Binance Founder and CEO Changpeng Zhao attended the Viva Technology conference dedicated to innovation and startups at the Porte de Versailles exhibition center in Paris, France, June 16, 2022 . REUTERS/Benoit Tessier/File Photo

LONDON: U.S. federal prosecutors have sued Binance, the world’s largest cryptocurrency exchange, for extensive internal records on anti-money laundering checks, and its top management, according to a written request in late 2020 seen by Reuters. It asked to provide communications involving its director and founder, Changpong Chao. .

The Department of Justice’s Money Laundering Division has asked Binance to voluntarily submit messages from Mr. Zhao and 12 other executives and partners regarding the exchange’s discovery of illegal transactions, recruitment of U.S. customers, etc. I was. We also searched for company records with instructions to “destroy, alter, or remove the document from Binance’s files” or “transfer from the United States.”

The December 2020 request, which was previously unreported, is part of an ongoing Justice Department investigation into Binance’s compliance with U.S. financial crime laws, according to four people familiar with the investigation. person said.

U.S. authorities are investigating whether Binance has violated bank secrecy laws, according to people familiar with the matter. This requires cryptocurrency 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, which is intended to protect the U.S. financial system from illicit finance, provides for prison sentences of up to 10 years.

Reuters was unable to confirm how Binance and Zhao, one of the most prominent figures in the cryptocurrency sector, responded to the request from the agency’s criminal division.

Binance Chief Communications Officer Patrick Hillman said in response to questions about the Reuters letter and investigation, “Regulators around the world are reaching out to all major crypto exchanges to better understand the industry. This is a standard process for regulated organizations and we work regularly with our agencies to address their questions.” Hillman added that it has an “industry-leading global security and compliance team” with more than 500 employees, including law enforcement agencies.

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

The request reveals the wide scope of the US investigation into Binance. The existence of the study was reported by Bloomberg last year, but until now was largely unknown. “We take our legal obligations very seriously and are working with regulators and law enforcement,” a Binance spokesperson told Bloomberg.

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

Binance was launched by Zhao aka CZ in Shanghai in 2017 and as of July controlled over half of the global cryptocurrency trading market, processing over $2 trillion in transactions that month. Born in China and educated in Canadian citizenship, Zhao told Bloomberg in March that his “foreseeable future” would be based in Dubai.

A series of Reuters articles this year revealed how Binance experienced explosive growth while neglecting to check its customers and withholding information from regulators. Discovered that at least $2.35 billion of illicit funds can be laundered through exchanges. It also served Iranian traders despite US sanctions. Until mid-2021, Binance customers could trade cryptocurrencies simply by registering with his email address.

Binance disputed the Reuters findings, calling them “outdated.” The exchange said it aims to “promote higher industry standards” and “further improve our ability to detect illegal crypto activity on our platform.” He said he did not believe Reuters’ calculations of illicit money flows were accurate.

Scrutiny of cryptocurrency exchanges has increased in the United States, with senior government officials, including Treasury Secretary Janet Yellen, publicly advocating greater regulation of the sector this year. In February, the Justice Department established a nationwide cryptocurrency enforcement team to “tack on the rise in crime related to these technologies” focused on exchanges.

That month, the founder of another exchange, BitMEX, pleaded guilty to violating the Bank Secrecy Act and was subsequently sentenced to up to two and a half years on probation. BitMEX agreed to pay him a $100 million fine to settle another charge of violating the law. BitMEX says it is currently “committed to operating its business in compliance with all applicable laws” and is making “substantial investments” in its compliance program.

The Department of Justice’s 2020 letter was addressed to Binance Holdings Ltd., a Cayman Islands company, and Roberto Gonzalez, an attorney at Washington-based law firm Paul, Weiss. Binance Holdings owns his Binance trademark, which according to regulatory filings is owned by Zhao. Gonzalez, Paul and Weiss did not respond to requests for comment.

Binance has an opaque corporate structure. The company declined to provide details of the owners or locations of major exchanges that have not accepted customers in the United States since mid-2019. Customers there will instead be transferred to another US-based exchange called Binance.US. The exchange is also controlled by Zhao, according to regulatory filings. Binance.US was registered with the Ministry of Finance in 2019. No major exchange did.

Since last year, more than a dozen financial regulators around the world have issued warnings against Binance, saying it is serving users without a license or violating anti-money laundering regulations. In July, the Dutch Central Bank announced that it had fined Binance more than €3 million for violating the Financial Crimes Act. A Binance spokesperson said at the time that the fine was a “pivot in our ongoing cooperation” with the central bank.

In its 2020 request, the DOJ requested that all documents identifying Binance employees responsible for compliance with the Bank Secrecy Act, details of its policies to combat illegal finance, and suspicious financial activity it had submitted to authorities. We asked for a report. Binance was asked to provide information on transactions between exchanges and users involved in ransomware, terrorism, darknet markets, and transactions subject to US sanctions.

The agency also requested documents related to the “business rationale” for establishing Binance.US. With the theme of “The Founding of Binance.US and its Relationship with Binance,” it brought together 13 executives and partners, including Zhao, his co-founder Yi He, and his Chief Compliance Officer Samuel Lim. I asked for involved communication. Lim and He are still on Binance.

Reuters reported in January that Lim and other senior employees were aware that Binance’s money laundering checks were not rigorous, according to a company message seen by the news agency. No comment.

In addition to the Department of Justice’s request, the Securities and Exchange Commission also issued a subpoena to BAM Trading Services, the operator of Binance.US, in the same month. The subpoena, reviewed by Reuters, required BAM to provide documents showing whether there were any employees who worked at his main Binance exchange and what services BAM provided to U.S. companies. .
Binance.US did not respond to Reuters’ inquiries. The SEC said it would not comment on possible investigations.

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