Crypto-giant Binance kept weak money-laundering checks

Adhyan Kaushik
7 min readJan 21, 2022


In the courtyard of a secluded limestone palace, Malta’s political elite welcomed a guest: Changpeng Zhao, chief executive of Binance, the world’s largest cryptocurrency exchange.

t was October 2018. Zhao was in Malta to find Binance a new home, having quit mainland China the year before when regulators there began cracking down on cryptocurrencies. Zhao praised Malta for opening its doors to crypto firms.

“Binance got really lucky,” Zhao told the audience, in filmed remarks. “Malta came at a time when regulatory clarity was very much needed.”

That same month Binance notified Malta’s financial regulator it planned to seek a license to operate its exchange from the island — an important step to mainstream legitimacy for the young firm. Zhao said the island would be Binance’s new base.

Binance’s proposed relocation crowned the Maltese government’s strategy to turn Malta into a “Blockchain Island.” Zhao pledged that Binance would raise donations for local cancer patients.
But soon the romance ended.

As Zhao studied the license’s conditions, he grew nervous about their stringent anti-money laundering protocols and the level of financial disclosure required, according to four people with direct knowledge of the licensing discussions. The following year, Binance privately informed the regulator it had aborted its plan, the regulator told Reuters. A letter from Binance in 2020, seen by Reuters, shows donations to the charity were scrapped, too. Yet for several months Binance kept telling its millions of customers that its terms of use were “governed under the laws of Malta.”

Zhao’s dealings with the Mediterranean island fit a wider pattern, a Reuters investigation has found. In public, Zhao repeatedly said he welcomed regulatory oversight and Binance lauded its anti-money laundering programme. But at the same time, Binance was withholding information about its finances and corporate structure from regulators, at least eight of whom have warned consumers about the risks of using the exchange. Binance also maintained weak checks on customers, despite concerns raised by senior company figures, and acted against its own compliance department’s recommendations.

$914 billion
Binance’s spot trading volume in November 2021

A Binance spokesperson said in a statement to Reuters: “As the leading cryptocurrency and blockchain ecosystem, we are both leading and investing in the future technologies and legislation that will set the crypto industry on the road to becoming a well-regulated, secure industry.” The company didn’t comment in response to detailed questions.

Reuters conducted dozens of interviews with former senior employees of Binance, advisers and business partners, and reviewed hundreds of documents, including confidential correspondence between Binance and national regulators, and internal company messages.

The reporting shows Binance has operated outside rules that govern traditional financial firms and many crypto rivals. An opaque corporate structure has enabled Binance to offer products that many national regulators don’t allow locally registered firms to sell. Binance has repeatedly declined to specify in which jurisdiction its main online exchange is based, complicating regulators’ efforts to oversee its activities.
And it has minimised costly client background checks.

Other findings include:

  • On at least four occasions, Binance declined to provide detailed answers about its operations when asked by financial authorities and business partners, according to regulatory filings and people with direct knowledge.
    • In encrypted Telegram messages seen by Reuters, Binance staff, including Chief Compliance Officer Samuel Lim and former Global Money Laundering Reporting Officer Karen Leong, raised worries about weak “know-your-customer” checks aimed at preventing money laundering. Three former senior Binance employees told Reuters they voiced such concerns to Zhao himself but he ignored them.
  • • Binance acted against its own compliance department’s assessment by continuing to recruit customers in seven countries, including Russia and Ukraine, judged to be of “extreme” money-laundering risk in an internal report circulated in early 2020 that was seen by Reuters.
  • • Last year, Binance watered down compliance rules arranged with a German business partner, causing disquiet among some Binance staff.
  • • German police and lawyers representing over 30 suspected fraud victims sent Binance dozens of letters, seen by Reuters, seeking information about several million euros that they suspect were laundered through the exchange. Several of the letters’ senders told Reuters that Binance responded saying it could not help. Reuters has been unable to review most of Binance’s written responses.
  • • German federal police sought information from Binance last year about two men suspected of assisting an Islamist gunman who killed four people in Vienna in November 2020. One of the men made unspecified transactions on Binance, a letter from police said.
  • The Binance spokesperson said the company is driving higher industry standards. He noted that when Binance was founded in 2017, “the crypto industry was still in its infancy. There was relatively little guidance on how crypto should be regulated, Know Your Customer (KYC) technology was yet to be fully developed, law enforcement agencies were not educated on crypto, and policies such as those that govern anti-money laundering were broadly not fit-for-purpose for the crypto space.”

