Binance Feels Strain of World’s Regulators Leaping Into Action

Australian officials directly sought out current and former employees of Binance’s operation there this week, demanding copies of internal communications and data from their personal devices, according to a person familiar with the government’s move against the leading crypto exchange, which marked the latest in a pile-up of legal troubles facing the company.

The representatives of Binance were individually contacted by the Australian Securities and Investments Commission (ASIC) outside the company’s offices this week in a coordinated effort, the person said, marking yet another jurisdiction in which government watchdogs are closing in.

From weighty accusations by U.S. regulators, to a French raid, to a denial of licensing by the Dutch, to this probe in Australia, Binance is facing legal headwinds in many parts of the world, while its CEO is denying that a spate of departures of key legal and compliance executives is cause for concern.

The exchange had operated for years without serious regulatory intervention, but the arrival of some of those cases has pushed the company onto its heels. In the last month since the U.S. Securities and Exchange Commission aimed a shotgun blast of charges at Binance and CEO Changpeng “CZ” Zhao, the company has seen substantial customer withdrawals and watched its native BNB token slip 17%. The U.S. Commodity Futures Trading Commission had made similar accusations against Binance earlier in the year, alleging the company deliberately evaded government oversight.

“If the allegations against Binance are true, they implicate very serious criminal and civil misconduct, including national-security related issues,” said Alex Zerden, a former U.S. Treasury Department official who is founder and CEO of advisory firm Capitol Peak Strategies. “And given the exchange’s global footprint, the investigation into Binance and these allegations would likely span multiple jurisdictions and require sustained cooperation among multiple jurisdictions.”

The latest case from ASIC centers on Binance Australia’s former derivatives operations, a spokesman for the company told CoinDesk, insisting that its offices weren’t visited by the investigators. While the company still runs a spot-trading exchange in the country, its futures products were shut down earlier this year.

ASIC confirmed an “ongoing” investigation with Binance, but a spokesperson said the regulator is “unable to confirm or deny any operational detail such as possible searches.”

Binance had also been raided by the public prosecutor in Paris last month on suspicion of “aggravated money laundering” and providing “illegal” services. The investigation there is tied to claims Binance improperly operated as a digital asset service provider before receiving regulatory approval in May 2022, and accusations it engaged in “aggravated money laundering by taking part in investment operations, concealment and conversion.”

The world’s biggest cryptocurrency exchange withdrew from the Netherlands last month when it couldn’t get the Dutch financial regulator to give it a virtual asset service provider (VASP) license, which attests that a company can clear the bar for local anti-money laundering (AML) requirements.

This week, reports have suggested that several key executives have exited Binance, including its general counsel, chief strategy officer, senior vice president for compliance and chief business officer. CZ tweeted Friday that there’s “turnover at every company,” and downplayed media suggestions that some people left because of how he was handling a U.S. Department of Justice (DOJ) investigation of Binance.

The glut of pushback, lawsuits and investigations as countries in which Binance operates have simultaneously chosen to make their cases could suggest their regulators and prosecutors are comparing notes.

“Cross-border information sharing is generally cumbersome,” said Zerden, who is also an adjunct senior fellow at the Center for a New American Security. Working across borders “can be incredibly frustrating for law enforcement and regulatory officials,” but when friendly jurisdictions have similar concerns, the work can move much more quickly.

“Binance remains committed to cooperating with requests from regulators,” the spokesman said this week.

Apart from the specifics surrounding Binance, its troubles could be amplified by its famous absence of a home base – a situation that governments may lose patience with.

“The operating environment is going to be more difficult for entities that want to operate in an undefined regulatory location,” said Yaya Fanusie, director of policy for AML and cyber risk at the Crypto Council for Innovation. “There’s growing impatience among both regulators and compliant actors with firms that try to play regulatory arbitrage.”

