Binance’s legal troubles are far from over as legal woes pile up outside the US
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Binance’s legal issues are not over, despite reaching a 4.3 billion US dollar settlement with US regulators. The crypto exchange faces court cases in several jurisdictions, has been banned in other markets and voluntarily exited others.
Nov 27, 2023 – On Nov 21, Binance, amongst others, pleaded guilty to money laundering, terror financing, and violations of sanctions. ”From the very beginning, Zhao [the former CEO of Binance] and other Binance executives had engaged in a deliberate and calculated effort to profit from the US market without implementing the controls that are required by US law,” the US Attorney General Merrick Garland said.
“Binance willfully enabled hundreds of millions of dollars in transactions between American users and users subject to US sanctions. Its platform accommodated criminals across the world who used Binance to move stolen funds and other criminal proceeds,” he added.
Transactions totaling millions of dollars have been made from the US to Iran, Syria as well as to Hamas, Daesh-ISIS, al-Qaida and drug dealers.
This settlement does not mean that Binance’s legal troubles are over. The world’s largest exchange held licenses to operate in 15 jurisdictions at the end of 2022, according to its latest annual report. The US is not part of these jurisdictions, though Binance.US’ website states it was launched there in September 2019 to “serve US customers and adhere to US regulations.” The market share of Binance.US is now below 1 percent compared to 8 percent at the beginning of the year, Kaiko data from August shows. Binance’s US unit will have to completely exit the world’s largest crypto market as part of the deal struck with regulators.
Money laundering probe & operations without license
Binance has been scrutinized by other national regulators in a wide range of countries as it operates in legal grey zones. For instance, the exchange obtained its first European digital asset service provider (DASP) registration in France In May 2022. Just over a year later, in June 2023, the French police raided the exchange’s Paris office accusing Binance of “aggravated money laundering” and to operate an unauthorized exchange.
Binance made the following statement thereafter: “In France, on-site visits by regulators and inspectors are part of regulatory obligations to which all financial institutions must adhere. We had an on-site visit last week by the relevant authorities. Binance, as always, was fully collaborative and we met our obligations accordingly… We abide by all laws in France, just as we do in every other market we operate.”
In Nigeria, the country’s Securities and Exchange Commission (SEC) declared Binance illegal in June 2023. “The Commission again reiterates that the activities of Binance, https://www.binance.com and any other such platform through which the Company solicits investors is neither registered nor regulated by the Commission and its operations in Nigeria are therefore illegal. Any member of the investing public dealing with the entity, making such solicitation, is doing so at his/her own risk,” the Nigerian SEC warned.
Voluntary exits from Canada, Cyprus, the Netherlands & Russia
In May 2023, Binance halted its Canadian operations following the implementation of stricter rules for crypto exchanges. A month later, the Cyprus Securities and Exchange Commission announced the exchange is "under examination for application for deregistration." Binance at the time told CoinDesk that they are prioritizing preparations to be fully compliant with the EU's Markets in Crypto-Assets (MiCA) Regulation, which came into force that month. "To that end, we have made the decision to pull back efforts in Cyprus to focus on our efforts on fewer regulated entities in the EU."
In June, the UK’s Financial Conduct Authority cancelled Binance Markets Ltd’s registration with the regulator, following Binance’s request. As of October, Binance stopped accepting new UK users to comply with the new Financial Promotions rules that entered into force. Earlier this year, in the Netherlands, Binance failed to register its exchange as a virtual asset provider as it did not manage to convince the Dutch regulator that it met its anti-money laundering (AML) guidelines. It ceased its operations there mid-July, while also withdrawing its application for a crypto license in Germany.
In neighboring Belgium, the Financial Services and Markets Authority’s ordered the crypto exchange to immediately cease its operations there in June, after finding out that its services were offered by the entity from outside the European Economic Area. This issue was resolved when Binance moved its activity to its Polish subsidiary in August. Binance was thus allowed to reopen new registrations for Belgian residents as of Sept 25.
That same month, Binance sold its Russian operations to a local operator for an undisclosed sum. “As we look toward the future, we recognise that operating in Russia is not compatible with Binance’s compliance strategy,” the group’s chief compliance officer Noah Perlman, told Financial Times. In October, Brazilian authorities wanted Binance’s former CEO CZ indicted for operating alleged Ponzi schemes. They accused him, as well as three other Binance employees, of fraudulent management.
Third parties also pull out from collaborations with Binance & top executives resign
In October, Binance announced the closure of Binance’s VISA debit card services in the European Economic Area (EEA) as of Dec 20. The world’s largest exchange is also being dumped by suppliers such as the British credit card processing company Checkout.com, which cited concerns over money laundering, sanctions and compliance controls. Another UK firm, Paysafe, which provides cross-border payments in euros, also cut off its ties with Binance, as did VISA and Mastercard. Both global payment giants ended their co-branded crypto card partnerships earlier this fall. This is a major setback, as 1.8 million Binance card had been issues in the EEA region by the end of 2022.
A number of top executives, including Binance’s General Counsel, its Senior Director of Investigations, its Head of Product, its Asia Pacific head, its Chief Strategy Officer and its Senior Vice President for Compliance, have resigned in recent months.
Binance has, despite all these setbacks, obtained licenses to operate in Dubai and El Salvador and launched operations in Japan during the course of 2023.
“Binance’s vast global footprint and substantial user base are expected to maintain its relevance in crypto. Additionally, the role of the BNB token in Binance’s ecosystem adds an extra layer of stability and potential for growth,” Coinpedia wrote in an analysis.
Binance had 128 million registered users around the world by the end of 2022. The price of the Binance Coin has dropped 6.8 percent since the beginning of the year, reflecting the above issues, while that of Bitcoin has rallied 126 percent and Ether’s by 72 percent.