Binance Is Under Investigation Again, This Time By The U.S. DOJ

May 14, 2021 11:30 AM
Crypto Story of the Day

Crypto Story of the Day




Crypto was marginally up this morning and recovering from yesterday's selloff. DOGE is outperforming in the Top 10 on the back of further comments from Elon Musk. 

Crypto Story of the Day

Binance is under investigation by the U.S. Justice Department and IRS, according to Bloomberg. The outlet previously reported in March that Binance was being investigated by the CFTC over allegations that it allowed U.S. residents to trade derivatives that violated local rules.

Binance, a crypto-to-crypto trading venue considered to be the largest exchange by volume, is notable for its extensive alt-coin offering. According to Bloomberg, “officials who probe money laundering and tax offenses have sought information from individuals with insight into Binance’s business.” 

Further details about the investigation weren’t available. However, officials involved in the investigation, according to Bloomberg, include prosecutors within the Justice Department’s bank integrity unit. The IRS is investigating the conduct of Binance’s customers and its employees. 

Binance has taken efforts to siphon its global exchange from U.S. traders by launching Binance.US in September 2019. The new venue accepts fiat currency deposits and trading, but doesn’t offer derivatives trading or leverage in general. It isn’t clear if Binance.US is involved in investigations revealed in Bloomberg’s latest reporting. 

In response to the reported investigation, Binance tweeted “We have worked hard to build a robust compliance program that incorporates anti-money laundering principles and tools used by financial institutions to detect and address suspicious activity.”

Bloomberg points out that a report from crypto analytics firm Chainalysis found that an estimated 27.5%, or USD 756 million equivalent, of BTC associated with illicit activity in 2019 was sent to Binance. In April, the Financial Times reported that Binance’s offering of equities is being scrutinized by European regulators, including the UK’s Financial Conduct Authority and Germany’s BaFin. 

The reported investigation of Binance is the latest in a number of regulatory efforts aimed at crypto venues. These have either ended in aggressive prosecution, as with BitMEX, or settlements and fines, as with and Coinbase

When Bloomberg revealed the SEC’s probe into Binance in March, we wrote that the investigation was part of U.S. efforts to charge unlicensed, often foreign, derivative platforms. The latest reporting suggests that investigations of Binance go beyond efforts to restrict unlicensed derivatives trading. 

To-date, the U.S. regulators have either taken aggressive approaches, i.e. Ripple, BitMEX, or offered settlements, i.e. Coinbase, Considering the wide scope being reported, the investigation against Binance seems more akin to that of BitMEX. Similar to BitMEX, Binance's legal challenges seem to combine alleged irregularities in relation to derivatives offering and other compliance issues that are revealed through extensive and years-long investigations. 

Of the two approaches regulators have taken to resolve perceived non-compliance, Binance appears to be subject to the more aggressive, BitMEX-like response.

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