Binance Compliance Officer: KYC Cost Exchange ‘Billions of Revenue’
TeaThree key members of Binance’s compliance team did what it takes to tackle fraud, money laundering, terrorist financing and bad press for the world’s largest crypto exchange.
Reuters has recently published several investigative reports on Binance and its links to illegal activities. The news service claimed that Binance has become a hotbed of criminal activity and has ignored several money-laundering red flags. Reuters also claimed that Hydra, a Russian-language darknet marketplace, is deeply embedded within Binance’s user base, adding that the exchange facilitated $780 million in Hydra-related payments since 2017. Is.
Binance’s compliance team is now led by Tigran Gambaryan and Matthew Price, former investigators from the US Internal Revenue Service’s cybercrime unit. Both men played a role in taking down major darknet markets Alphabay, Silk Road and Hydra.
The exchange, which operates in multiple jurisdictions despite not having a formally registered headquarters, also recruited ex-HSBC sanctions expert Chagri Poyraj as its new global head of sanctions compliance.
CoinDesk contacted Binance to verify the claims of Reuters and ended two lengthy conversations with Gambarian, Price and Poyraz. He disputed several claims, including allegations that Binance facilitates more money-laundering than other exchanges and that Binance has become a hotbed of criminality.
At times, officials feel that pub patrons turn to a bartender, sometimes using derogatory terms to describe journalists, and such comments should be taken with a pinch of salt.
Nevertheless, he spoke with astonishing clarity about how the criminal underworld remains firmly entrenched within the crypto industry, despite his best efforts, offering a rare window in the process into how he has dealt with some of the world’s most notorious cybercriminals. All the while trying to curb the laundering of illicit funds through Binance.
What do you think of the claims linking Binance to Hydra?
Matthew Price: Yes, Hydra was humble and yes, it did business in Russia, so it’s like saying Bank of America supports money laundering for drug cartels. It really paints the picture that “Binance knew this market was going on, so they should back it.”
Tigran Gambaryan: You can’t control the money that’s going in. You cannot control the deposit. You can control what you do later. When Indian scammers ask people to get Apple gift cards, does it mean that Apple is now laundering millions of dollars? No, criminals take the easiest and cheapest way. If Binance was the cheapest, why wouldn’t they use it?
MP: A good example, we have identified HitBTC accounts that process transactions [referring to two Canadian citizens who were charged with stealing $220,000 while posing as employees of a Hong Kong-based exchange], We only had an email address. with that email address [while working at the IRS] Search warrants may be obtained and we may view their contents. We could see that the user himself was paying with the gift card. I was able to link it via email accounts, so far down the investigation I never got to KYC (Know Your Customer) crypto accounts, but I already knew who that was and what they were doing. Were.
MP: KYC only played a role where it needed to take out its fiat. Coinbase, Circle and Kraken picked up fragments of transactions that came from Helix Mixer and removed them from the platform. So he exited the exchange and started using LocalBitcoins initially, then face-to-face meetings. Exchanges are not where the dirty money happens. it’s offline because these people know it [that activity is traced], They don’t want to use exchanges. If [the criminal] Tried using Binance, with transaction monitoring the transaction would be picked up.
TG: Even in 2019, I was able to identify two knuckles that were linked to the Twitter VIP scam. That was Mason Shepard in the UK which was done through Binance.
How does Binance compare to other exchanges in terms of illegal activity?
TG: We did a study. If you consider the illegal money going against the total volume of the exchange, then yes, there is illegal money coming in, but a lot of money going in. Binance is better or similar to most exchanges. Our stuff was much better than Kraken, better than Coinbase in some areas and worse in some areas. But there is no outsider.
We work in different jurisdictions. This makes our job challenging. so we have to pay more attention to those jurisdictions [France, Italy, Dubai], But we are operating in jurisdictions that allow law enforcement agencies to take action.
We are doing an incredible job. I can’t comment on what happened in the past because none of us were here. the whole industry was [messed] Up – the whole thing was just evolving. They all went through this phase when [bad things] happened.
Reuters claimed that users can avoid restrictions and violate the law by using a VPN (virtual private network). What is your take on that?
TG: Here’s the thing about VPNs. For the record no exchange blocks the VPN. No crypto exchange blocks VPN activity. VPN activity is not indicative of criminal activity. This in itself is not an indication that someone is guilty. Using a VPN is not illegal and it is not something that exchanges blocks. That being said, without getting into the specifics, VPN activity can be useful [for investigations], Because there are certain players who have patterns of using it – and that, in conjunction with other things, will tell us who these people can be. VPN was never something that prevented me from identifying anyone.
I have never been bitten by a VPN once.
(Poyraz, who spoke to CoinDesk from Davos, Switzerland, where he was meeting 30 industry leaders, said the exchange continues to serve Iranian customers outside Iran because doing so does not violate US sanctions. Reuters alleged that several Iranian merchant exchanges used Binance from 2019 to 2021 before tightening their KYC process. This week, The New York Times reported that rival exchange Kraken could face fines from the Treasury Department , on suspicion that the exchange had allowed Iranian users to access the platform.)
