Binance in Regulation Crosshairs Amidst Reuters Report


Reuters accused Binance of questionable regulatory practices and details disturbing information from documents and interviews with former senior staff in an investigative report

The report from January 21 alleges that Binance has been shunning requests from regulators and partners about its operations and ignored recommendations from its advisors on money laundering risks. Binance is doing all these while publicly promising to embrace regulation. 

The investigative report has named Chief Compliance Officer Samuel Lim and former Global Money Laundering Reporting Officer Karen Leong as having raised concerns on weak Know-Your-Customer (KYC) checks. 

“Reuters conducted dozens of interviews with former senior employees of Binance, advisers and business partners, and reviewed hundreds of documents, including confidential correspondence between Binance and national regulators, and internal company messages,” the report states.

Source: Samuel Lim, Binance Chief Compliance Officer, has been specifically named in the investigative report.

Reuters also, in broad terms, referred to three other senior former Binance employees as having raised similar concerns but was ignored. KYC is key in the identification of the human actor behind an account. 

Binance is also accused of using an opaque corporate structure to operate outside the rules that govern traditional financial institutions, complicating regulators’ efforts in overseeing its activities. 

Other Findings

Other equally disturbing revelations leveled against Binance were also disclosed. Binance continues to recruit customers from countries with ‘extreme’ money-laundering risks, Binance watered-down compliance arrangement with its German business partner, and Binance’s reluctance to cooperate with German police requests for assistance on criminal activities. 

Reuters, in an effort to give a balanced view, has also quoted Binance’s spokesperson’s response in respect Binance’s KYC protocol:

‘[T]he crypto industry was still in its infancy. There was relatively little guidance on how crypto should be regulated, Know Your Customer (KYC) technology was yet to be fully developed, law enforcement agencies were not educated on crypto, and policies such as those that govern anti-money laundering were broadly not fit-for-purpose for the crypto space.’

The spokesperson also refuted the allegations made in the investigation reports calling it ‘wildly outdated’ and ‘flatly incorrect.’ 

Accountability is Key

The allegations made against Binance are severe and must be addressed. There is such a need because Binance is an institution that operates in a regulated space and must be publicly accountable. 

However, going into details and giving specifics may not be appropriate for an institution that has an equal responsibility to maintain certain information confidential and other considerations to weigh. 

Source: Binance’s CEO, Changpeng Zhao, continues to address issues on regulation in his latest interview with CNBC.

Binance’s response must not be a knee-jerk reaction. There are numerous repercussions to be considered, and this requires further discussion with its senior employees and its partners. Binance is expected to reply concisely to these allegations. 

The report cited interviews and sighting of documents as its basis for the allegations. The context in which the conclusion was drawn is important. Many procedures and protocols are constantly evolving, even more so for the crypto industry. Finally, the disagreement from former executives on the direction of a growing conglomerate like Binance is nothing out of the ordinary.

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