Binance Is Feeling Pressure for Global Regulators to Act Quickly
Australian officials this week searched for former and current employees of Binance operations in Australia. They demanded copies of their internal communications and personal information, according to someone familiar with the government’s crackdown on the leading cryptocurrency exchange. This was the latest legal trouble for the company.
ASIC has been contacting Binance representatives outside of their offices this week in a coordinated manner, one person told me. This is another jurisdiction where government regulators are on the rise.
Binance is facing legal challenges in several countries including the United States, France, the Netherlands and Australia. However, the CEO denies that the departure of his key compliance and legal managers should be a cause for concern.
The exchange functioned without major regulatory intervention for many years, but some of these cases have pushed it into the background. Binance has seen its BNB token drop sharply and a large number of withdrawals since the US Securities and Exchange Commission launched sweeping indictments against the exchange and its CEO Changpeng Zhao. Binance was also accused by the US Commodity Futures Trading Commission earlier this year of evading government oversight.
Alex Zerden is Founder and CEO of Capitol Peak Strategies, a consulting firm. He was a former US Treasury Department employee. Investigating Binance would require multi-jurisdictional cooperation given its global reach.
ASIC’s latest case centers on Binance Australia’s former derivatives business, a company spokesman told AskFX. He insisted investigators did not visit the offices. The company still operates a spot trading exchange in Australia, but its futures products have been closed since the beginning of the year.
ASIC confirmed it has an “ongoing investigation” with Binance. However, a spokesman for the regulator said that “operational details such as possible searches could neither be confirmed nor denied”.
Binance was also searched by Paris prosecutors last month on suspicion of providing “illegal services” and “serious” money laundering. Binance is accused of unlawfully acting as a digital asset service provider prior to receiving regulatory approval on May 20, 2022. Binance has also been accused of “enhanced money laundering by engaging in investment deals, hiding and converting”
The largest cryptocurrency exchange in the world withdrew from the Netherlands last month after failing to obtain a license for a Virtual Asset Services Provider (VASP ) which certifies that a company can comply with local anti-money laundering requirements.
Over the past week, multiple reports suggested that Binance’s top executives, including the Chief Strategy Officer and General Counsel, as well as the Senior Vice President of Compliance and Chief Executive Officer, had left the company. CZ tweeted on Friday that “every company has revenue,” downplaying media claims that some people have migrated to Binance as a result of its handling of a U.S. Department of Justice investigation.
It is possible that regulators and prosecutors in the countries where Binance operates exchange notes.
Zerden is Associate Senior Fellow and Associate Professor at the Center for a New American Security. He said that sharing information across borders is a cumbersome process. Working across borders can be frustrating for law enforcement or regulatory officials, but things move faster when there are similar concerns in friendly jurisdictions.
Binance is committed to working with regulators, the spokesman said this week.
Binance’s problems could be amplified, not only by Binance’s specifics, but also because it is notorious for its lack of a base. Governments could lose patience.
Yaya Faunusie, Director of Policy for AML and Cyber Risk at the Crypto Council for Innovation, said that “the operating environment is becoming more difficult for companies looking to operate in an undefined regulatory space.” There is a growing level of Impatience between regulators and compliance actors towards companies trying to manipulate regulatory rules.
Binance officials have not yet been charged with any criminal offenses, but that doesn’t mean they’ve never been indicted by a grand jury. The US securities and derivatives agencies have made a number of allegations that suggest intentional violations of the law. However, if there are sealed indictments, they are unlikely to be disclosed until the executives reach US authorities and are arrested.
Anatoly Legkodymov was arrested in Florida while posing as a Russian citizen. The US Department of Justice coordinated the action against Legkodymov and the exchange. Binance has been named as Bitzlato’s main counterparty in this money laundering investigation by a department of the US Treasury Department.
Binance is still in business worldwide despite legal problems. However, the allegations have caused significant damage. Binance.US’ U.S. subsidiary, Binance.US, cut staff, halted dollar deposits and transitioned into a crypto-only exchange in the days following the SEC lawsuit. In court documents, she claimed to have lost banking services. Paysafe Payment Solutions announced that it will no longer support Binance as a euro banking partner after September 25, forcing the company to find another way to process euro withdrawals and deposits.
Binance, along with its rival Coinbase, has already started fighting the SEC in a US federal court, where several legal issues related to the crypto industry are currently at issue.
Joshua Klayman is the Head of Digital Assets at Linklaters in the US. He said companies operating in this space need a legal team with a deep understanding of business and technology, as well as specialized knowledge of the evolving legal and regulatory environment.
Binance has been under pressure from the SEC to limit its cash flow. The regulator fears Binance could be stealing funds from US customers. Binance recently added M. Kendall Day to its legal team, which already includes former DOJ and SEC officials. The earlier US prosecution was launched as part of the fight against Binance.
Jack Schickler contributed to the coverage.
UPDATE (July 7, 2023 at 17:54 UTC).Commentary on ads by Joshua Klayman
