Exclusive: US seeks documents on Binance chief for crypto money laundering probe

LONDON, Sept 1 (Reuters) – U.S. federal prosecutors have asked Binance, the world’s largest cryptocurrency exchange, to provide extensive internal documents about its anti-money laundering controls, along with communications involving CEO and founder Changpeng Zhao, according to a late- Written 2020 request seen by Reuters.

The Justice Department’s anti-money laundering section asked Binance to voluntarily hand over statements from Zhao and 12 other executives and partners on matters including the exchange’s discovery of illegal transactions and recruitment of American clients. It also sought company documents with instructions that “documents be destroyed, altered or removed from Binance’s files” or “transferred from the United States.”

The December 2020 request, which has not been previously reported, was part of a Justice Department investigation into Binance’s compliance with US economic crime laws, which remains ongoing, four people familiar with the probe said.

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U.S. authorities, the people said, are investigating whether Binance violated the Bank Secrecy Act. This requires crypto exchanges to register with the Treasury Department and comply with anti-money laundering requirements if they conduct “substantial” business in the United States. The law, designed to protect the US financial system from illicit finance, carries a prison sentence of up to 10 years.

Reuters could not determine how Binance and Zhao, one of the most prominent figures in the crypto sector, responded to the request from the department’s criminal division.

In response to Reuters’ questions about the letter and the investigation, Binance Chief Communications Officer Patrick Hillmann said: “Regulators around the world are reaching out to all major crypto exchanges to better understand our industry. This is a standard process for any regulated organization and we are working with agencies regularly to answer any questions they may have.” Binance has “an industry-leading global security and compliance team” with over 500 employees, including former regulators and law enforcement agents, Hillmann added.

He did not say how Binance responded to the Justice Department request. A spokesman for the ministry declined to comment.

The request reveals the broad scope of the US investigation into Binance. The probe’s existence was reported last year by Bloomberg, but until now little has been known about it. A spokeswoman for Binance told Bloomberg at the time: “We take our legal obligations very seriously and are cooperating with regulators and law enforcement in a cooperative manner.”

The letter made 29 separate requests for documents produced since 2017, covering the company’s management, structure, finances, anti-money laundering and sanctions, and operations in the United States. “Binance is requested to produce all documents and materials consistent with this letter in its possession, custody or control,” it said.

Binance was launched by Zhao, known as CZ, in Shanghai in 2017 and as of July controlled over half of the world’s crypto trading markets, processing more than $2 trillion worth of transactions that month. Born in China and educated in Canada, where he holds citizenship, Zhao told Bloomberg in March that he will be based for the “foreseeable future” in Dubai, which that month granted Binance a license to conduct some operations.

A series of Reuters articles this year revealed how Binance fueled its explosive growth while keeping weak customer checks and withholding information from regulators. Reuters found that the holes in Binance’s compliance program allowed criminals to launder at least $2.35 billion in illegal funds through the exchange, which also benefited traders in Iran despite US sanctions. Until mid-2021, Binance customers could trade crypto by registering with just an email address.

Binance disputed Reuters’ findings, calling them “outdated.” The exchange said it “drives higher industry standards” and seeks to “further improve our ability to detect illegal crypto activity on our platform.” It said it does not consider Reuters’ calculations of illicit money flows to be accurate.

US SCRUTINY

Crypto exchanges are under increasing scrutiny in the US, where top government officials including Treasury Secretary Janet Yellen this year have publicly supported greater regulation of the sector. In February, the Department of Justice established a National Cryptocurrency Enforcement Team to “address the growth of crime involving these technologies,” with a focus on exchanges.

That month, the founders of another exchange, BitMEX, pleaded guilty to violating the Bank Secrecy Act and were later sentenced to up to two and a half years of probation. BitMEX agreed to pay a $100 million fine to settle separate charges of violating the law. BitMEX now says it is “fully committed to conducting its business in compliance with all applicable laws” and has made “significant investments” in its compliance program.

The Justice Department’s 2020 letter was addressed to Binance Holdings Ltd., a Cayman Islands company, and to Roberto Gonzalez, a Washington-based attorney at the Paul, Weiss law firm. Binance Holdings owns the Binance trademark and is owned by Zhao, according to regulatory filings. Gonzalez and Paul, Weiss did not respond to requests for comment.

Binance has an opaque corporate structure. It has declined to provide details on the ownership or location of its main Binance.com exchange, which has not accepted customers in the US since mid-2019. Customers there are instead directed to a separate US-based exchange called Binance.US, which also controlled by Zhao, regulatory filings show. Binance.US registered with the Treasury in 2019; the main stock exchange never did.

Since last year, over a dozen financial regulators around the world have issued warnings about Binance, saying it either served unlicensed users or violated anti-money laundering rules. In July, the Dutch central bank said it had fined Binance over 3 million euros for operating in violation of its financial crime laws. A spokesperson for Binance said at the time that the fine marked a “pivot in our ongoing cooperation” with the central bank.

In the 2020 request, the Justice Department sought all documents identifying Binance employees responsible for compliance with the Bank Secrecy Act, details of its policies to combat illicit finance, and any suspicious financial activity reports it had submitted to authorities. Binance was asked to provide information on any transactions between the exchange and users involved in ransomware, terrorism and darknet marketplaces, along with those targeted by US sanctions.

The department also requested documents related to the “business case” for establishing Binance.US. It requested communications involving the 13 executives and partners — including Zhao, his co-founder Yi He, and his chief compliance officer, Samuel Lim — on the subject of “the creation of Binance.US and its relationship with Binance.” Lim and he are still on Binance.

Reuters reported in January that Lim and other executives were aware that Binance’s money laundering checks were not rigorous, according to company filings reviewed by the news agency. Neither Lim nor Binance have commented on the reports.

In addition to the Justice Department request, the Securities and Exchange Commission issued a subpoena to Binance.US’s operator, BAM Trading Services, the same month. The subpoena, reviewed by Reuters, demanded that BAM hand over documents showing whether any employees also worked for the main exchange of Binance and what services it provided to the US company.

Binance.US did not respond to Reuters’ questions. The SEC said it does not comment on possible investigations.

((Reporting by Angus Berwick and Tom Wilson; Editing by Janet McBride))

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