Binance announces ‘Brexit’ but can’t quit noncompliant bad habits

Binance appears to be making a ‘Brexit’ from the U.K. market, even as it fails to live up to the compliance pledges in its U.S. legal settlement.

On December 22, the Binance digital asset exchange announced that it would remove and cease trading pairs involving the British pound as of December 29. The pairs involve most major tokens, including BTC, ETH, USDT, XRP, SOL, LTC, ADA, DOGE, and BNB, making this no small adjustment for Binance’s U.K.-based customers.

Binance offered the usual detail-free explanation behind its decision, saying only that it came following one of its ‘periodic reviews.’ Needless to say, the move caught U.K. customers by surprise, some of whom claimed the exchange had already begun declining transactions involving GBP.

Binance is not currently authorized to operate in the U.K., despite multiple attempts to ‘backdoor’ its way into the market via reverse takeovers of local businesses holding licenses issued by the U.K.’s Financial Conduct Authority (FCA). This year saw a number of Binance’s U.K. fiat currency ramps (Paysafe, Checkout.com) cut ties with the exchange due to the risk of guilt by association with Binance’s noncompliant ways.

Despite these brushbacks, Binance continued to serve U.K. customers who’d already registered with the exchange, arguing that as long as it refrained from marketing directly to U.K. residents, it was legally in the clear. And yet it was only this October that Binance agreed to halt onboarding new U.K. customers to comply with the FCA’s upcoming rule changes.

Binance’s announcement came shortly after U.K. financial services outfit Revolut
announced that its Revolut Business division was ‘temporarily’ halting token purchases by its local business customers. Binance was among the list of ‘crypto merchants’ supported by Revolut, although Revolut qualified that “we are reviewing this list on a regular basis.”

While these merchants will still be able to sell or hold digital assets—and Revolut Retail customers won’t be impacted—Revolut reportedly needs a little time to figure out how its business-focused operations will mesh with the FCA’s new regime.

Welcome to my Teng talk

Richard Teng, who replaced Changpeng ‘CZ’ Zhao as Binance’s CEO in November following CZ’s $4.3 billion settlement with the U.S. Department of Justice (DOJ), dialed in to the Taipei Blockchain Week event on December 14. Asked about his priorities as Binance’s new captain, Teng said he was focused on (a) maintaining Binance’s focus on its users, (b) working with regulators to “uphold industry standards,” and (c) embracing Web3 and pushing ahead with greater adoption of digital assets.

Working with regulators could prove a tall order for Binance, particularly in markets where the exchange flipped the bird at efforts to rein in its noncompliant excesses. Teng bemoaned the fact that “traditional media still associates crypto and blockchain with scams and illicit funds,” omitting Binance’s prominent role in establishing and perpetuating this association.

Yi He offers CZ a hand on the tiller

Meanwhile, Binance co-founder (and CZ’s significant other) Yi He was the subject of a Wall Street Journal pre-Christmas profile that questioned how the mother of CZ’s three children could possibly not discuss how the exchange was being run with her longtime romantic/business partner.

CZ is still waiting to learn how long he’ll have to spend in a U.S. prison cell when he’s sentenced in February, but he’s supposed to have zero input into Binance’s dealings for three years. But even after he’s released from prison, expecting him not to talk shop with the mother of his kids over dinner or lying in bed at night in their home in Dubai seems more than a little implausible.

The DOJ reportedly wanted to include Yi He in its recent settlement with Binance/CZ and force her to resign her executive position along with CZ. Instead, with CZ out of the picture, Yi He is the single-largest shareholder in an active executive role in the company.

Recall that in a 2019 audio recording cited in the U.S. Securities and Exchange Commission’s (SEC) ongoing civil suit against Binance, CZ is heard claiming that Yi He “is right” when she recommended methods by which the exchange could publicly claim to have cut ties with U.S. customers while secretly retaining their lucrative U.S. whales.

In 2022, Yi He was said to have spearheaded a plan to offer digital identities from the Pacific island nation of Palau to prospective Binance customers for as little as $248. This would allow individuals based in countries that have told Binance to GTFO—including China and the U.S.—to open accounts with the exchange while allowing Binance some plausible deniability.