The absence so far of criminal charges against Binance officials doesn’t necessarily mean the individuals haven’t already been indicted, such as by a U.S. grand jury. Some of the accusations by the U.S. securities and derivatives agencies suggest deliberate violations of law, though if sealed charges exist, they probably wouldn’t become apparent until executives come within reach of U.S. law enforcement and arrests are made.

One recent example was the Florida arrest of the founder of Hong Kong-based platform Bitzlato Ltd., Anatoly Legkodymov, when the Russian citizen showed up in Florida. That action against Legkodymov and the exchange was coordinated by the U.S. DOJ and French authorities. In that money-laundering case, a division of the U.S. Treasury named Binance as one of Bitzlato’s chief counterparties.

Binance continues doing business around the world despite its legal woes, though the accusations have done significant damage. The company’s U.S. arm, Binance.US, cut its staff and halted dollar deposits – converting into an all-crypto exchange – in the days after the SEC case emerged, saying in court filings it lost banking services. More recently, Binance’s euros banking partner, Paysafe Payment Solutions, announced it would stop supporting the crypto exchange after Sept. 25, forcing the company to seek another way to handle euro deposits and withdrawals.

So far, like rival Coinbase, Binance has begun battling the SEC in U.S. federal courts, where a number of crypto industry legal questions are already hanging in the balance.

“Guidance from experienced and competent legal counsel is essential,” said Joshua Klayman, who leads the digital-assets arm of the law firm Linklaters in the U.S. “For companies in the digital asset space, in my view, this means a legal team that understands the relevant business and technology, as well as deep knowledge of the legal and regulatory landscape that has been unfolding over the past several years.”

The SEC has sought to control Binance’s flow of cash, with the regulator citing concerns that the exchange could make off with the funds of U.S. customers. In that fight, Binance recently enlisted M. Kendall Day, a former acting deputy assistant attorney general at the DOJ, adding the former U.S. prosecutor to its legal team that already includes prominent ex-DOJ and SEC officials.

Jack Schickler contributed reporting.

UPDATE (July 7, 2023, 17:54 UTC): Ads comment from Joshua Klayman.

DISCLOSURE

Learn more about Consensus 2024, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.

Australian officials directly sought out current and former employees of Binance’s operation there this week, demanding copies of internal communications and data from their personal devices, according to a person familiar with the government’s move against the leading crypto exchange, which marked the latest in a pile-up of legal troubles facing the company.

The representatives of Binance were individually contacted by the Australian Securities and Investments Commission (ASIC) outside the company’s offices this week in a coordinated effort, the person said, marking yet another jurisdiction in which government watchdogs are closing in.

From weighty accusations by U.S. regulators, to a French raid, to a denial of licensing by the Dutch, to this probe in Australia, Binance is facing legal headwinds in many parts of the world, while its CEO is denying that a spate of departures of key legal and compliance executives is cause for concern.

The exchange had operated for years without serious regulatory intervention, but the arrival of some of those cases has pushed the company onto its heels. In the last month since the U.S. Securities and Exchange Commission aimed a shotgun blast of charges at Binance and CEO Changpeng “CZ” Zhao, the company has seen substantial customer withdrawals and watched its native BNB token slip 17%. The U.S. Commodity Futures Trading Commission had made similar accusations against Binance earlier in the year, alleging the company deliberately evaded government oversight.

“If the allegations against Binance are true, they implicate very serious criminal and civil misconduct, including national-security related issues,” said Alex Zerden, a former U.S. Treasury Department official who is founder and CEO of advisory firm Capitol Peak Strategies. “And given the exchange’s global footprint, the investigation into Binance and these allegations would likely span multiple jurisdictions and require sustained cooperation among multiple jurisdictions.”

The latest case from ASIC centers on Binance Australia’s former derivatives operations, a spokesman for the company told CoinDesk, insisting that its offices weren’t visited by the investigators. While the company still runs a spot-trading exchange in the country, its futures products were shut down earlier this year.

ASIC confirmed an “ongoing” investigation with Binance, but a spokesperson said the regulator is “unable to confirm or deny any operational detail such as possible searches.”

