According investigation of Reuters published on June 6, 2022, the Binance platform specializing in the exchange of cryptocurrencies, would be guilty and complicit in money laundering. In parallel with these revelations, multiple investigations have been launched, in particular by the Securities and Exchange Commission (SEC), the American organization regulating and controlling the financial markets.
How does the Binance cryptocurrency exchange platform work?
Binance is a platform specializing in cryptocurrencies, allowing individuals, organizations and companies to buy, sell and store more than 300 cryptocurrency references. Founded in 2017 by Changpeng Zhao, the platform has gradually become one of the most influential in the world of cryptocurrency exchange, just like its rivals Coinbase or FTX. The platform has nearly 120 million users around the globe.
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In order to better understand how a platform like Binance works, we must distinguish three use cases:
- A Binance user can inject a currency (such as euros, US dollars, yen, which is called fiat currency) into his wallet and then buy the cryptos of his choice. This is one of its features, that of being a shopping platform. The user receives the amount of cryptocurrency that corresponds to the sum he has provided to the platform in fiat currency. At the same time, the platform takes a commission.
- A Binance user who already owns assets can switch from one cryptocurrency to another. This is the second feature of Binance, that of being a trading platform.
- Finally, some trading platforms allow their users to make payments (as it is possible to do using a bank card or with fiat currencies in cash) using the assets they own. Thus, all the assets owned by the user constitute his wallet.
Binance comes in this form. In the center of the image, we find the course of the cryptocurrency chosen by the user, in this case in this case, Bitcoin. Above, in a banner, we find the current price of several assets (including Ether), and in the column to the right of the screen, it is possible to perform several actions such as exchanging your assets for another cryptocurrency or against fiat currency. Picture: Binance.
Reuters accuses Binance of having laundered more than 2 billion euros
Flashback to September 2020. Lazarus, a group of North Korean hackers managed to exploit a loophole in a crypto exchange and steal assets worth $5.4 million. This attack was intended to provide additional funding for North Korea’s nuclear weapons program.
A few hours later, the hackers open at least 25 anonymous accounts on the Binance platform, allowing them to convert the stolen funds into fiat currency while hiding the source of this treasure. In a few minutes, they manage to recover this money and disappear, as if nothing had happened. It should be noted that this feat of arms, exceptional for the time, seems minimal compared to the new attack carried out by this same group of hackers in 2022, when they managed to steal the equivalent of 500 million euros in ethers.
This example is one of many that happened on Binance between 2017 and 2021 according to the survey by Reuters. During this period, Binance was reportedly a platform that laundered $2.35 billion through criminal actions (such as large-scale hacks, illegal drug sales, or investment fraud).
In 2020, Chainalysis, a research firm specializing in blockchain, was hired by US government agencies to track these illegal flows. The report reportedly concluded that Binance received questionable funds totaling $770 million in 2019 alone. A figure far larger than any other asset exchange.
All of these accusations are based on facts that allegedly occurred before 2021, the year in which Binance strengthened its transparency and security rules. Apparently, before then, the company had no clear idea of who was investing in its platform and when.
Binance’s Response to Money Laundering Accusations
After being kept informed of all the elements of the investigation carried out by Reuters, Binance has defended itself from any attempt at embezzlement. The company has published a statement in which the platform considers that the survey relies on low-value data that has not been properly verified.
” Neither our industry nor Binance are perfect, but we have grown tremendously over the past three years. Crypto is a completely new innovation. And just like many regulators and policy makers, we are still thinking about what an appropriate regulatory framework should be. “says the firm in its press release.
In order to provide an additional argument, the platform refers to another report by Chainalysis claiming that 0.15% of transactions carried out with cryptocurrencies were related to illegal activities, a figure that has been decreasing since 2019. It would not agree with the conclusions made by Reutersaccording to the company.
For Binance, “ crypto is incredibly transparent, infinitely more so than traditional monetary economics, and this is well documented “. She indirectly challenges the journalists responsible for the investigation by asking them the following question: Really tell us where the real money laundering problem lies? “.
Several US agencies already had Binance in their sights
Except Reutersseveral competent authorities in the United States have taken an interest in the actions of Binance.
The Commodity Futures Trading Commission, the US federal body responsible for regulating the derivatives markets, had already opened an investigation in September 2021. The objective was to determine whether employees of the platform had committed insider trading and manipulated the markets with insider information. Binance has also been through the US Department of Justice and the Internal Revenue Service (IRS) for money laundering.
In February 2022, the SEC accused Binance CEO Changpeng Zhao of sharing confidential information with two US companies: Merit Peak Ltd and Sigma Chain. These two firms are “market makers” (or market makers): they carry out daily transactions on Binance, which limits price volatility. Thus, the US financial market regulator wishes to verify the nature of the links that may potentially exist between Binance and these two companies to find out if they do not derive benefits from this “relationship”.
More recently, the SEC has once again gone on the attack. She is interested in the legality of the cryptocurrency created by Binance, the binancecoin (BNB). This was launched five years ago with the help of an Initial Coin Offering (ICO), a form of IPO in the cryptocurrency sector which is carried out under the sale of tokens (or tokens).
The SEC wants to know if this token was legal in 2017. According to them, this ICO may not have respected certain points of a securities law, and that Binance would not have registered this asset with the authorities. Americans before selling this token. Following the opening of this new survey, the price of BNB fell by 11% in less than 24 hours, falling below the $280 mark, one of its key support levels (one of the threshold values guaranteeing or not guaranteeing potential benefits).
At this time, other than these legal actions, no further actions are being considered for possible money laundering. However, these cases and these accusations show that more than ever, the noose is tightening on the transparency and security of crypto transactions. Whether on the side of players specializing in cryptocurrencies or regulators governing this sector, the question of the end of fraudulent transactions arises. The European Union announced in April 2022 that it wanted to end the anonymity of transactions while the White House is in the reflection phase on this subject.