Leaked documents allegedly created by Binance’s senior executives revealed how the world’s most influential cryptocurrency exchange planned to evade US regulations and profit from American investors.
The document, obtained and exclusively published by Forbes, dates back to 2018 and involves a corporate structure plan for its then-unnamed arm in the United States, Binance.US. At the time, the initiative was code-named the 'Tai Chi entity', referring to a Chinese martial art that Binance may have conjured up its philosophy to circumvent US laws and its intensive regulatory scrutiny.
From the outside looking in, the world’s largest crypto exchange was going legit. However, the leaked Tai Chi document describes a secret strategy that depended on avoiding regulatory accountability by playing a high-stakes game of cat-and-mouse with policymakers around the world.
Binance.US is registered with the Financial Crimes Enforcement Network (FinCEN) as a money services business. Although, the Cayman Islands-based holding company is known for operating in a regulatory gray zone, frequently moving domiciles to evade certain regulations.
Specifically, the strategic plan proposed to CEO, Changpeng Zhao and other top executives tricky measures to transfer Binance.US revenue to its parent in the form of licensing fees. “License and service fees paid by the US Service company to Binance are functionally US-sourced trading fees,” the document states.
Moreover, Binance, the parent company, was allegedly facilitating unregistered trading to US customers while flouting the nation’s banking laws. While Americans were not allowed to access its trading services through IP addresses based in the US, potential customers were taught how to mask their actual identities through virtual private networks, or VPNs, to disguise their locations.
Meanwhile, the files checked by Forbes staff claim to explicitly mention the need to undermine the ability of “anti-money laundering and U.S. sanctions enforcement to detect illicit activity,” and distracting almost all US regulators. This effort included, among other things, participating in a program launched by the Department of Homeland Security for detecting weaknesses in the financial systems.
The arrangements also planned for 'the Tai Chi entity' to act as a front to receive the regulatory inquiries instead of its Cayman Islands-based parent, and that it should be willing “to accept nominal fines in exchange for enforcement forbearance.”
US Regulators Already Probe Binance’s Blockchain
While the US Securities and Exchange Commission declined to comment on Forbes report, the SEC was already gearing up for a closer look at Cryptocurrencies listed on Binance’s eponymous blockchain. But, it is Binance’s native token, BNB, that was likely of particular concern to regulators.
One of the slides from the leaked slideshow
The SEC in July awarded CipherTrace, which is backed by venture firms such as Mike Novogratz’s Galaxy Digital, a contract on the grounds it is the only blockchain analysis firm capable of tracing Binance Chain transactions.
In a part labeled 'Regulator Engagement Plans', the document discussed engagement plans with both the US government and self-regulatory organizations. But, while Binance did not expect to gain approvals from the federal authorities, repeatedly using the phrase 'with no expectation of success', it already managed to join the Blockchain Association to 'demonstrate compliance willingness'.
At the time, Coinbase resigned from the blockchain advocacy group following the admittance of Binance.US. into the association.
In addition to the fiat ramp exchanges, Binance further planned to use its decentralized exchange to get revenues funneled back to the main business that is largely regarded as employing much less restrictive KYC and AML requirements. Binance DEX is a decentralized exchange with a decentralized network of nodes, where you hold your own private keys and manage your own wallet.
While Binance has spent the last few years cementing its place in the industry, it has been forced to repeatedly uproot its headquarters to evade sanctions from regulators worldwide. It relocated first from China to Japan, but after regulators in both countries stepped up their crackdowns it moved to Malta, Singapore, Bermuda, and Uganda. While it was pursuing a less restrictive jurisdiction, Binance was sending a signal to whom it may concern that it is an easy target for money laundering.
