It's a big fish that is now in the sights of regulators looking to oversee the young crypto industry.
And it's a safe bet that the subtle message that the market police want to send -- no actor is immune -- will be heard loud and clear. Binance, the world's largest cryptocurrency exchange by volume is under investigation by the Department of Justice (DoJ).
The federal agency is investigating whether Binance.com violated US money laundering sanctions. At the end of 2020, the DoJ asked Binance to submit internal documents relating to how the firm ensures that users of its platform do not launder money, reports Reuters.
Prosecutors Want Communications from CEO Zhao
The DoJ also requested personal communications from CEO Changpeng "CZ" Zhao, the news outlet said, citing a written request. In particular, the federal investigators want Binance to pass on to them the exchanges between Zhao and 12 other executives and partners regarding the detection of illegal transactions.
The DoJ was looking for any company records with instructions that "documents be destroyed, altered, or removed from Binance's files" or "transferred from the United States," Reuters wrote.
"As has been well documented, regulators across the globe are reaching out to every major crypto exchange to better understand our industry. We work with agencies regularly to address any outstanding questions," a Binance spokesperson said in an emailed statement.
"Binance has an industry leading global security and compliance team which boasts more than 500 employees across the globe. Our team includes professionals with backgrounds as regulators, senior investigators from distinguished blockchain analysis firms, and law enforcement agents who have led some of the largest investigations into cybercrimes."
The DoJ didn't respond to a request for comment.
CZ, who is a Canadian citizen, seems to confirm the investigation on his Twitter account.
"Another story today about a crypto company receiving an inquiry from a regulator," the billionaire posted on Sept. 1. "A request to VOLUNTARILY share certain information back in 2020, which we did. Important for the industry to build trust with regulators."
He added that his chat messages are "semi-public anyway."
In another message posted a little later, Zhao insisted on transparency.
"Stay in front, stay transparent," he said.
The crypto billionaire has received support from social networks who particularly welcome the fact that he never shirks when talking about Binance for good or bad.
"Just facts 💪💪 #Binance #BNB," commented one Twitter user.
"Binance is coming for the bad actors in the crypto space," another user added.
Binance Pushes Back Against Accusations
CZ has built a reputation as an open boss in the industry. He regularly engages with crypto fans and critics on social media and is very vocal in pushing the industry to be more transparent.
The DoJ investigation is part of the Bank Secrecy Act, the purpose of which is to protect the US financial system from unlawful interference. Companies that are subject to a Bank Secrecy Act have to be registered with the U.S. Treasury's Financial Crimes Enforcement Network.
Last June, Reuters reported that Binance processed $2.35 billion in transactions stemming from investment fraud, hacks and illegal drug sales. The transactions allegedly took place between 2017 and 2021, before the platform implemented measures to combat money laundering.
The news outlet pointed to the hacking of Eterbase, with some of the proceeds being laundered through Binance by North Korean hacker group Lazarus, and Binance’s association with Russian-language drug mart Hydra.
Binance counters that only a very small percentage of crypto transactions involve illicit activities. It points to a report from blockchain analysis company Chainalysis, according to which, of all transactions made with cryptocurrencies in 2021, 0.15% were associated with some type of illicit activity.
"Crypto is incredibly transparent, infinitely more so than the traditional cash economy, and this is well-documented. So you tell us where the real issue is regarding money laundering?" Binance wrote in a blog post response to the investigation.
The Securities and Exchange Commission is also probing Binance. The federal agency is trying to determine whether Binance Holdings broke securities-related rules when the firm launched its native BNB token as part of an initial coin offering (ICO) five years ago.
