Binance Faces Probe by U.S. Money-Laundering and Tax Sleuths

*Justice Department, IRS seek information about crypto
exchange
*The federal agencies haven’t accused Binance of
wrongdoing

[Bloomberg] 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.

In the U.S., authorities have been cracking down on exchanges
for flouting laws that are meant to prevent financial crimes, with
officials citing the platforms use by terrorists and hackers. Tax
violations have also been a priority, with the government recently
winning a court order as it seeks to unmask U.S. clients of Kraken,
a San Francisco-based exchange.

In October, federal prosecutors in Manhattan announced charges
against the founders of Seychelles-based BitMEX, accusing them of
violating the Bank Secrecy Act by permitting thousands of U.S.
customers to trade while publicly claiming to restrict their
access. The claims included failing to register as a futures
merchant with the CFTC and not having adequate anti-money
laundering controls. Three of the BitMex officials pleaded not
guilty and a trial has been scheduled for March 2022. One remains
at large.

Washington Presence
With the U.S. circling, Binance has stepped up its presence in
Washington and retained a former Treasury Department official and
top white-collar defense lawyers to represent it in legal cases and
matters being reviewed by regulators. In March, the firm tapped
former U.S. Senator Max Baucus, a Montana Democrat, to advise it on
policy and government relations.

In September 2019, Binance partnered with a firm called BAM
Trading Services Inc., which launched Binance.US to cater to
American clients. Brian Brooks, who was a top banking regulator
when he led the Office of the Comptroller of the Currency during
the Trump administration, became chief executive officer of
Binance.US this month.

Amid the hiring blitz, the company has popped up in U.S. cases
tied to criminal activity. In February, two Florida men were
charged with running an online fentanyl trafficking operation, with
one of them accused of depositing the proceeds in a Binance
account. That same month, the Justice Department sought the
forfeiture of cryptocurrency worth $450,000 traced from ransomware
attacks that hit several U.S. companies to a Binance account held
by a 20-year-old Ukrainian national. The government didn’t accuse
Binance of wrongdoing in either enforcement action.

Disguising Locations
Along with the CFTC, the Justice Department is likely to examine
steps that Binance has taken to keep U.S. residents off its
exchange. One person familiar with Binance’s operations said that
prior to the establishment of Binance.US, Americans were advised to
use a virtual proxy network, or VPN, to disguise their locations
when seeking to access the exchange.

Jung, the Binance spokeswoman, said the exchange has never
encouraged U.S. residents to use VPNs to get around its rules, as
doing so would be something “that has always been contrary to our
company’s principles.” In January, Zhao tweeted that Binance’s
security systems block Americans even if they try to connect
through one of the networks.

“We have implemented strong access controls that have been
tested via external audit and are under continuous review and
evaluation by Binance to ensure that the appropriate restrictions
are in place and are effective,” Jung said.

*Justice Department, IRS seek information about crypto
exchange
*The federal agencies haven’t accused Binance of
wrongdoing

[Bloomberg] 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.

In the U.S., authorities have been cracking down on exchanges
for flouting laws that are meant to prevent financial crimes, with
officials citing the platforms use by terrorists and hackers. Tax
violations have also been a priority, with the government recently
winning a court order as it seeks to unmask U.S. clients of Kraken,
a San Francisco-based exchange.

In October, federal prosecutors in Manhattan announced charges
against the founders of Seychelles-based BitMEX, accusing them of
violating the Bank Secrecy Act by permitting thousands of U.S.
customers to trade while publicly claiming to restrict their
access. The claims included failing to register as a futures
merchant with the CFTC and not having adequate anti-money
laundering controls. Three of the BitMex officials pleaded not
guilty and a trial has been scheduled for March 2022. One remains
at large.

Washington Presence
With the U.S. circling, Binance has stepped up its presence in
Washington and retained a former Treasury Department official and
top white-collar defense lawyers to represent it in legal cases and
matters being reviewed by regulators. In March, the firm tapped
former U.S. Senator Max Baucus, a Montana Democrat, to advise it on
policy and government relations.

In September 2019, Binance partnered with a firm called BAM
Trading Services Inc., which launched Binance.US to cater to
American clients. Brian Brooks, who was a top banking regulator
when he led the Office of the Comptroller of the Currency during
the Trump administration, became chief executive officer of
Binance.US this month.

Amid the hiring blitz, the company has popped up in U.S. cases
tied to criminal activity. In February, two Florida men were
charged with running an online fentanyl trafficking operation, with
one of them accused of depositing the proceeds in a Binance
account. That same month, the Justice Department sought the
forfeiture of cryptocurrency worth $450,000 traced from ransomware
attacks that hit several U.S. companies to a Binance account held
by a 20-year-old Ukrainian national. The government didn’t accuse
Binance of wrongdoing in either enforcement action.

Disguising Locations
Along with the CFTC, the Justice Department is likely to examine
steps that Binance has taken to keep U.S. residents off its
exchange. One person familiar with Binance’s operations said that
prior to the establishment of Binance.US, Americans were advised to
use a virtual proxy network, or VPN, to disguise their locations
when seeking to access the exchange.

Jung, the Binance spokeswoman, said the exchange has never
encouraged U.S. residents to use VPNs to get around its rules, as
doing so would be something “that has always been contrary to our
company’s principles.” In January, Zhao tweeted that Binance’s
security systems block Americans even if they try to connect
through one of the networks.

“We have implemented strong access controls that have been
tested via external audit and are under continuous review and
evaluation by Binance to ensure that the appropriate restrictions
are in place and are effective,” Jung said.