Binance’s ever-shrinking European footprint loses EUR payment rail

Binance’s European footprint keeps right on shrinking while what’s left of the digital asset exchange’s European-facing business is losing its primary fiat payment rail.

On June 29, German fintech media outlet Finance Forward reported that Germany’s Federal Financial Supervisory Authority (Bafin) had decided against issuing Binance a license to custody digital currencies on behalf of German customers. The outlet’s sources said this decision had been communicated to Binance’s local representatives.

Bafin has neither confirmed nor denied the report, and Finance Forward cautioned that it was as yet unclear whether this was a final ‘no’ or whether Bafin had given Binance instructions on how it might bring its operations into compliance. Binance claims discussions remain ongoing.

In the meantime, while Binance can continue to operate within Germany, its lack of a local license means it can’t market its wares directly to German consumers. Without a Bafin license, Binance will struggle to grow its German-facing operations. Then again, it’s not like Binance hasn’t historically found ways to circumvent rules it doesn’t like, so we probably haven’t heard the last on this score.

Bafin has of late been taking a tougher stance against ‘crypto’ scofflaws, including public spankings meted out to the likes of Coinbase (NASDAQ: COIN), Crypto.com, and Rtcoin. But Germany isn’t the only German-speaking market to have grown weary of Binance’s machinations.

Earlier this week, Finance Forward reported that Binance’s Austrian offshoot Binance Austria GmbH had withdrawn its application for a virtual asset service provider license from the country’s Financial Market Authority (FMA). The report said the application was withdrawn “some time ago,” but the FMA declined public comment.

Only a year ago, Binance launched its Austria-facing exchange, but the FMA was reportedly unamused by Binance’s willingness to jump the regulatory gun. The FMA is said to have “exerted pressure” on Binance to come into compliance, and the withdrawn application is apparently how Binance chose to respond.

Binance’s German-language push was further hampered by the rapid departures of several senior European executives, including Martin Bruncko, Lynn McConnell, Mike Ringer, Doron Rozenberg, Daniel Trinder, Michael Wild, and Raphael Zakarias.

It’s anyone’s guess whether these execs chose to jump or were pushed, but the ongoing drumbeat of negative press surrounding Binance likely convinced at least some of them that this was an item they’d prefer to leave off their LinkedIn profiles.

Shrinking like Costanza in the pool

In response to the Finance Forward reports, Binance issued a typically meaningless statement about how it loves complying with regulations so much it wishes it could marry regulations. Binance also claims that it’s taking all the necessary steps to ensure it’s prepared to fully ignore the European Union’s Markets in Crypto-Assets Regulation (MiCA) once it takes effect next year.

MiCA will allow licensed crypto asset service providers (CASPs) to operate across the EU provided they adhere to a few simple rules, including establishing a registered office in an EU member state where actual business is conducted (so none of Binance’s ‘mailboxes posing as regional headquarters’ shenanigans).

Binance appears to be banking on securing a CASP designation in just one EU market from which it can serve the entire continent. The exchange has secured local licenses in several EU markets, including France, Italy, and Spain. Still, it’s anyone’s guess how long it will be able to retain any of those licenses.

For instance, France recently opened a probe of Binance’s local offshoot over suspected “aggravated money laundering” and other illegal activities. Earlier this month, Binance was hounded out of the Netherlands and withdrew its application for a CASP license in Cyprus. And things could soon get much, much worse.

This week, Protos reported that EU authorities were investigating whether Binance used companies registered in Ireland and Malta to obfuscate revenue generated in other jurisdictions. (CZ resigned as director of two Ireland-based Binance units earlier this year.)

Binance is suspected of inflating employee headcounts at these companies, which lack physical workspaces. The sums flowing through these entities are lumped into vague catch-all categories such as ‘consultancy services.’

Binance’s rationale for muddying these financial waters is unclear. However, the fact that the exchange’s customers often boast zero degrees of separation from illegal activity suggests various tantalizing possibilities.