This summer, the WSJ reported that around 2,000 Binance customers—including some U.S. residents—had successfully opened accounts using their Palau IDs. The WSJ also reported that other exchanges, including the U.S.-based Kraken, Crypto.com, and Justin Sun’s Huobi (now HTX), had made similar use of the Palau identity dodge.

The WSJ’s pre-Christmas profile also detailed some of Yi He’s less successful pitches, including a bizarre plan to launch a production company akin to Marvel Studios but using real-world Binance employees in lieu of superheroes. Which begs questions regarding what these super-staffers’ superpowers might have been?

Was one capable of telling the most outrageous falsehoods about Binance’s compliance efforts while still beating a polygraph? Could another process new customers’ know-your-customer checks in the blink of an eye (technically, Binance already did this in real life by not doing KYC checks)? Another could be a multi-armed Vishnu-type character capable of wash trading tokens from one hand to another faster than the eye could process. Binancers assemble!

Binance still ‘all mouth and no trousers’ when it comes to compliance

In the wake of November’s U.S. settlement, Teng, Yi He, and others at the top of Binance’s executive ranks continue to push the mantra that they’ve learned their lesson and are now employing strict KYC and anti-money laundering standards.

But a report from the South China Morning Post (SCMP) just last week saw one of its reporters attempt to open a new Binance account with a mainland China identification card that didn’t match the name, birth date, and address data submitted for the account. Despite these discrepancies—and the fact that Binance claims its exchange is off limits for mainland Chinese or Hong Kong residents—the new account “was approved in less than an hour.”

The SCMP also found that members of the Binance Angels affiliate program continue to instruct prospective Chinese customers on how to circumvent the exchange’s geographic restrictions. Binance was even running workshops in the Maldives for Mandarin-speaking affiliates and influencers, “most of whom are based in China.”

CZ previously took great pains to beat back the perception that Binance was a Chinese company, saying last year that Binance had been “designated a criminal entity in China.” But while Binance’s website may be blocked by China’s infamous “great firewall,” the Binance app—along with apps of other exchanges—are freely accessible within China. As recently as this spring, China-based customers reportedly accounted for over one-fifth of Binance’s trading volume.

Under the terms of its U.S. settlement, Binance will soon have to onboard an independent compliance monitor to ensure that the exchange is actually walking the walk of compliance, not just saying what it needs to say to sound compliant. This monitor will have the ability to examine Binance’s every action and report back to the feds whether Binance is or isn’t honoring its end of the bargain.

Given the SCMP’s experience, it certainly sounds as if Binance recognizes all too well how much customer traffic it stands to lose once this monitor is in place and is, therefore, doing everything it can while it can to maximize revenue before the compliance guillotine blade falls.

Bar the stable door

Until a recent surge by the speculative SOL token, the top trading pair on Binance was BTC/FDUSD, a couple of percentage points ahead of the BTC/USDT pair. The FDUSD stablecoin made its debut on Binance this summer and has traded nearly exclusively on Binance ever since with zero-fee privileges. FDUSD’s market cap has been on a tear over the past 30 days, rising from under $700 million to $1.8 billion in that short span.

Much of this increase has come at the expense of BUSD, the dollar-denominated
stablecoin that was originally a partnership between Binance and New York-based Paxos Trust. In February, Paxos was ordered to halt further issuance of BUSD after New York regulators discovered that Binance was minting billions’ worth of its own Binance-Peg USD without 1:1 backing by actual dollars.

Over the past 30 days, BUSD’s market cap has fallen by around $800 million to just $1 billion, a far cry from its $17 billion cap at this time last year. Meanwhile, the past year has seen the Tether (USDT) stablecoin’s cap increase by around $15 billion to over $91 billion. All of this goes to show that ‘crypto,’ just as nature, abhors a vacuum.

Similarly, other exchanges will eventually soak up the criminal activity that Binance is (eventually) forced to offload. It’s an enduring feature of the Crypto Crime Cartel. The faces change, but the rigged game remains the same.

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.f