News
Binance Faces Probe by U.S. Money-Laundering and Tax Sleuths
17 May 2021

Binance Holdings Ltd. is under investigation by the Justice Department and Internal Revenue Service, ensnaring the world’s biggest cryptocurrency exchange in U.S. efforts to root out illicit activity that’s thrived in the red-hot but mostly unregulated market.

As part of the inquiry, officials who probe money laundering and tax offenses have sought information from individuals with insight into Binance’s business, according to people with knowledge of the matter who asked not to be named because the probe is confidential. Led by Changpeng Zhao, a charismatic tech executive who relishes promoting tokens on Twitter and in media interviews, Binance has leap-frogged rivals since he co-founded it in 2017.

The firm, like the industry it operates in, has succeeded largely outside the scope of government oversight. Binance is incorporated in the Cayman Islands and has an office in Singapore but says it lacks a single corporate headquarters. Chainalysis Inc., a blockchain forensics firm whose clients include U.S. federal agencies, concluded last year that among transactions that it examined, more funds tied to criminal activity flowed through Binance than any other crypto exchange.

“We take our legal obligations very seriously and engage with regulators and law enforcement in a collaborative fashion,” Binance spokeswoman Jessica Jung said in an emailed statement, while adding that the company doesn’t comment on specific matters or inquiries. “We have worked hard to build a robust compliance program that incorporates anti-money laundering principles and tools used by financial institutions to detect and address suspicious activity.”

Spokespeople for the Justice Department and IRS declined to comment.

U.S. Concerns

U.S. officials have expressed concerns that cryptocurrencies are being used to conceal illegal transactions, including theft and drug deals, and that Americans who’ve made windfalls betting on the market’s meteoric rise are evading taxes. Such worries have been a hindrance to the industry going mainstream, even as Wall Street increasingly embraces Bitcoin and other tokens amid a global investing frenzy.

This month’s cyber-attack against Colonial Pipeline Co. that’s triggered fuel shortages across the Eastern U.S. is the latest sign of what’s at stake. Colonial paid Eastern European hackers a nearly $5 million ransom in untraceable cryptocurrency within hours of the breach, Bloomberg News reported Thursday, citing two people familiar with the matter.

Bitcoin losses accelerated Thursday after Bloomberg reported the investigation into Binance.

While the Justice Department and IRS probe potential criminal violations, the specifics of what the agencies are examining couldn’t be determined, and not all inquiries lead to allegations of wrongdoing.

The officials involved include prosecutors within the Justice Department’s bank integrity unit, which probes complex cases targeting financial firms, and investigators from the U.S. Attorney’s Office in Seattle. The scrutiny by IRS agents goes back months, with their questions signaling that they’re reviewing both the conduct of Binance’s customers and its employees, another person said.

The U.S. Commodity Futures Trading Commission has also been investigating Binance over whether it permitted Americans to make illegal trades, Bloomberg reported in March. In that case, authorities have been examining whether Binance let investors buy derivatives that are linked to digital tokens. U.S. residents are barred from purchasing such products unless the firms offering them are registered with the CFTC.

Analyzing Transactions

Zhao has said Binance closely follows U.S. rules, blocks Americans from its website, and uses advanced technology to analyze transactions for signs of money laundering and other illicit activity. Last year, the firm warned that U.S. residents would have their accounts frozen if they were found to be trading, crypto trade publications have reported.

The inquiries follow a Chainalysis report on criminal transactions involving digital tokens. The firm tracked Bitcoin worth $2.8 billion that it suspects crooks moved on to trading platforms in 2019. Chainalysis determined that roughly 27%, or $756 million, wound up on Binance. Binance responded by saying it adheres to all anti-money laundering regulations in the jurisdictions in which it operates and works with partners like Chainalysis to improve its systems.

By Tom Schoenberg, Bloomberg, 13 May 2021

Read more at Bloomberg

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