Binance is accused of doing everything to evade US regulation, CZ denies it

Uncle Sam has his eye on Binance – Forbes magazine is said to have found documents that describe Binance’s strategy to minimise the impact of US regulation. In particular, it would allow American investors to use the international version of the platform.

Binance US and the tai chi-chuan path

In the document, presented by Michel del Castillo for Forbes, Binance US is represented by an entity named Tai Chi. This branch would allow Binance to lure US regulators.

Tai Chi-Chuan is a Chinese martial art based on energy control. It favours flexibility and dynamism rather than brute force. CZ and its associates would have created the US branch to do the round back, while allowing American traders to go to their main platform.

Harry Zhou, an entrepreneur formerly employed by the firm, would have created this document. Binance’s director of mergers and acquisitions, Jared Gross, would then have presented it to Changpeng Zhao in the last quarter of 2018.

The presentation consists of four chapters, entitled „Objective“, „Proposed Corporate Structure“, „Regulatory Engagement Plans“ and „Long Term Licensing Plans“.

Binance US, a decoy?

Binance would have wanted to minimise the impact of US regulations and controls. To do so, its strategy would rely on distracting US regulators. We are talking about those over-powerful entities that are :

  • the Financial Crimes Enforcement Network (FinCEN) under the Treasury Department;
  • the Office of Foreign Assets Control (OFAC);
  • the Securities and Exchange Commission (SEC);
  • the Commodity Futures Trading Commission (CFTC);
  • and finally, the New York Department of Financial Services (NYDFS).

Binance is headquartered in the Cayman Islands. Through the aforementioned arrangement, Binance US revenues are redirected to Binance, while at the same time „isolating it from US regulations“. Binance would also have planned to engage with US regulators to obtain its Money Service Business licence, but would expect to fail.

Binance would then have joined a number of organisations in order to show its white paw, for example :

  • self-regulatory associations, such as the Winklevoss Virtual Commodity Association;
  • the Digital Chamber of Commerce;
  • the Chicago Defi Alliance;
  • the Blockchain Association founded by Coinbase.

Binance has participated in several financial monitoring programs, such as the Cornerstone Program of the Department of Homeland Security (DHS).

The firm is also a client of CypherTrace, a company specializing in on chain surveillance. It is the only one that can analyze Binance Chain transactions and has the SEC as a client.

The author of the article accuses Binance of recommending that US traders use VPNs to bypass financial monitoring. Highly leveraged derivatives, one of the reasons for its success, are not available on its US version.

Forbes supports these statements by the fact that the trading volume on Binance US (18.7 million daily) is derisory compared to the volumes of its main platform (10+ billion).

Changpeng Zhao’s response

Michel del Castillo’s paper, published by Forbes, is written in an accusatory tone. At the end of the article, he even implies that Binance is promoting money laundering. The famous document is also said to be circulating among several law firms, the FBI and the IRS.

An hour after the article was published, Changpeng Zhao formally denied the accusations. The document was allegedly not written by a Binance employee. It states that Binance US is in no way a decoy to circumvent US surveillance.

„We do not admit to having produced the alleged document. Anyone can produce a strategy document, but that does not mean that Binance is following these recommendations. »

„Binance has always operated within the limits of the law […] and approached each jurisdiction with appropriate licenses. …] We work closely with many of the world’s leading regulators. »

The CEO of the world’s largest crypto exchange platform therefore denies these accusations outright. In any case, the strategies described there are in fact not illegal. The legal structure is advantageous for Binance but perfectly legal.

These revelations are likely to catch the eye of the US financial regulatory agencies. And we know that they are not soft on those who brave the prohibitions. Indeed, the BitMEX team has recently had the bitter experience of this.

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