Binance, the world's largest cryptocurrency exchange by trading volume, has faced significant legal scrutiny in the United States. The exchange's rapid growth, attributed largely to its American customer base, has led to serious allegations of regulatory non-compliance. Recently unsealed charging documents against Binance and its founder, Changpeng Zhao (commonly known as CZ), reveal a history of compliance failures and deliberate attempts to evade U.S. regulations.
In its early days, Binance heavily relied on U.S. customers for revenue and trading activity. However, it operated without registering as a U.S. business, an essential compliance requirement. This reliance on the U.S. market was not incidental; Binance targeted growth in this sector, especially among VIP users, who significantly contributed to its trading volume and revenue. As much as 30% of the exchange's web traffic and a similar proportion of its revenue originated in the U.S. in early 2018.
Despite recognizing the legal risks, CZ and Binance allowed their most valuable U.S. customers to continue using the main exchange through an API. This occurred even as Binance launched a separate U.S. exchange, Binance.US, which complied with know-your-customer (KYC) requirements absent from the main platform. High-ranking Binance officials even encouraged these U.S. clients to conceal their connections to the country.
By September 2020, U.S. customers constituted 16% of the main exchange's customer base, generating trillions of dollars in transactions and $1.6 billion in profit for Binance between August 2017 and October 2022. However, Binance's compliance failures extended beyond servicing U.S. customers. The exchange processed hundreds of millions of dollars in transactions from darknet marketplaces and crypto mixing services. In some cases, Binance staff allowed criminals, particularly VIP users, to continue using the site despite being aware of their illicit activities.
The U.S. government has taken significant action against Binance for these violations. Changpeng Zhao stepped down and pleaded guilty to breaking U.S. anti-money laundering laws. The U.S. Justice Department sought over $4 billion from Binance Holdings as part of a proposed resolution. Binance agreed to pay $4.3 billion in fines, a substantial penalty reflecting the gravity of its regulatory infractions.
Disclaimer: Please note that the information provided in this article is based on the referenced research articles. It is essential to conduct further research and analysis before making any investment decisions. The cryptocurrency market is highly volatile, and investors should exercise caution and consult with financial professionals before engaging in cryptocurrency trading or investment activities.
