Binance Faces Investigations by U.S. Justice Department and IRS

Binance Faces Investigations by U.S. Justice Department and IRS

Binance Holdings Ltd. is reportedly under investigation by the United State Justice Department, as well as the Internal Revenue Service. Binance currently stands as the crypto industry’s largest exchange in operation, with some $79 billion in daily trade volume across 1228 markets.

According to a report first released by Bloomberg, the two U.S. government agencies have sent officials to inquire and gather information from individuals with insight into Binance’s business. The probe is part of a larger crackdown on “illicit activity” in a largely unregulated market such as the crypto industry. Officials sent by the Justice Department and the IRS were agents investigating money laundering and tax offenses, according to Bloomberg’s sources.

Earlier in March, the U.S. Commodity Futures Trading Commission (CFTC) has also disclosed that it has ongoing investigations on whether Binance allowed U.S. citizens to do illegal trades.

Binance, the world’s largest crypto exchange, was established in 2017 by Changpeng Zhao, nicknamed CZ. According to data from Forbes, Zhao currently has a net worth of over $1.9 billion. As outgoing CEO of the crypto exchange firm, Zhao has grown Binance into its top spot, which the firm claims to have about 25% market share. The Chinese-Canadian technologist and entrepreneur currently ranks as #1664 in Forbes’ billionaire rankings list.

The crypto and blockchain industry has grown exponentially over the past decade, ever since the inception of Bitcoin in 2009 after the historical whitepaper released by Satoshi Nakamoto, its inventor and creator. Throughout its decade-long development, regulatory oversight over crypto and blockchain has become a matter of intense disagreement.

While certain projects openly move for institutional adoption, the technology itself has led to the development of digital currencies (CBDCs) backed by centralized banks and governments. Moreover, offshoot movements from within the crypto and blockchain community such as decentralized finance (DeFi) have openly challenged these centripetal trends.

Some projects and protocols, however, have also sought to integrate DeFi with centralization, blending its technical edge with regulation from centralized authorities, thus birthing projects aligned with CeDeFi, or decentralized finance with centralized characteristics.

According to 2020 on-chain aggregated data from blockchain forensics firm Chainalysis, both Binance and Huobi (the top two crypto exchange by trade volume) were used as points of transaction for allegedly criminal activity from unlicensed brokers. The intelligence firm, however, pointed out that the report was not directed to either exchange.

Chainalysis was named as a partner by Binance in 2018 for its AML/KYC (anti-money laundering and know-your-customer) compliance frameworks, alongside Thomson Reuters affiliate Refinitiv, which provides automated KYC services. Chainalysis’ clientele for its blockchain forensics and analytics services includes federal agencies, crypto firms, regulators, and traditional financial institutions.

Binance spokesperson Jessica Jung issued a statement on the matter, saying: “We take our legal obligations very seriously and engage with regulators and law enforcement in a collaborative fashion.”

“We have worked hard to build a robust compliance program that incorporates anti-money laundering principles and tools used by financial institutions to detect and address suspicious activity.”Jung added.

In 2019, Binance established Binance.US, its American subsidiary. Binance.US is overseen by BAM Trading, and is registered with the Financial Crimes Enforcement Network (FinCEN) of the U.S. Treasury. Binance’s U.S. subsidiary is actively engaged in pursuing state-level regulatory compliance. Binance Holdings Ltd. is registered in the Cayman Islands, with an office in Singapore. Outgoing CEO Changpeng Zhao has previously stated that the crypto exchange has no headquarters and operates with a globally distributed workforce.

The investigations are ongoing and the federal agencies involved have not yet issued any official statement on the matter as of press time. 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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