EURout of luck

Meanwhile, Paysafe Payment Solutions, the U.K.-based company that provides Binance with EUR-based fiat rails, has decided to cut ties with the exchange. This week, Binance sent its customers an email informing them that Paysafe would officially halt EUR deposits and withdrawals as of September 25, leaving the exchange on the hunt (yet again) for a Single Euro Payments Area (SEPA) partner.

In May, Paysafe’s payment subsidiary Skrill cut off Binance’s ability to deposit or withdraw in U.K. pounds. In announcing this step, Paysafe called it a “prudent decision” given the “too challenging” regulatory environment in the U.K. The U.K.’s Financial Conduct Authority (FCA) previously characterized Binance as “not capable of being effectively supervised.”

With a growing number of financial institutions realizing that the risks of dealing with Binance vastly outweigh the benefits, not to mention the growing number of regulatory proceedings underway on several continents—and U.S. criminal charges against Binance and founder Changpeng ‘CZ’ Zhao expected any day now—Binance will be forced to engage in ever more unsavory methods of moving money on and off its platform. We’re sure that will work out just fine.

Executive misdirection

Binance’s brain trust has started to realize that CZ’s personal brand has become so toxic that the only way the exchange will survive the next few years will be for its founder to exit. The circumstances of that exit could involve anything from self-imposed exile to prison time, but so long as CZ’s at the helm, Binance will remain a regulatory pariah.

Perhaps that’s why Binance has suddenly begun elevating senior figures’ public profiles. Like Richard Teng, the former Singapore central banker who joined Binance in 2021 and last month was named head of its regional markets outside America. Bloomberg later reported that Binance appeared to be positioning Teng to assume the CEO role should CZ find it advisable or necessary to step aside.

Clearly, this is a message that Binance wishes to communicate to the world. Yi He, Binance’s female co-founder and significant shareholder, recently told Bloomberg that both she and CZ have unidentified ‘backup executives in training’ in case either one or both of them were no longer around.

While Yi He doesn’t do much press, her interest in digital assets predates CZ’s, as she was also co-founder of the OKCoin exchange. In 2014, she hired CZ as the exchange’s CTO. He later returned the favor by bringing her on as a consultant as Binance was getting off the ground in 2017.

(Interestingly, OKCoin was where CZ first deployed his talents for artificially boosting the value of certain tokens at certain times. Fast forward to today, where Binance is a wash trading machine, and you can see that Yi He has a lot to answer for.)

Yi He and CZ have been romantically linked and have children together, although their current status remains unclear. But Yi He bristled when Bloomberg tried to draw a parallel with the romantic ties of FTX founder Sam Bankman-Fried and Alameda Research CEO Caroline Ellison. “Caroline was an employee, whereas I am a partner.”

Yi He largely deflected Bloomberg’s questions regarding Binance’s U.S. legal problems, which isn’t surprising, given that her name appeared in a translation of an internal Binance audio recording that was published as part of the Security and Exchange Commission’s civil suit against Binance and CZ.

In that 2019 recording, CZ is quoted saying Yi He “is right” in recommending ways for Binance to secretly retain its U.S. VIP customers despite Binance’s public claims to have purged all U.S.-based customers from its dot-com site.

Equally troubling is Yi He’s role as the head of the Binance Labs venture capital group as well as leading the team that decides what tokens get listed on the exchange. The inherent conflicts in this dual role are obvious, at least to anyone not working for Binance.

Yi He’s on-the-record comments re Binance’s regulatory approach were the standard ‘we love compliance’ Binance nonsense, but she did get off one money quote that didn’t quite land the way she seems to think it did:

“If [regulators] really took the time to understand our industry, they would see that if Binance isn’t compliant, then practically no other global trading platform or offshore company is.”

Um, yeah, that’s kinda the point that regulators have been trying to get across. Binance was by no means the first criminal ‘crypto’ exchange, but its reckless disregard for the rules earned Binance a dominant market share, becoming the model that other exchanges follow to try to replicate its success.

Binance’s relentless championing of function-free unregistered securities suitable only for speculation also helped confuse consumers as to the reason Bitcoin (which endures under the BSV ticker symbol) was created in the first place. In short, Binance has a lot of crimes to answer for, and it will take more than a cosmetic leadership switcheroo to put that toothpaste back in the tube.

Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple, Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.