While Binance has shown “its commitment to security and compliance” as the platform got increasingly mainstream, the world’s largest crypto exchange by trade volume hasn’t dodged the eye of US federal prosecutors quite yet.
Binance is known to be quite close to its fallen competitor FTX, and has gained more attention from attorneys and officials: this time, according to a report from the Washington Post, US attorneys in Seattle have been asking financial firms and hedge funds to turn in all records of communication with Binance, via subpoenas.
We’ve connected the dots and summarised what you need to know so you’re up to date with the Fed’s probe into Binance.
This is part of an ongoing investigation into Binance
FTX’s collapse has given more reason for federal prosecutors to seek more information into Binance, in an investigation that has spanned since 2018 – starting with allegations in Binance’s potential evasion of US money laundering laws.
It’s worth noting that Binance’s investigation has been ongoing since even before the creation of the US Justice Department’s (DoJ) National Crypto Enforcement Team, which was formed in 2021.
This investigation, involving subpoenas to hedge funds, involves the DoJ’s money laundering team, the US attorney’s office in Seattle, and the National Crypto Enforcement Team.
They are not the only crypto exchange being probed by the Feds
It’s known that regulators are doing a mass inspection of the crypto sector in order to combat illicit and malicious activities within the industry. It’s not just Binance being targeted.
“As has been reported widely, regulators are doing a sweeping review of the entire crypto industry against many of the same issues,” says a Binance spokesperson. “This nascent industry has grown quickly and the firm has shown its commitment to security and compliance through large investments in our team as well as the tools and technology we use to detect and deter illicit activity.”
As of now, charges against the exchange aren’t certain
At writing, US DoJ prosecutors have been uncertain whether the evidence that they have on-hand is adequate enough to file charges against Binance executives – including Binance’s CEO Changpeng Zhao.
According to four sources familiar with the matter who wish to not be identified, prosecutors involved in Binance’s investigation believe that the US government needs to keep gathering further evidence before charges are filed.
Binance has been behaving quite well recently
Binance chief strategy officer Patrick Hillmann acknowledged that Binance did not quite have that clean of a record in regulatory compliance, especially during Binance’s era of rapid expansion.
But, Hillmann says that Binance has stepped up its compliance game.
“Over the last two years, the company has completely changed its posture,” Hillmann said. “Now that we have those resources, we are easily one of the most proactive parties to identify, freeze and get back funds” that were laundered, he said, adding that he believes overall cases of criminal activity in crypto are declining.
In December 2022, Tigran Gambaryan, the company’s head of intelligence and investigations, published a blog post regarding Binance’s handling of law enforcement requests. Gambaryan is also known as a former federal investigator.
According to Gambaryan, Binance has handled more than 47,000 law enforcement requests in 2022, saying “the brunt of what we do goes on behind the scenes, hidden from the spotlight, and rarely recognized by the media or wider public.”
This isn’t the only ongoing investigation into Binance
At the same time, a separate investigation by the Commodities Future Trading Commission (CFTC) has been going on, citing possible insider trading at Binance.
The investigation was first made public in 2021, and the CFTC previously tried to prove whether Binance gave US derivatives traders access to its global trading platform, rather than its separately-operating US-tailored platform, Binance US.
And it may be difficult to pin down what laws may apply, and whether the case against Binance will also apply to Binance US.
Binance US was created upon Binance’s stateside ban in 2019. The platform reopened, and was redesigned in order to accommodate applicable US federal laws and regulations – but was nonetheless banned in six states (Hawaii, Idaho, Louisiana, New York, Texas, and Vermont). It then resulted in its eventual investigation by the US DoJ and the US Internal Revenue Service in May 2021.
In June 2022, the US Securities and Exchange Commission launched an investigation to determine whether Binance’s 2017 initial coin offering (ICO) of its native token BNB would equate to an illegal sale of a security.
Nevertheless, it’s a complicated web – and even more scrutiny into crypto is to be expected if more market and crypto company crashes were to happen.