Binance sued in US as crypto exchange accused of evading money laundering laws

The world’s biggest crypto exchange, Binance, is being sued after being accused of deliberately evading money laundering laws. See how it affects Aussie investors.

Australian consumers have been warned against investing with the world’s biggest cryptocurrency exchange, binance.com, after a US regulator launched legal action against it accusing it of deliberately evading money laundering laws.

Regulators should also kick the company out of the banking system, cryptocurrency expert David Gerard said.

In a US lawsuit filed on Monday, the US Commodities Futures Trading Commission accuses Binance, chief executive Changpeng “CZ” Zhao and chief compliance officer Samuel Lim of allowing transactions by people linked to terrorist group Hamas and Russian customers linked to crime.

The CFTC has asked a US court to find that Binance, Mr Zhao and Mr Lim broke futures trading laws, ban them from trading in commodities including crypto, fine them, and order them to hand over the company’s profits and compensate customers for losses.

According to the lawsuit, Binance has more than 100m customers around the world, including more than 2.5m in the US and about 280,000 in Australia.

The CFTC told the court that in February 2019 Mr Lim, who is based in Singapore, was given information “regarding Hamas transactions” on Binance.

He allegedly told a colleague that terrorists usually send “small sums” as “large sums constitute money laundering”.

The CFTC alleges that the colleague responded: “can barely buy an AK47 with 600 bucks.”

Discussing customers from Russia in an internal company chatroom in February 2020, Mr Lim is alleged to have said: “Like come on. They are here for crime.”

Binance’s money laundering reporting officer (MLRO), who is not named in the lawsuit, allegedly responded: “we see the bad, but we close 2 eyes.”

Binance CEO Changpeng Zhao. Picture: AFP

Mr Zhao allegedly encouraged executives to help US customers who were supposed to be banned from binance.com to bypass “geo-fencing” technologies and use virtual private networks to trade on the site.

The CFTC accuses Mr Lim of deliberately engaging an auditor to “just do a half assed individual sub audit on geo[fencing]”.

As a result, the MLRO allegedly complained she was required to “write a fake annual MLRO report to Binance board of directors wtf”.

“I HAZ NO CONFIDENCE IN OUR GEOFENCING,” she allegedly said in a November 2020 chat.

In a blog post, Mr Zhao said the CFTC complaint “appears to contain an incomplete recitation of facts, and we do not agree with the characterisation of many of the issues alleged in the complaint”.

Mr Gerard, the author of two books on cryptocurrency, said that “Australian consumers should stay away from Binance”.

“Binance is effectively unregulated – the only thing that stops Binance from doing anything they like with customers’ money is that they don’t want to scare the victims off,” he said.

“It’s an offshore casino, and you’re the one the big winners get their money from.”

Binance holds a license with the Australian Securities and Investments Commission that allows it to trade in financial products and is registered to provide reports on suspicious transactions to financial intelligence agency AUSTRAC.

Screenshot from the Binance crypto marketplace app.

According to its website, transactions in real money are processed by a company called Binance UAB that gives as its address a co-working space in the old city of Lithuania’s capital, Vilnius.

In 2021 the Bank of Lithuania warned Binance UAB for “unlicensed investment services provided in Lithuania” and told consumers they “risk losing all their investments”.

The UK’s Financial Conduct Authority has also refused to allow Binance to operate in its jurisdiction, saying the group is “not capable of being effectively supervised”.

Mr Gerard said Australian regulators should follow suit and “should not be giving Binance the time of day”.

“As an unregulated offshore casino, Binance should be cut off from Australian banks, as it already has been from UK banks,” he said.

Spokespeople for ASIC, AUSTRAC and Federal Police declined to comment on the CFTC’s allegations.

ASIC already has a “targeted review” of part of Binance underway after the company admitted in February to misclassifying some ordinary investors as wholesale investors, who are less protected by investment laws.

Originally published as Binance sued in US as crypto exchange accused of evading money laundering laws