Binance’s Rebooted Compliance Team Looks to Burnish Bruised AML Reputation

·5 min read

Last year was rough on the world’s largest crypto exchange, Binance, as it was buffeted by a string of regulatory battles that forced it to withdraw from or pull services in nearly a dozen countries across Europe and Asia — all as it was trying to build a strictly compliant anti-money-laundering process.

However, with a new intelligence and investigations office led by a pair of veteran leaders from the Internal Revenue Service’s Criminal Investigations team IRS-CI, the exchange is working on building infrastructure and a reputation for compliance.

So it was understandably frustrating when Reuters in June published a 5,000-word investigative report accusing it of being a “hub for hackers, fraudsters and drug traffickers” that “served as a conduit for the laundering of at least $2.35 billion in illicit funds” in the previous five years. And that built on another, even longer report in January focused on what Reuters called deliberately weak anti-money-laundering (AML) checks that weren’t improved until mid-2021.

Which is likely why Vice President of Global Intelligence and Investigations Tigran Gambaryan and Senior Director of Investigations Matthew Price, the former IRS-CI agents with a crypto crime-fighting history dating back to the Silk Road darknet market takedown and the 2014 Mt. Gox exchange hack in which at least 650,000 bitcoins were stolen, were ready to set the story straight from Binance’s perspective when discussing the Reuters report with crypto news site CoinDesk this past weekend.

See also: Crypto Crime Series: Mt. Gox, the Mother of All Crypto Heists

In that interview, Gambaryan and Price, who joined Binance in October, were joined by Chagri Poyraz, who took over as Binance’s head of anti-money-laundering (AML) and global sanctions compliance in April, offered another view of the company’s efforts in this regard.

Getting Better

Asked how Binance compares to competitors in terms of illicit activity, Gambaryan pointed to an internal study that showed that “if you take into consideration illicit funds going in against the total volume of the exchange, yes, there’s illegal money going in, but there’s a lot of money going in. Binance is better or the same as most exchanges.”

Besides, he added, what’s important isn’t the money going in. “You cannot control deposits,” Gambaryan said. What you can do is control what happens to it after that.

While the firm has definitely upgraded its AML compliance efforts in the past year —last July it drastically lowered the amount that could be withdrawn daily without know-your-customer (KYC) verification from two bitcoins to about $2,000 and required all customers to verify their identity with government documents a month later — it’s nonetheless reasonable to say that a fair bit of the illicit money that still gravitates to crypto will head to Binance.

That’s simply a matter of numbers. Binance is an order of magnitude bigger than most of its competitors and four times the size of No. 2 exchange OKX, according to CoinMarketCap. On Aug. 3, Binance’s 24-hour volume from both the spot and derivatives markets was about $62 billion. OKX’s combined numbers were a bit less than $15 billion. No other exchange reached $10 billion.

It’s worth noting that Binance does not do business in the U.S. CEO Changpeng “CZ” Zhao is reportedly the vast majority owner of Binance.US, a new and separate company that has vastly less trade volume.

Historical Problems

Aside from not having a headquarters — under which country's jurisdiction the company would fall — Binance was battered by regulators in 2021, accused of operating illegally by the U.K., Italy, Japan, Thailand, Malaysia, the Cayman Islands and the Canadian province of Ontario. It also halted derivatives trading in Germany, Italy and the Netherlands.

Read more: Exiting Singapore, Embattled Crypto Exchange Binance Retreats Again

Binance had to halt payments on the European Union’s Single Euro Payments Area (SEPA) in July 2021, reinstating them this January. And in February, the United Kingdom’s Financial Conduct Authority (FCA) expressed “concerns” about a deal that gave Binance access to the Paysafe payments network but admitted it had “limited powers to object.”

See also: FCA ‘Concerned’ About Binance Accessing UK Payments Network

Getting Tough

Citing extensive interviews with “law enforcement officials, researchers and crime victims in a dozen countries,” Reuters’ most recent investigative report focused on what it said was “the enduring impact of past gaps in Binance’s anti-money laundering rules,” including use by darknet markets and hacking groups.

A Binance spokesperson denied Reuters’ reports, saying its $2.35 billion in illicit funds number was wrong.

Reuters also reported that Binance CEO Changpeng Zhao, CEO of cryptocurrency exchange Binance Zhao had bemoaned compliance rules, ignoring calls to tighten its KYC and AML policies. Asked about that, Poyraz told CoinDesk “when you explain something to him, I have never seen him hesitate [to act properly].”

Gambaryan added that Zhao “did not have the same caliber of people around him that he does now. This was a small company.”

In November, Zhao said that implementing KYC for all customers that August cost it 3% of its users — which is still a fairly large number.

Read more: Binance CEO: KYC Mandate Causes 3% of Users to Leave

“We have chosen to go with full compliance, full mandatory KYC for global users, for every feature,” Zhao told Bloomberg. “We feel that being compliant will allow more users to use us. Most people do feel more comfortable using a licensed exchange.”

Having noted that the compliance staff now numbers more than 500, Gambaryan said the company has also  booted a huge number of users, costing it billions of dollars.

“I can’t defend anything that happened before,” he added. “We are here fixing those issues.”