- Binance crafted a plan to evade scrutiny by US authorities back in 2019, the Wall Street Journal revealed.
- The plan sought to create a US entity that was wholly independent of Binance’s international operations.
- Any lawsuit from US regulators would be like “nuclear fall out” for Binance, an executive told colleagues.
Soon after it launched, Binance grew so worried about the “nuclear” threat of US prosecution that it crafted a plan to evade their scrutiny, according to a Wall Street Journal report.
Any lawsuit by US regulators would be like “nuclear fall out” for the crypto exchange’s business, a Binance executive told colleagues in a private chat in 2019, per the WSJ report Sunday.
The report is based on text messages and documents from between 2018 and 2020, as well as interviews with ex-Binance employees, the WSJ said.
Binance faces a slew of legal and regulatory probes, and the WSJ report comes just weeks after the company flagged that it expects to pay fines and other penalties to settle investigations into its business.
The Department of Justice has been probing the company over potential breaches of anti-money-laundering rules, while the Commodity Futures Trading Commission is looking into whether it properly registered some crypto derivatives trading.
The years-ago plan to shelter Binance came as US regulators signaled their intention to clamp down on crypto businesses based overseas, worried about risks to American consumers.
The crypto exchange, now the world’s largest, set up its US arm Binance.US in 2019. Founded in 2017, Binance.com had largely operated in a free-floating way out of hubs in China and Japan — an approach that drew some criticism for putting it at a distance from regulatory oversight.
Binance’s strategy focused on creating that “bare-bones” US platform for the one-fifth of its customers based in the country, per the WSJ. Binance.US would tap into the company’s technology and brand, but otherwise appear a completely independent platform.
The plan, labelled “Insulate Binance from US Enforcement,” was presented by employee Harry Zhou in a 2018 presentation, the WSJ report said.
But Binance.com and Binance.US have been more entwined than publicly disclosed, the report said, even though US customers were supposed to be excluded from the larger company.
One flaw was that the two platforms mixed staff and finances, and shared an entity that dealt with cryptocurrencies, according to the WSJ. There were missteps that team members worried would raise red flags for US watchdogs, such as when an employee had trouble changing a Google Form intended for Binance.US customers from being linked to Binance.com.
The fear was that US authorities could decide the links meant Binance had control over the US platform, which would open the larger company up to enforcement action.
In further efforts to shield itself from regulator scrutiny, Binance tried to recruit SEC chair Gary Gensler back in 2018 and 2019, per the report.
After the then-MIT academic declined, Zhou told colleagues: “I observe that while Gensler declined advisor-ship, he was generous in sharing license strategies.”
The Securities and Exchange Commission have been dialing up the heat on crypto firms following the collapse of crypto exchange FTX. Authorities have targeted firms including Gemini, Genesis, Kraken and Paxos for the sale of allegedly selling “unregistered securities.”