Binance had also been raided by the public prosecutor in Paris last month on suspicion of “aggravated money laundering” and providing “illegal” services. The investigation there is tied to claims Binance improperly operated as a digital asset service provider before receiving regulatory approval in May 2022, and accusations it engaged in “aggravated money laundering by taking part in investment operations, concealment and conversion.”

The world’s biggest cryptocurrency exchange withdrew from the Netherlands last month when it couldn’t get the Dutch financial regulator to give it a virtual asset service provider (VASP) license, which attests that a company can clear the bar for local anti-money laundering (AML) requirements.

This week, reports have suggested that several key executives have exited Binance, including its general counsel, chief strategy officer, senior vice president for compliance and chief business officer. CZ tweeted Friday that there’s “turnover at every company,” and downplayed media suggestions that some people left because of how he was handling a U.S. Department of Justice (DOJ) investigation of Binance.

The glut of pushback, lawsuits and investigations as countries in which Binance operates have simultaneously chosen to make their cases could suggest their regulators and prosecutors are comparing notes.

“Cross-border information sharing is generally cumbersome,” said Zerden, who is also an adjunct senior fellow at the Center for a New American Security. Working across borders “can be incredibly frustrating for law enforcement and regulatory officials,” but when friendly jurisdictions have similar concerns, the work can move much more quickly.

“Binance remains committed to cooperating with requests from regulators,” the spokesman said this week.

Apart from the specifics surrounding Binance, its troubles could be amplified by its famous absence of a home base – a situation that governments may lose patience with.

“The operating environment is going to be more difficult for entities that want to operate in an undefined regulatory location,” said Yaya Fanusie, director of policy for AML and cyber risk at the Crypto Council for Innovation. “There’s growing impatience among both regulators and compliant actors with firms that try to play regulatory arbitrage.”

The absence so far of criminal charges against Binance officials doesn’t necessarily mean the individuals haven’t already been indicted, such as by a U.S. grand jury. Some of the accusations by the U.S. securities and derivatives agencies suggest deliberate violations of law, though if sealed charges exist, they probably wouldn’t become apparent until executives come within reach of U.S. law enforcement and arrests are made.

One recent example was the Florida arrest of the founder of Hong Kong-based platform Bitzlato Ltd., Anatoly Legkodymov, when the Russian citizen showed up in Florida. That action against Legkodymov and the exchange was coordinated by the U.S. DOJ and French authorities. In that money-laundering case, a division of the U.S. Treasury named Binance as one of Bitzlato’s chief counterparties.

Binance continues doing business around the world despite its legal woes, though the accusations have done significant damage. The company’s U.S. arm, Binance.US, cut its staff and halted dollar deposits – converting into an all-crypto exchange – in the days after the SEC case emerged, saying in court filings it lost banking services. More recently, Binance’s euros banking partner, Paysafe Payment Solutions, announced it would stop supporting the crypto exchange after Sept. 25, forcing the company to seek another way to handle euro deposits and withdrawals.

So far, like rival Coinbase, Binance has begun battling the SEC in U.S. federal courts, where a number of crypto industry legal questions are already hanging in the balance.

“Guidance from experienced and competent legal counsel is essential,” said Joshua Klayman, who leads the digital-assets arm of the law firm Linklaters in the U.S. “For companies in the digital asset space, in my view, this means a legal team that understands the relevant business and technology, as well as deep knowledge of the legal and regulatory landscape that has been unfolding over the past several years.”

The SEC has sought to control Binance’s flow of cash, with the regulator citing concerns that the exchange could make off with the funds of U.S. customers. In that fight, Binance recently enlisted M. Kendall Day, a former acting deputy assistant attorney general at the DOJ, adding the former U.S. prosecutor to its legal team that already includes prominent ex-DOJ and SEC officials.

Jack Schickler contributed reporting.

UPDATE (July 7, 2023, 17:54 UTC): Ads comment from Joshua Klayman.

DISCLOSURE

Learn more about Consensus 2024, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.