Bitcoin retreated overnight Thursday as three U.S. senators launched an investigation into Binance, the world's largest cryptocurrency exchange, for a host of alleged illegal activity. The news came on the heels of major crypto bank Silvergate delaying its annual results.
In a scathing March 1 letter to Binance CEO Changpeng Zhao and its domestic affiliate Binance.US, Senators Elizabeth Warren (D-Mass.), Chris Van Hollen (D-Md.) and Roger Marshall (R-Kan.) placed Binance under investigation for potential sanctions evasion, money laundering and unlicensed money transmission.
"Your companies' apparent attempts at evading the enforcement of anti-money laundering laws, securities laws, information reporting requirements, and other financial regulations cast serious doubt on the stability and legitimacy of Binance and its related entities, and on your commitment to your customers," the senators wrote.
Binance is the world's top crypto exchange by volume and has 120 million users globally. Publicly-traded Coinbase Global ranks second by volume, followed by Kraken, which recently paid a $30 million settlement to the SEC.
The Senate letter alleged that Binance facilitated at least $10 billion in money laundering and sanctions evasions for criminals and rogue states. And the senators accused the private exchange of "obscur(ing) even its most basic financial information."
Binance Alleged Charges
The allegations say that Binance evaded U.S. regulators by operating Binance.US as a "de facto subsidiary." Affiliate Binance.US is registered with the Treasury Department, but Binance is unlicensed to operate in the U.S. According to 2019 financial documents, Binance's Cayman Islands holding company holds Binance.US customers' digital wallets.
Over the course of three months in early 2021, the exchange engaged in suspicious, FTX-esque activities. The company moved $400 million from its Binance.US account at Silvergate Bank into an account held by "a trading firm managed by Binance CEO Changpeng Zhao."
It is unclear if those funds belonged to U.S. customers.
Meanwhile, the allegations say the company facilitated at least $10 billion in laundered crypto to criminals and sanctions evaders since its founding, the letter claims. "It appears that money laundering is central to Binance's business strategy – so much so that Mr. Zhao himself has directed his so-called 'compliance' team to substantially weaken the platform's anti-money laundering controls, or do away with them completely," the senators wrote, citing a Reuters report from last January.
That allegedly included Binance attempts to recruit customers in seven countries, including Russia and Ukraine, deemed "extreme" money laundering risks. Since 2018, the exchange has been the target of ongoing investigations from the Department of Justice for money laundering conspiracy and criminal sanctions violations, the letter noted.
The senators requested Binance and its related entities submit financial and internal documents and respond to questions by March 16, 2023. That includes Binance and subsidiary balance sheets dating back to 2017, percentage of U.S.-based users and its internal risk and anti-money laundering policies. The senators also want more details about the relationship between Binance and Binance.US, as well as a list of all U.S.-based platforms that have used the company's services at any point.
Bitcoin Price
Bitcoin fell nearly 4.5% to an overnight low of $22,000 following the release of the letter. Meanwhile, ethereum erased 4.2% off its price, falling to a low of $1,550.
Shares of Coinbase dropped 4.7% in premarket action. Silvergate rose 2.1%, after collapasing more than 57% on Thursday.
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