Exclusive: Binance served crypto traders in Iran for years despite US sanctions, clients say

LONDON, July 11 (Reuters) – The world’s largest crypto exchange, Binance, continued to process trades from customers in Iran despite US sanctions and a corporate ban on doing business there, a Reuters survey has found.

In 2018, the United States reintroduced sanctions that had been suspended three years earlier as part of Iran’s nuclear deal with major world powers. In November, Binance informed Iranian traders that they would no longer serve them and asked them to close their accounts.

But in interviews with Reuters, seven traders said they went outside the ban. Traders said they continued to use their Binance accounts until as late as September last year, only losing access after the stock market tightened controls on money laundering a month earlier. Until then, customers could shop by registering with just one email address.

“There were some alternatives, but none of them were as good as Binance,” said Asal Alizade, a Tehran trader who said she used the exchange for two years until September 2021. “It did not need identity verification, so we all used it. . “

Eleven other people in Iran in addition to those interviewed by Reuters said on their LinkedIn profiles that they also traded crypto at Binance after the ban in 2018. None of them answered questions.

The stock market’s popularity in Iran was well known in the company. Senior employees knew about, and joked about, the stock exchange’s growing number of Iranian users, according to 10 messages they sent to each other in 2019 and 2020 that are reported here for the first time. “IRAN BOYS”, wrote one of them in response to data showing Binance’s popularity on Instagram in Iran.

Binance did not answer Reuters’ question about Iran. In a blog post in March, published in response to Western sanctions against Russia, Binance said they “strictly follow international sanctions rules” and have put together a “global compliance task force, including world-renowned sanctions and law enforcement experts.” Binance said they used “banking quality tools” to prevent sanctioned individuals or entities from using the platform.

Iran’s mission to the United Nations in New York did not respond to a request for comment.

Iranian trading on the stock exchange may draw interest from US regulators, seven lawyers and sanctions experts told Reuters.

Binance, whose holding company is based in the Cayman Islands, says it does not have a single headquarters. It does not provide details about the device behind the main exchange Binance.com that does not accept customers in the United States. Instead, US customers are sent to a separate exchange called Binance.US, which – according to a 2020 regulatory filing – is eventually controlled by Binance founder and CEO Changpeng Zhao.

Lawyers say that this structure means that Binance is protected from direct US sanctions that prohibit US companies from doing business in Iran. This is because the traders in Iran used Binance’s main exchange, which is not a US company. But Binance risks so-called secondary sanctions, which are aimed at preventing foreign companies from doing business with sanctioned entities or helping Iranians avoid the US trade embargo. In addition to damaging reputation, secondary sanctions can also stifle a company’s access to the US financial system.

Binance’s exposure will depend on whether sanctioned parties traded on the platform and whether Iranian clients avoided the US trade embargo as a result of their transactions, four lawyers said. Non-US exchanges “may face consequences for facilitating sanctioned behavior, where they have exposure to allow the processing of sanctions by sanctioned parties, or if they embark on this type of user,” said Erich Ferrari, chief lawyer at Ferrari & Associates law firm in Washington.

Reuters found no evidence that sanctioned individuals used Binance.

When asked about traders in Iran using Binance, a spokesman for the US Treasury Department declined to comment.

Binance kept weak compliance checks on its users until last year, despite concerns raised by some senior company figures, Reuters reported in January, drawing on interviews with former senior employees, internal messages and correspondence with national regulators. The stock exchange said in response that it pushed industry standards higher. Reuters’ new reporting shows for the first time how the gaps in Binance’s compliance program allowed Iranian traders to trade on the stock exchange.

Binance dominates the $ 950 billion crypto industry, offering its 120 million users a variety of digital coins, derivatives and non-fungible tokens, and processes trades worth hundreds of billions of dollars a month. The exchange is becoming increasingly mainstream. Billionaire founder Zhao – known as CZ – this year expanded the reach of traditional business by promising $ 500 million to Tesla CEO Elon Musk’s planned takeover of Twitter. Musk has since said he is withdrawing from the deal. Last month, Binance hired Portuguese football star Cristiano Ronaldo to promote his NFT business.

“BINANCE PERSIAN”

Since the Islamic Revolution in 1979, the West and the United Nations have imposed sanctions on Iran in response to its nuclear program, along with alleged human rights abuses and support for terrorism. Iran has long claimed that the nuclear program is for peaceful purposes.

Under the 2015 agreement between Iran and six world powers, Tehran curtailed its nuclear program in return for easing some of the sanctions. In May 2018, President Donald Trump dropped the agreement and ordered the reintroduction of the US sanctions that were relaxed under the agreement. The curbs came into force again in August and November of the same year.

Following Trump’s move, Binance added Iran to a list of what they called “sanctioned countries” on the terms of the use agreement, saying they could “restrict or deny” services in such areas. In November 2018, it warned its customers in Iran via email to withdraw their crypto from their accounts “as soon as possible.”

