 employees, including former regulators and law enforcement agents, Mr Hillmann added.

He did not say how Binance responded to the Justice Department request. A Justice Department spokesman declined to comment.

The request reveals the broad scope of the US investigation into Binance. The probe’s existence was reported last year by Bloomberg but until now, little has been known about it.

Binance was launched by Mr Zhao, also known as CZ, in Shanghai in 2017 and as at July, controlled more than half of the world’s crypto trading markets, processing transactions worth more than US$2 trillion (S$2.8 trillion) that month. Born in China and educated in Canada, where he holds citizenship, Mr Zhao told Bloomberg in March that he will be based for the “foreseeable future” in Dubai, which that month granted Binance a licence to conduct some operations.

A series of Reuters articles this year revealed how Binance drove its explosive growth while keeping weak customer checks and withholding information from regulators. Reuters found that the gaps in Binance’s compliance programme enabled criminals to launder at least US$2.35 billion in illicit funds through the exchange, which also served traders in Iran despite US sanctions. Until mid-2021, Binance customers could trade crypto by registering with just an e-mail address.

Binance disputed Reuters’ findings, calling them “outdated”. The exchange said it is “driving higher industry standards” and seeking to further improve its ability to detect illegal crypto activity on its platform. It said it did not consider Reuters’ calculations of illicit fund flows to be accurate.

Increasing scrutiny

Crypto exchanges are under increasing scrutiny in the US, 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 2½ years of probation. BitMEX agreed to pay a US$100 million fine to settle separate charges for breaching the Act.

Since last year, more than a dozen financial regulators around the world have issued warnings about Binance, saying it was either serving users without licences or violating anti-money laundering rules. In July, the Dutch central bank said it had fined Binance more than €3 million (S$4.2 million) for operating in breach of its financial crime laws. REUTERS