Headline: Was Binance involved In Money Laundering?

Body:  Remember that old fable where father and son are trapped in a tower, and the father uses wax an feathers and fashions wings to safely bring him and his son to the Earth surface?  Son was having so much fun, he flew too high, the wax melted, and his wing fell apart, and he crashed.  Remember that one from High School?  It appears that Binance, also, might’ve flown a bit too close to the sun.  This whole thing might be funny, except many people lost real money.  In fact, not so long ago, FTX applied for Bankruptcy, but before that, Binance was thinking of purchasing FTX.

The subpoenas do not lead directly to charges being filed, but it should be noted that Binance is negotiating with the Federal Government to come to a settlement.    In my opinion, this should probably not be a surprise for any cryptocurrency exchange.   Think of how new cryptocurrency is: the laws are barely keeping up with it.   And then, somebody puts up a website, willing to trade one currency to another?  This, of necessity, must live near the edge of the envelope of the Law.  This makes it unsurprising to hear critics saying that the business operations of Binance are difficult to completely understand.

For their part, Binance is doing everything they can to foster better relationships with regulators:

  1.  In 2022, Binance increased the size of its compliance staff 500%.  According to some reports, Binance specifically tried to hire personnel away from agencies like the IRS.
  2. Developed a global advisory board, headed by a former Senator.
  3.  Became very active in lobbying for crypto firms, and educating Washington politicians.

As a result of their efforts, and the complexities of the case, prosecutors within the DOJ appear to be split on further steps.  In addition to these challenges, there appears to be a turf war within the Federal Government regarding who needs to sign off on which prosecution.  It would appear that defense attorneys are already in talks with the DOJ.  (In case you were concerned about the well-being of the executives involved, their attorney did previously work for the Federal Government.    So, don’t let it bother you too much.)

Is there really a fire here?   Or is it all just smoke?

Reuters has investigated Binance’s financial crime compliance over the course of 2022. The reporting showed that Binance kept weak anti-money laundering controls, processed over $10 billion in payments for criminals and companies seeking to evade U.S. sanctions, and plotted to evade regulators in the United States and elsewhere.  Binance is clearly a leader in crypto now, having processed trades of about $1.6 Trillion in October, alone.  Their second problem seems to be that a Mexican drug cartel successfully laundered between $15-40 Million of proceeds.  To make things even worse for Binance, they are having problems producing the evidence asked for.    This difficulty is primarily due to CZ’s company-wide policy of not often using e-mail.  This policy, taken together with other behavior of Binance (such as allowing account holders to open accounts with only an e-mail address) suggests to me that there may be much more than smoke in the air.

More officially, Binance and their executives are being prosecuted under the Bank Secrecy Act, which requires Binance to make many regulatory filings and become part of the Treasury Department’s FINCEN network.   It would appear that Binance might have failed to do either.  Currently, the DOJ is looking mostly for e-mail that gave directives such as “destroy evidence” or “remove evidence from U.S.”  We’ll see how this goes.

The Verdict

Binance told Reuters, “We are proud to have in our ranks some of the most celebrated cyber investigators representing virtually every single major international law enforcement agency across the globe.” Binance said they have around 300 investigators working “to protect users from illicit actors.”  Add to this the fact that Binance just hired a law firm featuring a former chief of one of their main regulators (the Money Laundering and Asset Recovery Section, MLARS) and I think we have the makings of a typical (depressingly) government/private enterprise “very special hug.”  We have seen this pattern hundreds of times before, notably within the EPA, where the government worker will only be moderately paid by the Federal Government for 5 years, then they are given the keys to their new Mercedes when they accept a new compliance department job at a coal mining company.  I just wish that cryptocurrency would have been different.






Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.


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