Binance admits 'gaps' in compliance and prepares to pay fines to settle US probes

The gaps have since been closed and the cryptocurrency exchange has co-ordinated with US authorities to iron out issues, its chief strategy officer says

Binance has been under investigation by a number of US regulators over the past few years. Bloomberg

Binance, the world's biggest cryptocurrency exchange by trading volume, has admitted that it had “gaps” in its compliance with US regulations and said the company is likely to pay a fine to settle investigations.

The gaps, however, have since been closed, and the company has co-ordinated with US authorities to iron out issues, Bloomberg reported on Thursday, quoting Binance's chief strategy officer Patrick Hillmann.

“It’s a tremendous burden. As a result, there were some gaps in our compliance system in the first two years,” he said.

Penalties could be “likely a fine, could be more … we just don’t know. That is for regulators to decide”, Mr Hillmann said. He did not disclose potential amount nor a time frame for any actions regarding this.

Cryptocurrency companies have been under intense scrutiny over the past several months, having been further rocked by company downfalls.

Last year was one of the most tumultuous in crypto history, with an implosion of several large crypto companies, including Celsius, Three Arrows Capital and, most prominently, FTX, which filed for bankruptcy on November 11.

The collapse of FTX, once valued at $32 billion, rattled the entire industry, dealing a blow to those making a case for the viability of digital currencies and attracting more scrutiny from regulators on how they handle user assets.

Job losses have added to the industry's woes. Last month, Coinbase, one of the world's biggest crypto platforms, said it was slashing 20 per cent of its workforce, its third round of cuts in eight months.

Stolen cryptocurrency assets, meanwhile, hit a record $3.8 billion in 2022 as hacking activity remained rampant, a study from Chainalysis earlier this month showed.

The figure is up more than 15 per cent compared with the $3.3 billion recorded in 2021, and an almost eightfold increase from 2020s $500 million, the New York-based blockchain company said.

The cryptocurrency industry’s market capitalisation, which peaked at more than $3 trillion in November 2021, has since declined; as of Thursday, it stood at more than $1.11 trillion — a plunge of almost two thirds — according to data from CoinMarketCap.

Among the US regulators that are probing Binance over the past years are the US Department of Justice, the Internal Revenue Service, the Securities and Exchange Commission and the Commodity Futures Trading Commission.

None of these entities were able to comment on the Bloomberg story.

In December, the Federal Trade Commission (FTC), which investigates misconduct, scams and fraud, said it was probing “several” cryptocurrency companies for “possible misconduct”, but did not elaborate on its scope.

The FTC has several reports on its website on the cryptocurrency sector, including information on consumer protection and updates on scams in the industry.

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  Former FTX chief executive Sam Bankman-Fried arrives on the day of his hearing at Manhattan federal court in New York. Reuters

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  Mr Bankman-Fried faces fraud charges over the collapse of the FTX cryptocurrency exchange. AP

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  Mr Bankman-Fried pleaded not guilty to charges that he cheated investors and looted customer deposits on his cryptocurrency trading platform. EPA

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  Mr Bankman-Fried is facing federal charges that he illegally used money from investors for personal gain. Reuters

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  The FTX Group has installed a new chief executive as Mr Bankman-Fried deals with his legal challenges. Reuters

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  Mr Bankman-Fried was extradited to the US from the Bahamas in December. AP

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  The FTX Group has filed for bankruptcy and has begun an 'orderly process to review and monetise assets for the benefit of all global stakeholders'. AFP

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  Mr Bankman-Fried was arrested on December 13, 2022, in the Bahamas after being served with several US criminal charges. AFP

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  Mr Bankman-Fried lost much of his wealth in the FTX collapse. AP

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  The US accuses Mr Bankman-Fried of committing one of the biggest financial frauds in history. Reuters

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  Mr Bankman-Fried, seen here in February 2021, has testified on Capitol Hill about cryptocurrency policy. AFP

While Binance was not able to divulge any details on the “ongoing conversations” with US regulators, they have been “very collaborative”, Mr Hillmann said, according to Bloomberg.

The company has made moves to boost its compliance unit, including hiring a substantial number of experts and a new chief compliance officer, Noah Perlman, who was the chief operating officer of Gemini Trust, a smaller cryptocurrency exchange.

However, this is not the only reason that Binance has collaborated with US authorities.

Binance said it had received more than 47,000 requests from law enforcement since November 2021, seeking assistance in the tracking of illicit transactions, Nils Andersen-Roed, Deputy Head of Financial Crime Compliance, told The National last week.

The requests were for “either user data or seizure request for funds, cases that are too complicated for law enforcement”, he said, without disclosing how much in crypto funds have been recovered with the help of the platform so far.