Chagri Poyraj: From the point of view of sanctions, Iranian citizens living outside Iran are also not an issue for OFAC [Office of Foreign Assets Control, the U.S. agency that enforces sanctions], … If it’s North Korea or Syria, those are UN sanctions. They apply wherever UN sanctions are recognized. But if it is US sanctions, which are Iran and Cuba, then it only applies in accordance with US law and enforcement. And by the way, they will never go after Iranian citizens living abroad. It is illegal to do so.
TG: In European countries, it is illegal for companies to comply with US sanctions against Iran. [Sanctions rules between Europe and the U.S. are vague and contradictory, according to a Financial Times report],
CP: The reason Binance is hiring people like Tigran and me is to build sophistication around the banning program. I actually enabled an Iranian refugee in the UK to get a Binance account. It was not even allowed before [Binance improved its controls to make a distinction between a resident and national of a sanctioned country]what was wrong to do.
TG: It is illegal to comply with US sanctions in the EU. This again reflects the complicated fact that we are not an American entity. We take a very conservative approach that is putting us at risk in non-US jurisdictions. but we are complying [U.S. sanctions], Our compliance with them is technically putting us in an illegal position in other jurisdictions because my understanding is that it is against EU law.
CP: Just to elaborate, please ask any bank if they open Iranian accounts for people living in their home country or the United States. The answer would be yes. … If you want to talk about Iranians living in Iran, we do everything. Yes, there is always theft, but when it is stolen, we find it and upgrade our controls.
Reuters reported that Telegram messages suggested Binance CEO Changpeng “CZ” Zhao ignored calls from compliance officials on loose KYC and anti-money-laundering (AML) policy. What is your view on CZ?
TG: CZ has been incredibly helpful.
CP: I have been a Compliance Officer for over 17 years. The main job is to explain to the business including the CEO what the risk and problem are and make risk-based decisions. You never ask them to do something illegal, but if something is in a gray area, make a risk based decision. CZ I know – and I’ve been here a long time – I’ve never seen him hesitate when you explain something to him [to act properly], He will never do wrong.
TG: He could no longer have the same abilities as the people around him. It was a small company. They grew, and look at the people they have now. I cannot defend anything that happened before. We’re here to fix those issues. I know for a fact that CZ has made decisions that cost [Binance] a ton of money. We out-platformed accounts that had millions of users because of those risk-based decisions. Because it was the right thing to do. It cost billions of dollars, but he did it.
In July 2021, Binance decided to lower the controversial 2-BTC withdrawal limit to 0.06 BTC for non-KYC accounts. Was there a significant drop in illegal activities after this change?
TG: We did. We actually started a study. If you want to go to LinkedIn and see the colorful exchange between me and someone who used to be on a January 6th commission [U.S. Department of Justice], Amanda Vick, I had an argument because she is conducting a narrative. It’s weird that someone from the DOJ comes and comments on an exchange.
TG: But anyway, I’ve commissioned the investigative team to do something: What’s the impact of 2021 compared to the last 6-8 months and when did this thing start? There is a huge difference [in amount of illicit activity], not only in deposits, if you look at the total percentage of transactions. Binance is exponentially bigger than its competitors.
If you use real math, the numbers [of illicit activity] are the same industry-wide. Better than some, worse than others. But again, it’s largely based on the jurisdiction we operate in which puts additional pressure on them [Binance staff working in] Jurisdiction to make sure numbers are clear. But there is no outsider.
There is nothing that screams Binance is a hotbed of criminal activity, and that is what I wanted. I wanted to do something there that would make it bonded.
CP: We should demonstrate this more, but we are demonstrating that it is dodging other criminals. We can’t do it every day because it will tip them. An example, I respect your domain and you will do your own fact check. check when we get out [stopped doing business with] garantex [an Estonia-based exchange that was sanctioned by the U.S. for laundering over $100 million of illicit funds], About a month ago it was designated by OFAC. We can take that call because CZ lets us take that call. All I know is that I just dropped out a month ago because we have the right to do so.
TG: There are other exchanges that continue to do business with them. We have lost 90% of customers, billions of revenues lost after KYC implementation.
Why does Binance have no physical headquarters?
Jessica Lange (Binance Spokesperson): Yes, so we have registrations in Italy, France, Abu Dhabi and now Spain.
(Binance would not disclose where the main headquarters is located or where it will be located.)
TG: I was just in Paris. I met with law enforcement in Paris – it’s no secret. We have offices everywhere. So we are actively expanding in Europe, APAC (Asian Pacific) and Latin America. Licensing is going on everywhere.
JL: If you look at the requirements for France registration, it’s very strict and due diligence and requirements are much more frequent. So if you look at it, you can see how our actual process is.
TG: I hope I can one day give you access to our law enforcement intake to see just how much work we are doing and providing for the world. In Brazil, Binance employees held a week-long class with the federal police. we are in france [where licenses are hard to get], So it’s crazy for me to know what’s up [at Binance that the Reuters story missed], I guess I’m just upset. ignore me. i hate wasting my time with them [journalists],
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