Some Binance executives publicly praised its compliance program. Its then CFO said in a blog from December 2018 that it had invested heavily in counteracting dirty money, saying it took a “proactive approach to detecting and crushing money laundering.” In March of the following year, it hired a US compliance platform to help it investigate sanction risks.

In August 2019, Binance considered Iran – along with Cuba, Syria, North Korea and Crimea – as a “HARD 5 SANCTIONED” jurisdiction, where the stock exchange would not do business, according to an internal document seen by Reuters. The document from May 2020 included Iran on a list of countries with the heading “strictly no”, quotes Chief Compliance Officer Samuel Lim.

Even as Binance’s stance on Iran intensified, the profile of the country’s legions of cryptocurrencies grew, traders said, citing their knowledge of the local industry.

Cryptocurrencies became attractive there as sanctions hit the economy hard. Since bitcoin was born in 2008, users have been attracted to crypto’s promise of economic freedom beyond the reach of governments. Cut off from global financial services, many Iranians relied on bitcoin to do business online, users said.

“Cryptocurrency is a good way to circumvent sanctions and make good money,” said Ali, a trader who spoke on condition that he was identified only by first name. Ali said he used Binance for about a year. He shared messages with Reuters with Binance customer service representatives which showed that the stock exchange closed his account last year. They said Binance was unable to serve users from Iran, citing recommendations from the UN Security Council sanctions lists.

Other traders on the stock exchange cited their weak background checks on customers, as well as its user-friendly trading platform, deep liquidity and a large number of cryptocurrencies that could be traded as reasons for the growth in Iran.

Pooria Fotoohi, who lives in Tehran and says he runs a crypto-hedge fund, said he used Binance from 2017 to September last year. Binance won over Iranians because of its “simple” know-your-customer controls, he said, noting how traders could open accounts simply by entering an email address.

“They succeeded in gaining a huge trading volume, with many currency pairs, in a short time,” Fotoohi said.

Binance’s Angels – volunteers who share information about the exchange around the world – also helped spread the word.

In December 2017, Angels announced the launch of a group called “Binance Persian” on the Telegram messaging app. The group is no longer active. Reuters could not determine how long it operated, but identified at least one Iranian who was an active angel after Washington reintroduced sanctions.

Mohsen Parhizkar was an angel from November 2017 to September 2020, managing the Persian group and helping users, according to his LinkedIn profile. A person who worked with Parhizkar confirmed his role and shared messages they exchanged. Parhizkar, contacted by Reuters, said Binance had canceled programs in Iran due to sanctions. He did not elaborate.

After the ban in 2018, at least three senior Binance employees were aware that the exchange remained popular in Iran and was used by clients there, 10 Telegram and company chat reports between the employees seen by Reuters show.

In September 2019, Tehran was among the best cities for followers of Binance’s Instagram page, and topped New York and Istanbul, shows a message from the same month. The employees then made it easy for this. One jokingly suggested advertising Binance’s popularity in Iran, saying, “Push it on Binance US Twitter.”

In a separate exchange from April 2020, a senior employee also noted that Iranian traders used Binance, without saying how he knew this. A Binance compliance document from the same year, reviewed by Reuters, gave Iran the highest risk assessment of any country for illegal financing.

“BEGINNER’S GUIDE FOR VPNs”

Further supporting Binance’s growth in Iran, traders said, was how easily users could skirt curbs via virtual private networks (VPNs) and tools to hide Internet Protocol (IP) addresses that can connect Internet use to a location. North Korean hackers used VPNs to hide their positions while setting up accounts on Binance to launder stolen crypto in 2020, Reuters reported in June.

Mehdi Qaderi, a business development worker, said he used a VPN to trade crypto at Binance worth $ 4,000 a year until August 2021. “All Iranians used it,” Qaderi said of Binance.

In a guide from 2021 to how sanctions were applied to crypto companies, the US Treasury Department said that there were sophisticated analytical tools that could detect the concealment of IP addresses. Cryptocompanies can also collect information to alert them to users in a sanctioned country, it said, for example from email addresses.

“Crypto exchanges are expected to have this type of measure in place to comply with sanctions,” said Syedur Rahman, legal director at Rahman Ravelli Law Firm in London.

Binance itself had supported the use of VPNs.

Zhao, Binance’s CEO, tweeted in June 2019 that VPNs were “a necessity, not optional.” He deleted the comment by the end of 2020. When asked about the tweet, Binance did not comment. In July of the following year, Binance published a “Beginner’s Guide to VPNs” on its Web site. One of the tips: “You may want to use a VPN to access blocked sites in your country.”

Zhao was aware of cryptocurrencies that circumvented Binance’s controls in general. He told interviewers in November 2020 that “users find intelligent ways to get around our block sometimes, and we just have to be smarter with the way we block.”

((Reported by Tom Wilson and Angus Berwick; edited by Janet McBride))

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