The founder of Binance (the world’s largest cryptocurrency exchange) says he favors liquidity and doesn’t like borders. However, some regulators don’t share his view. Changpeng Zhao originally began Binance in China in 2017 but quickly pulled out when China banned Initial Coin Offerings (ICO). Operations continued in Japan while Binance also quickly launched around the world in many other countries. As of today, regulators in some of those countries say Binance is operating without permission.
Where is Binance Located?
The company operates in many countries but doesn’t have a central physical headquarters. In the spirit of the headless nature of cryptocurrencies, it prefers operating as a decentralized company. A position that goes against the grain of many regulators. Still, with between $20 billion and $30 billion in transaction volume over a given 24-hour period, it does catch the attention of regulators by dwarfing its next-largest competitors.
Financial powerhouses like Forbes ranked Binance.US as the best overall crypto exchange in September of 2021. Business Insider gave it the number two ranking behind Coinbase. Binance has built large following around the world, with channels on social media apps for users in more than 30 countries – including the US, Britain, and Europe.
Recent Binance Troubles in the United Kingdom
Binance is under investigation by both the United States Department of Justice and IRS on allegations of money laundering and tax offenses. However, on June 26, 2021, the United Kingdom’s Financial Conduct Authority ordered Binance to stop all regulated activity in the UK. The Financial Conduct Authority (FCA) statement states “Binance Markets Limited is not currently permitted to undertake any regulated activities without the prior written consent of the FCA.”
Binance responded with tweets stating that Binance Markets Limited (BML) was a separate entity from Binance.com and does not offer associated products or services. It goes on to say that it has not yet launched its U.K. business or used the mentioned regulatory permissions. The exchange also clarifies that it has no direct impact on the services provided on Binance.com.
On August 25, 2021, the FCA released an update stating that “The firm complied with all aspects of the requirements. See our Supervisory Notice. See the FCA Register for any requirements that apply to the firm. These requirements remain in place and BML are still unable to conduct regulated business in the UK.”
Binance Withdrew Application
It’s important to note that trading cryptocurrencies are not directly regulated in the UK, but other related activities are — such as selling derivatives, which do require approval.
Related to the UK ban, Binance was preparing to launch its own digital asset marketplace in Britain. However, it was one of several crypto firms that withdrew applications to register with the FCA due to not meeting anti-money laundering requirements. BML withdrew its application in May 2021 following intensive engagement with the FCA. The application and ban may be indirectly related.
Later, an FCA spokesperson clarified the limitation of the scope of the ban. Though BML is banned from offering regulated services in Britain, non-registered firms can still interact with U.K. consumers. This means that Binance can still offer crypto trading to the British through its website.
Troubles with Other Regulators
In other regulatory happenings,
- At the end of July 2021, Malaysia ordered Binance to halt its operations in the next 14 days for illegally operating a digital asset exchange.
- The Malaysia shut down came after other regulators in Italy, Hong Kong, and Germany announced similar warnings and actions.
- Crackdowns have also happened in Thailand and India where regulators issued similar warnings to the exchange for offering services in countries without the necessary authorization.
Shortly after the July shutdown by Malaysia, Zhao said that Binance will move more towards cooperating with global regulators. He said if authorities expect Binance to have a headquarters, then his firm will establish regional headquarters to have a “very easy-to-understand structure. We need to be a licensed financial institution everywhere that we operate.”
“Compliance is a journey – especially in new sectors like crypto. The industry still has a lot of uncertainty. We also recognize that with the growth comes more complexity and more responsibility.” ~CEO Zhao
In the USA….
In March 2021, the US Commodity Futures Trading Commission (CFTC) opened what is possibly the largest crypto anti-money laundering investigation for the crypto space. The CFTC is looking into whether cryptocurrency derivatives were bought and sold by US citizens on the Binance platform. It’s important to note this is in the early stages of the investigation. Binance has not been accused of misconduct, and the probe may not lead to any enforcement action.
Binance released the official response that, “At Binance, we have a zero-tolerance policy for insider trading and a strict ethical code related to any type of behavior that could have a negative impact on our customers or industry.”
This is not the first CFTC investigation of a major crypto exchange. In July 2019, they began an investigation into whether the derivatives market BitMEX allowed U.S. investors to trade crypto derivatives on its platform. The result was an indictment by the CFTC and the U.S. Department of Justice against BitMEX and its cofounders.
U.S. Department of Justice and IRS
Besides the CFTC, the U.S. Department of Justice and the Internal Revenue Service are also investigating Binance. These two previously launched criminal probes are into whether the exchange has been a conduit for money laundering and tax evasion. Officials aren’t saying much. They expressed concerns that cryptocurrencies are used to conceal illegal transactions, including theft and drug deals. Lastly, Americans who’ve made windfalls betting on the market’s meteoric rise are evading taxes.
No one can say for sure if Binance will continue as an outlaw of the crypto world. Binance remains a decentralized organization, which runs counter to authorities wanting a headquarters to seek out centralized records. Changpeng Zhao has hinted that regional offices may open in large markets where they do business. He has also said that Binance’s headquarters are wherever he is. That could well be a rallying cry for blockchain’s ideals of decentralized power.