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It has emerged that some Binance employees and trained volunteers are helping users based in China to circumvent the country’s KYC (Know Your Customer) requirements.
The message was first picked up from messages circulating in a Telegram group and a Binance-controlled Discord server.
A Dedicated Volunteer Group?
Binance is currently the world’s largest cryptocurrency exchange by transaction volume, processing over $9 trillion worth of trades in 2021 alone. However, the exchange is not supposed to operate in certain areas and countries, with one such country being China, which banned crypto outright in 2021. Binance founder Changpeng Zhao has often called the exchange’s KYC norms a billion-dollar effort, stopping those users that are not supposed to be on the platform. However, it has emerged that Chinese citizens and others around the world have been able to circumvent these restrictions, hiding their country of residence and accessing the platform.
According to reports, this has been made possible thanks to some Binance employees and trained volunteers that have been helping these users. The reports cited messages from a Discord server and Telegram group to back their claims. Participants of the group, also called “Angels,” often share techniques to forge bank documents, falsify addresses, and hide the user’s country of origin. This allowed users in restricted countries, such as China, to bypass KYC norms and controls and access a Binance debit card. China had banned crypto exchanges in 2017 and banned cryptocurrencies outright in 2021. Speaking about the reports, a Binance spokesperson stated,
“Binance employees are explicitly forbidden from suggesting or supporting users in circumventing their local laws and regulatory policies, and would be immediately dismissed or audited if found to have violated those policies.”
Are Binance’s KYC Protocols Secure?
According to the report, the two groups in question had over 220,000 registered users. The groups can be accessed by anyone who has registered and joined. No controls were placed on who could access the group until late March. The techniques shown in these groups showed users how to forge bank documents and offer false addresses. Other techniques involved the simple manipulation of the exchange systems. Volunteers also shared video guides showing users how to obtain a Binance debit card, effectively turning their Binance account into a regular checking account.
These techniques put a dark cloud over the effectiveness of Binance’s KYC and anti-money laundering efforts. For entities such as Binance, anti-money laundering efforts are critical to ensure that customers are not engaging in any illegal activities. However, many experts in financial regulation have shared their concerns, stating that the exchange’s KYC and AML requirements can easily be subverted.
These developments could have far-reaching consequences for national security that extend far beyond China. Former FDIC chief innovation officer and Duke University Professor, Sultan Meghji, summed up the concerns, stating,
“If I had an eight out of 10 concern about Binance from a regulatory perspective and from a national security perspective, this takes it to a 10 out of 10.”
He further added that these concerns extend far beyond just China, stating,
“I think explicitly about the national security implications of how terrorists, criminals, money launderers, cyber people in North Korea, Russian oligarchs, et cetera, could use this to get access to this infrastructure.”
Jim Richards, anti-money laundering executive at Wells Fargo, echoed the sentiment, stating that techniques used to bypass Binance’s KYC controls could have further ramifications, raising the specter of North Korea, Russia, and Iran. A Binance executive, responding to the report, stated that the exchange had taken actions against employees found violating internal policies.
“We have taken action against employees who may have violated our internal policies, including wrongly soliciting or making recommendations that are not allowed or in line with our standards. We have strict policies requiring all users to pass KYC by providing us with their country of residence and other personal identification information.”
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.