Exclusive: US Sought Files on Binance CEO for Crypto Money Laundering Investigation

LONDON, Sept 1 (Reuters) – U.S. federal prosecutors have asked Binance, the world’s largest cryptocurrency exchange, to provide comprehensive internal records of its anti-money laundering controls, along with communications implicating its chief executive and founder Changpeng Zhao, according to a late-2020 written request seen by Reuters.

The Justice Department’s Money Laundering Section asked Binance to voluntarily forward messages from Zhao and 12 other executives and partners on issues including the exchange’s detection of illegal transactions and recruiting US customers. He also searched all company records with instructions that “documents should be destroyed, altered, or deleted from Binance’s files” or “transferred from the United States.”

The previously unreported December 2020 request was part of a Justice Department investigation into Binance’s compliance with U.S. financial crime laws that is still ongoing, four people familiar with the matter said. investigation.

* How crypto giant Binance became a hub for hackers, fraudsters and drug dealers

* Crypto giant Binance kept money laundering controls weak even as it promised tougher compliance, documents show

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

Reuters could not establish how Binance and Zhao, one of the most high-profile figures in the crypto industry, responded to the request from the department’s criminal division.

In response to questions from Reuters about the letter and the investigation, Binance Chief Communications Officer Patrick Hillmann said, “Regulators around the world are reaching out to all major crypto exchanges to better understand our industry. a standard process for any regulated organization and we work regularly with agencies to answer 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 officers, Hillmann added.

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

The request reveals the wide scope of the US investigation into Binance. The existence of the probe was reported last year by Bloomberg but so far little was known about it. A Binance spokeswoman told Bloomberg at the time, “We take our legal obligations very seriously and engage with regulators and law enforcement in a collaborative manner.”

The letter contained 29 separate requests for documents produced since 2017, covering the company’s management, structure, finances, anti-money laundering and sanctions compliance, and operations in the United States. “Binance is requested to produce all documents and materials responding to this letter in its possession, custody or control,” it said.

Binance was launched by Zhao, known as CZ, in Shanghai in 2017, and by July controlled more than half of the world’s crypto trading markets, handling transactions worth over $2 trillion. dollars that month. Born in China and educated in Canada, where he holds citizenship, Zhao told Bloomberg in March that he would be based for the “foreseeable future” in Dubai, which that month granted Binance a license to conduct certain operations. .

A series of Reuters articles this year revealed how Binance has driven explosive growth while keeping client checks low and withholding information from regulators. Reuters found that loopholes in Binance’s compliance program allowed criminals to launder at least $2.35 billion in illicit funds through the exchange, which has also served traders in Iran despite US sanctions. Until mid-2021, Binance customers could trade crypto by signing up with just an email address.

Binance disputed Reuters’ findings, calling them “outdated”. The exchange said it “sets higher industry standards” and seeks to “further improve our ability to detect illegal crypto activity on our platform.” He said he did not consider Reuters’ calculations of the flow of illicit funds to be accurate.

UNITED STATES CONTROL

Crypto exchanges have come under increasing scrutiny in the United States, where high-profile government figures, including Treasury Secretary Janet Yellen, have publicly backed greater regulation of the sector this year. In February, the Justice Department created a National Cryptocurrency Enforcement Team to “address the growth of crime involving these technologies,” with a focus on exchanges.

That month, the founders of another exchange, BitMEX, pleaded guilty to breaking the bank secrecy law and were later sentenced to up to two and a half years probation. BitMEX agreed to pay a $100 million fine to settle separate charges for violating the law. BitMEX now states that it is “fully committed to operating its business in compliance with all applicable laws” and has made “substantial investments” in its compliance program.

The 2020 letter from the Department of Justice was addressed to Binance Holdings Ltd., a Cayman Islands company, and Roberto Gonzalez, a Washington-based lawyer with the law firm Paul, Weiss. Binance Holdings owns the Binance brand and, according to regulatory filings, is owned by Zhao. Gonzalez and Paul, Weiss did not respond to requests for comment.

Binance has an opaque corporate structure. It declined to give details of the ownership or location of its main exchange Binance.com, which has not accepted clients in the United States since mid-2019. Clients there are instead directed to a separate US-based exchange called Binance.US, which is also controlled by Zhao, according to regulatory filings. Binance.US registered with the Treasury in 2019; the main exchange never did.

Since last year, more than a dozen financial regulators around the world have issued warnings about Binance, claiming it serves unlicensed users or violates anti-money laundering rules. In July, the Dutch central bank said it had fined Binance more than €3 million for violating its financial crime laws. A Binance spokesperson said at the time that the fine marked a “pivot in our ongoing collaboration” with the central bank.

In the 2020 request, the Department of Justice sought all records identifying Binance employees responsible for compliance with the Bank Secrecy Act, details of its anti-illegal finance policies, and any reports of financial activity suspect that he had filed with the authorities. Binance was asked to provide information on all transactions between the exchange and users involved in the ransomware, terrorism and darknet markets, as well as those targeted by US sanctions.

The department also requested documents related to the “business rationale” for the creation of Binance.US. He requested communications involving the 13 executives and partners – including Zhao, his co-founder Yi He and his chief compliance officer, Samuel Lim – regarding “the creation of Binance.US and its relationship with Binance.” Lim and He are still at Binance.

Reuters reported in January that Lim and other senior executives were aware that Binance’s money laundering controls were not rigorous, according to company posts reviewed by the news agency. Neither Lim nor Binance commented on the posts.

In addition to the Department of Justice’s request, the Securities and Exchange Commission issued a subpoena to Binance.US operator BAM Trading Services the same month. The subpoena, reviewed by Reuters, demanded that BAM hand over documents showing whether any employees also worked for major exchange Binance and what services it provided to the US company.

Binance.US did not respond to questions from Reuters. The SEC said it does not comment on possible investigations.

((Reporting by Angus Berwick and Tom Wilson; Editing by Janet McBride))

Our standards: The Thomson Reuters Trust Principles.