Binance reportedly loved telling people to use VPNs

So I read on the CFTC complaint against the world’s largest cryptocurrency exchange, Binance, and it seems the lawyers are having fun with this one. For example, “Binance’s decision to prioritize commercial success over compliance with US law has been, as Lim Zhao paraphrased his stance on the matter, a ‘biz decision’.” I never tire of reading these complaints.

To be clear, I don’t think Binance is the only entity that has ever decided to circumvent US law to acquire more customers. American pharmaceutical companies have made billion dollar settlements about the exact same ‘biz decision’. But I do think that explicitly writing that you do that on purpose is a real clown move. A government agency cannot hold you responsible for conversations they cannot hear; however, they can throw anything you write down back in your face. And man rea business – you can’t call something oepsily doopsily foul wakey if you also say in a written record that it’s a business decision.

The complaint alleges that Binance deliberately violated the CFTC’s rules when trading derivatives, such as Bitcoin futures. Do you think the CFTC do what Warren G when did they release this? At least they plan to regulate.

I’ve said before that I feel Changpeng “CZ” Zhao, holding Sam Bankman-Fried’s FTX on his knees, had in fact painted a target on his own back. Frankly, Binance has been the target of multiple investigations for over the fall of FTX its own sheet, insider tradingAnd money laundering. So maybe it wasn’t the FTX fall that caused this.

In any case, in order for people to legally trade derivatives in the US, Binance would have had to register with the CFTC, the regulator says. Instead, Binance made a lot of noise by pretending it was just for customers outside the US, while US residents are encouraged to use virtual private networks to disguise their location so they can trade on the platform. VPNs essentially hide one’s IP address and browsing information and are often used by normal people to do things like stream the current episode of The great British bake-off before appearing outside the UK.

In from Bloomberg a money laundering story, a Binance spokeswoman denied that the exchange was encouraging the use of VPN. But in the CFTC’s complaint, compliance officer Samuel Lim repeatedly wrote that people should use VPNs to trade on Binance from the US! For example:

• In February 2019, Lim told Zhao that “a large number” of Binance’s customers who trade less than two Bitcoin “may actually be US citizens. They need to get smarter and use VPN over non-US IP.”
• In September 2019, Binance added a pop-up asking customers to self-confirm that they were not a US person by clicking a button in the window. In January 2020, about 20 percent of Binance’s customers were in the US anyway, according to revenue reports sent to Zhao.
• An employee titled Money Laundering Reporting Officer told Lim, “I HAVE NO TRUST IN OUR GEOFENCING.”
• Binance itself gave US customers useful tips on using VPNs by publishing “A beginner’s guide to VPNson his site. The complaint says the guide gave customers a nudge by telling them that a VPN can be used “to unlock sites that are restricted in your country”. (This does not appear in the current version, as far as I know.)
• The CFTC says the guide was used to teach US clients to bypass Binances’ IP-based controls over who is allowed to use the site, and Zhao and other members of senior management knew that. Lim said in a chat: “CZ wants people to have a way to know how to use vpn [a Binance functionality] . . . it’s a biz decision.” And also: “We are actually quite explicit about it [encouraged VPN use] al – i even got a fking guide.
• Lim again: “they can use vpn, but we can’t tell them that. . . it cannot come from us. . . but we can always inform our friends/third parties to post (not under the Binance umbrella) hahah.”
• More Lim: “Yes, it still is. Because when US users get on .com, we become subject to the following US regulators, fincen ofac and SEC. But as best we can, we try to ask our users to use VPN or ask them (if there is an entity) to provide non-US documents. At first glance, we can’t see that we have US users, but in reality we should be getting them through other creative means.”

This is, I’m sure, very cool and normal observance. But I want to focus on the direct quotes because again, we love a bitchy direct quote!

Binance used Signal, WeChat and Telegram to communicate both internally and with customers. Some of the direct quotes in the complaint, such as the one with an unnamed US trading firm, are by Zhao’s Signal Chats.

The CFTC writes that Zhao used Signal with auto-deletion on “even after Binance received document requests from the CFTC and after Binance allegedly distributed document retention notices to its staff.” It then lists a number of things that are set to auto-delete, including “group chats titled ‘Finance’, ‘HR’, ‘Mkt hr’ and ‘CEO office’.”

I wonder how much of Zhao’s auto-deleting Signal chats got the FBI! Do they have Zhao’s phone or something?

Anyway, here are some of the other greatest hits of the complaint:

• Compliance officer Lim explains to a colleague, “after receiving information ‘about Hamas transactions’” that “terrorists usually send ‘small amounts’ because ‘large amounts are money laundering’. Lim’s colleague replied, ‘can barely buy an AK47 for $600.’”
• Lim on Russian accounts: “Like c’mon. They’re here for the crime.” The answer from our friend, the Money Laundering Reporting Officer? “we see the bad, but we close 2 eyes.” My love, the meme is I pretend not to see.
• Binance’s policy was that no one had to do KYC as long as the customer was withdrawing less than two Bitcoin per day. “The notional value of two BTC was over $22,000 in July 2019 and over $100,000 in March 2021.
• Binance trades on its own platform through 300 accounts owned “directly or indirectly” by Zhao. However, it has not told its customers that!

I don’t think this will be the last we hear of the FBI investigating Binance. After all, these are just civil charges. And if part of the US federal government has Zhao’s Signal chats, other departments probably have them too.

This is all pretty brutal. Like, maybe not “Wirefraud” as the name of your group chat brutal, yet shameless. It suggests that Zhao is not worried about getting caught. Now him is in Dubai, but Dubai has been pressured to clean up his act since an international task force on financial crimes added the United Arab Emirates to its money laundering watchlist. I wonder how we will see any more legal documents before someone in the UAE starts considering Zhao extradition material. It may depend on how much more bad behavior he decided to put in writing.