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US Department of Justice Investigates Binance for Possible Violation of Bank Secrecy Act

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There is an ongoing United States Department of Justice (DOJ) investigation into whether digital asset exchange Binance violated the Bank Secrecy Act (BSA). The probe was initiated in 2018, and now, the DOJ is seeking internal documents, including emails from Binance CEO Changpeng Zhao (CZ), to see if the cryptocurrency exchange is complying with anti-money laundering (AML) standards.

Reuters reported that the DOJ’s AML division sent Binance a written request in December 2020 seeking “extensive” internal records, including messages exchanged between Zhao and 12 other Binance executives regarding the exchange’s “detection of illegal transactions and recruitment of U.S. customers.” However, the records that the DOJ needed were allegedly missing.

Executives Break Out in Cold Sweat

One of the dozen executives allegedly phoned an advisor in a “panicked” state because the DOJ-requested records were deleted. The missing data reportedly cover CZ making financial choices on behalf of the Binance.US exchange, which contradicts his previous statement that it is a distinct entity with a separate decision-making body.

Changpeng Zhao (CZ) said that Binance US is completely separate from Binance, and that it only licenses the technology from Binance.

Once again, that has been proven to been another lie.

Here’s Binance US’s corporate organization. pic.twitter.com/yFT9yYKvJq

— Bitfinex’ed Κασσάνδρα (@Bitfinexed) December 18, 2022

In 2021, CZ hired business executive Brian Shroder to run Binance.US, who quickly put pressure on the compliance department to ease its AML procedures for new clients, including bypassing account sign-ups using only an email address, which does not meet current know-your-customer (KYC) standards.

The exchange’s lax AML controls led to it allegedly process over $10 billion in transfers for criminals and organizations seeking to skirt sanctions and elude U.S. and international regulators.

In response to the probe, CZ tweeted that the exchange had complied with the request because it is “important for the industry to build trust with regulators.” Binance has a long history of publicly taking the high road while blatantly ignoring regulations until caught red-handed.

Other countries’ regulators have either fined Binance or issued public warnings to their residents that any funds left in Binance’s custody are beyond the regulators’ ability to protect. But none of this appears to have registered with CZ, who continues to portray himself and his company as perpetual victims of mistaken investigations.

Binance is under investigation for the specific charges of unlicensed money transmission, money laundering conspiracy and criminal sanctions violations. However, no formal charges have been filed against Binance as of yet.

 

Binance’s Defense: Everyone’s Lying

Last year, CZ went on a recruitment spree that included hiring personnel from the Internal Revenue Service’s (IRS) Criminal Investigation branch, the actual department that was probing Binance. However, instead of promoting transparency, CZ imposed strict confidentiality restrictions on his employees, directing them to use email as little as possible and instead communicate using encrypted messaging services that are equipped with “automatic self-erasing messages.”

Internal communications from 2019 to 2020 showed senior Binance employees joking about the exchange’s sustained popularity in Iran. Iran-based traders used virtual private networks (VPNs) to mask their IP addresses in accessing Binance, a practice CZ openly backed in a June 2019 tweet, which has since been deleted.

Evidence that Binance helped Iranian enterprises avoid the U.S. trade ban will lead to regulatory action against the exchange. Sanctions experts and lawyers remarked Binance might also suffer a backlash from U.S. regulatory bodies, particularly if it can be proven that specific sanctioned individuals used the exchange.

Binance responded that these are all lies created by Binance’s rivals, crypto opponents, the government, or all of the above. The popular exchange went so far as to explain that the Reuters report used “outdated” descriptions for Binance’s compliance measures, and that there was no truth to the accusations because, contrary to popular belief, compliance is its top priority.

Safeguarding Binance’s Future

At present, there are three separate DOJ offices involved in the Binance investigation. The Money Laundering and Asset Recovery Section (MLARS), the chief of which must approve money laundering charges against a financial institution according to DOJ regulations; the National Cryptocurrency Enforcement Team (NCET); and the U.S. Attorney’s Office for the Western District of Washington.

Most in the DOJ, which includes NCET, are allegedly satisfied that they have enough evidence to charge CZ and other Binance executives, but MLARS has been dragging its heels. Many are speculating that this is due to Binance having recruited Kendall Day, a Gibson Dunn partner and former MLARS chief, to mediate with the DOJ. Day allegedly proposed an out-of-court settlement where Binance agrees to pay significant monetary penalties.

It seems that CZ is doing everything he can, which includes exorbitant spending and making use of connections, in order to safeguard Binance’s future, as well as his own. On top of avoiding business closure and jail time, CZ has managed to downplay the four-year investigation so far.

However, MLARS recently appointed a new chief in the person of Brent Wible, who used to be a prosecutor in the Southern District of New York and the acting co-principal deputy chief of the DOJ Criminal Division’s Fraud Section. Because Wible was part of offices known for aggressively pursuing investigations, there is hope yet that the truth behind Binance’s violations will come to light.

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