Inside Binance and why the cryptocurrency exchange is now being investigated

Go behind the glitz and glamour of crypto empire Binance to see how quickly the shining global star has found itself under the scrutiny of investigators.

It was all smiles and positive energy when Australian users of the world’s biggest crypto exchange, Binance, met up at sleek Melbourne bar Bond a month ago.

But behind the glitz and glamour, Binance, and its globetrotting, star-spotting boss Changpeng “CZ” Zhao are confronting a mountain of trouble.

The bitcoin bubble has burst and regulators across the world who have woken up to the risk posed by the crypto wild west are taking a deeper look at CZ and his globe-spanning empire, which has at least 280,000 customers in Australia alone.

In the US Binance has this week been accused by authorities in court documents of breaking securities trading laws, including by allowing a company owned by CZ to engage in wash trading, a form of market manipulation.

Binance Australia hosted a meet-up in Melbourne for community members, VIPs and Partners at Bond Bar in Melbourne, where ANZ General Manager Ben Rose attended. Picture: YouTube

Here in Australia the group has been all but cut off from the banking system due to the risk of scam transactions and is the subject of a full-scale investigation by the corporate watchdog.

Binance Australia’s meet-up was at Bond Bar. Picture: YouTube

Binance Australia’s meet-up drew a crowd in Melbourne. Picture: YouTube

Things are bad enough that in the past couple of weeks CZ has set his Instagram, which boasts snaps of him with world leaders including French president Emmanuel Macron and celebs including Shaquille O’Neal, to private.

It is probably not where CZ and his team wanted to be after navigating a crypto crash in which the price of bitcoin collapsed from more than $87,000 in November last year to as low as $25,000 the following month.

Binance Co-Founder and CEO Changpeng Zhao with Shaquille O'Neill in 2022. Picture: Instagram

Binance positioned itself as a safe – or “safu” in crypto lingo – haven for coin holders – or “hodlers” – following the implosion in November of one of its biggest competitors, the FTX exchange run from the Bahamas by polyamorous entrepreneur Sam Bankman-Fried and his lovers.

As the bitcoin price recovered – it’s now at around $40,000 – the strategy seemed to be working.

But in March US regulator the Commodities Futures Trading Commission lodged a blockbuster lawsuit against CZ and Binance, accusing them of deliberately flouting laws designed to prevent terrorism finance and money laundering.

The US Securities and Exchange Commission dealt Binance another hammer blow this week, telling a court that the company and CZ had blatantly disregarded laws designed to protect American investors and “enriched themselves by billions of U.S. dollars while placing investors’ assets at significant risk”.

However, Binance denies the allegations in both lawsuits and says it is going to defend both cases in court.

The US lawsuits put in the spotlight what the CFTC alleges is an “intentionally opaque” structure where Binance has no global headquarters but operates through a web of related companies, many of them in tax havens or secrecy jurisdictions.

Binance and its customers are also under investigation in Australia, with the corporate watchdog, the Australian Securities and Investments issuing it a formal demand for company documents, believed to relate to client accounts, on April 29, 2021.

CZ is not being investigated here and has not been accused of any wrongdoing by ASIC.

Since April 2021 ASIC has sent Binance nine further demands for customer documents, most recently just last month, as well as making two demands for “reasonable assistance” with its investigations – a category of help which ASIC says can include handing over passwords or opening safes.

Binance has been cut off by some of Australia’s major banks.

At Westpac, the bank has become alarmed about the high level of seemingly scam-related activity on the Binance platform in Australia. Scammers love to get their victims to buy and transfer crypto such as bitcoin, because it makes tracing the proceeds of their fraud harder.

Last month, the bank took its concerns to Cuscal, a company that holds a banking licence and services much of the fintech sector.

Cuscal acts as banker to Zepto, a small Byron Bay-based payments processing company that handled Binance.

“Our partner, Cuscal, instructed us to offboard Binance,” a Zepto spokesperson said.

At the same time, Westpac banned transfers from its customer accounts to Binance.

Binance Co-Founder and CEO Changpeng Zhao with President Emmanuel Macron. Picture: Instagram

“Financial institutions are waking up and they think Binance is not a sufficiently trustworthy institution for them to risk dealing with,” said David Gerard, the author of two books on cryptocurrency.

“Binance is effectively unregulated, doesn’t seem to be in any actual jurisdiction, and keeps having legal questions raised – like its money laundering compliance and whether it’s been, as has been alleged, commingling customers’ money with its own money, which is a very bad warning sign.”

Binance Co-Founder and CEO Changpeng Zhao with Maria Sharapova in 2022. Picture: Instagram

Westpac’s head of fraud, Benjamin Young, declined to comment specifically on Binance but said the bank could block more crypto exchanges because of fraud and scam risks.

“All crypto exchanges to us are on a bit of a tight watch list,” he said.

“It’s no secret that they all bank with Cuscal. We don’t have any issue with Cuscal … so I would say it’s a conversation with Cuscal about their clients.”

The industry moves mean that as of last Wednesday the only way Binance customers can transfer Aussie dollars to their crypto accounts is by credit card.

“No one’s going to bank them, Binance is now radioactive given the revelations of the past couple of weeks,” payments industry consultant Brad Kelly said.

The two big card schemes, Visa and MasterCard, who did not answer questions about their use by Binance, are now under pressure to ditch the crypto company.

“Should Visa and MasterCard cut them off? Yes, they should have already,” Kelly said.

Binance didn’t answer questions about where it was based, who owned it, or the ASIC investigation.

“As is usual for organisations of its size, the Binance.com global business operates through a number of entities incorporated in a range of jurisdictions,” a spokesperson said.

The spokesperson said Binance was looking for a new payment provider and “remains committed to the Australian market and serving our users in Australia in a fully compliant manner”.

Originally published as Inside Binance and why the cryptocurrency exchange is now being investigated