Report Reveals Binance Has Lapse in Compliance

Binance has been accused of arbitrary policies.

The world’s largest cryptocurrency exchange Binance is being accused of lax money laundering checks.

It has an opaque structure that makes things complicated, Reuters revealed in an investigative report.

The report is based on confidential documents and interviews with the Binance staff and business associates.

Conflict with Regulators Around the World

As per the report, in 2018, Binance was in talks with Malta authorities to move the exchange headquarters there. Maltese regulators formulated a license for the exchange. But to their dismay, Binance did not agree to the stringent anti-money laundering protocols and the level of financial disclosure required. The following year Binance withdrew from the deal. Still, for months it kept on telling its customers that its terms of use were “governed under the laws of Malta.”

Former Binance employees told Reuters that they voiced concerns to Changpeng Zhao (founder of Binance) about weak “know-your-customer” (KYC) checks to prevent money laundering but he ignored them.

In 2021, the exchange had a rollercoaster ride with regulators who kept on issuing caveats or suspending its license. Binance has exited Singapore and Malaysia. Moreover, it received warnings from more than 10 other countries.

Arbitrary Policies of Binance

The compliance department of the exchange produced a risk rating document and circulated it internally in mid-2020, showing that 33 countries and territories, including Russia and Ukraine, were considered to have “extreme” risk levels. As per the internal rules of Binance, the firm should not accept customers in those countries. But the company acted against its policy and kept on acquiring new customers in those countries.

German Fiasco

An example of Binance’s nonchalance is its row with German regulators.

Between May 2021 and July 2021, German regulators sent 44 letters, all reviewed by Reuters, asking Binance to provide information about transactions worth a total of at least 2 million euros. This money was stolen from German residents and laundered through Binance. 

This happened because Binance had arbitrarily changed its scrutiny policy.

Initially, it would scrutinise a user closely if they deposited over 10,000 euros ($11,000) in one go. Later, the exchange increased the threshold to 100,000 euros. Almost all the transfers, of the aforementioned stolen 2 million euros, were above the 10,000-euro threshold.

Furthermore, German authorities accused Binance of being used as a medium of terror financing.

Binance operates as an umbrella of associated local subsidiaries. It is of the opinion that the decentralized governance model conforms to the ethos of decentralization of cryptoverse.

Cryptocurrency regulation is a hotly debated issue around the globe. Since crypto-assets are transnational in nature, their regulation would need global cooperation to have uniform standards. This fragmentation of perspectives has created complications for regulators.

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