Binance CEO Changpeng ‘CZ’ Zhao ignored concerns raised by senior employees over the exchange’s weak know-your-customer (KYC) checks, amid a catalogue of other regulatory shortcomings, a Reuters investigation has found.
The news agency claimed that senior Binance executives—including Chief Compliance Officer Samuel Lim and former Global Money Laundering Reporting Officer Karen Leong—raised concerns about the exchange’s weak KYC checks. Three former Binance employees told Reuters they brought these concerns to the attention of CZ, but he “ignored them.”
Binance has long since been in the crosshairs of regulators around the world. Decrypt has previously reported on Binance’s multiple compliance shortcomings, which have raised the ire of regulators in the United Kingdom, Italy, Malaysia, Singapore and many other jurisdictions. Reuters’ investigation spans many of these jurisdictions and has shed light on some of the inner workings behind the exchange’s relationship with regulators.
Reuters also found that some Binance staff—including Leong and Lim—were aware that Binance’s KYC procedures were not rigorous.
In one message sent in mid-2019, Leong said CZ wanted “no kyc.” Leon also said “Reduce KYC. Raise Limits. BEST COMBO,” in the same message. Lim, in turn, reportedly expressed doubts about CZ’s plan to move into the “fiat-to-crypto” market. “Damn why touch fiat if dont wanna be compliant. So ironic LOL. Just stay full crypto man. Jizzus.”
Malta
Binance’s regulatory woes begin in Malta.
In October 2018, Binance notified regulators in Malta of its intention to apply for a license. Reuters reports that CZ “grew nervous” about the country’s anti-money-laundering rules and financial disclosure standards. By 2019, the exchange decided to no longer pursue a license.
A public statement from the Maltese regulator dated February 21, 2020, confirmed Binance was “not authorised” to operate in the crypto sphere. Yet Binance continued to tell its clients that its terms of use agreement was governed by Maltese laws, according to Reuters.
Germany
And in Germany, police and lawyers who represented over 30 victims of suspected fraud sent Binance “dozens of letters,” per the Reuters investigation.
According to a partnership with a Germany-registered financial services firm, CM-Equity, Binance agreed to adopt enhanced due diligence on a user if they deposited over €10,000 ($11,000) in a single transaction.
By June 2021, Binance sent CM-Equity a revised version of this standard, which saw the threshold for enhanced due diligence balloon up to $100,000.
Between May and July 2021, Binance received 44 letters enquiring about information relating to transactions worth at least €2 million. German police, prosecutors, and law firms were collectively saying these funds had been stolen, and laundered through the exchange. Binance said it could not help, according to Reuters.
What’s more, German federal police asked Binance for information about two men “suspected of assisting an Islamist gunman who killed four people in Vienna in November 2020.”
A letter from Germany’s police reportedly found that one of these individuals made “unspecified” transactions on Binance.
International controversy
In other parts of the world, regulators in Holland and Japan have issued customer warnings about the exchange. Regulators in Italy and the Cayman Islands have both said that Binance is not licensed to operate in their respective countries.
Binance faced enforcement action in Malaysia for operating illegally in the country—according to Malaysian regulators.
The United Kingdom has also issued a consumer warning over Binance, and after saying the exchange was “not capable” of being regulated, Binance announced it was trying to mend its relationship with the FCA. To date, there is no evidence to suggest Binance is in the FCA’s good books.
Binance also recently withdrew its application for a license in Singapore. A month earlier, the city-state’s regulators put the exchange on its Investor Alert List.
Since, Binance has announced a Memorandum of Understanding with the Dubai World Trade Centre Authority. In December last year, CZ also met Gibraltar Chief Minister Fabian Picardo, who described the Binance CEO as a “visionary.”
Decrypt has previously asked Binance about its plans for potential licenses, but the company has not yet responded to our requests.
Source: https://decrypt.co/90968/binance-ceo-warnings-kyc-regulatory-failings