The spokesperson, without going into details, said Reuters’ information was “wildly outdated and — in several places — flatly incorrect.” Legal representatives for Binance said documents reviewed by Reuters were “partial and do not accurately reflect the full picture in relation to how decisions relating to very serious issues have been made by our client.”

Zhao, Lim and Leong didn’t respond individually to requests for comment.

Binance has become emblematic of governments’ attempts to tame the crypto sector. Top regulators in the United States and Britain have called on lawmakers to grant them greater powers over the industry.

While Binance’s business boomed during the COVID-19 pandemic, with retail and institutional investors alike warming to crypto, over a dozen national regulators issued warnings about the firm. Some said it was operating without a license in their jurisdictions. Others cautioned people against using its services. Britain’s regulator said in mid-2021 that a UK unit of Binance was “not capable of being effectively supervised,” after it refused to answer questions about the exchange’s global business.

Zhao told Reuters in an interview in October: “We have never intentionally withheld information from regulators.” The Binance spokesperson said, “it is categorically false to claim that Binance is knowingly withholding information about its corporate structure from inquiring regulatory bodies.”

Power of bitcoin

Born in China and educated in Canada, Zhao is a prominent figure in the crypto world, preaching to his 5 million Twitter followers about the liberating power of bitcoin. Most people know the 44-year-old by his initials, CZ.

Since he established Binance in Shanghai in 2017, his exchange has ventured into every corner of the crypto market, from spot and derivatives trading to non-fungible tokens. In November, Binance’s monthly spot trading volumes were $914 billion, up more than five-fold from the year before and over five times the amount smaller rival Coinbase processed, according to data from analytics firm CryptoCompare. Binance’s derivatives trading volumes were $1.8 trillion.

For a corporation of its scale, Binance discloses little public information. It says it does not have a headquarters and does not identify which entity controls its main exchange, although Zhao has said in recent months he wants to establish a number of regional headquarters.

An internal organisational chart which Binance submitted to Liechtenstein’s financial regulator in April 2020 may shed some light. The chart, which has not been previously reported, shows Binance at the time was composed of 30 entities, many of them owned by Zhao personally.

According to another previously unreported document which Binance sent to the regulator, Binance held over $100 million in assets in a Cayman Islands holding company at the end of 2018, when bitcoin’s value and Binance’s trading volumes were a fraction of those today.

The new insights into Binance’s operations come as international authorities voice growing concerns about the use of cryptocurrencies in money laundering and other crimes. Top policymakers, including U.S. Treasury Secretary Janet Yellen and European Central Bank President Christine Lagarde, have said cryptocurrencies generally could be used by criminals because of the high degree of anonymity they afford users and often-patchy regulation. The Dutch central bank warned in August that Binance was not in compliance with laws aimed at preventing money laundering and terrorist financing. The U.S. Internal Revenue Service is also conducting an investigation into possible money laundering at Binance, said two people familiar with the probe, first reported by Bloomberg. The IRS declined to confirm any investigation.

In August, Binance said it would tighten customer checks designed to prevent laundering — a major shift for the exchange, where many users had previously been able to trade with just an email address.
“Appetite for risk”
Zhao launched Binance in July 2017. In a paper aimed at raising funds from investors, Zhao said Binance heralded a “new paradigm” in world finance. Binance, he wrote, would be a global marketplace for smaller cryptocurrencies created in the wake of bitcoin’s growth.
Flush with $15 million raised in an initial coin offering (ICO), in which crypto start-ups issue and sell virtual tokens to investors, Zhao planned his global expansion from a small Shanghai office with a close-knit team. Bobby Lee, a Shanghai-based crypto entrepreneur and friend of Zhao, told Reuters he was struck at the time by Zhao’s ambition, persistence and “appetite for risk.”
The exchange quickly gained steam, notching 120,000 users by late August, many of them in the United States, China and Japan. For a basic Binance account, traders could sign up with an email address, without entering personal information. Binance charged them a small fee on each trade and withdrawal.
But Binance’s debut, among a flurry of other Chinese ICOs, drew unwanted attention from Chinese authorities. In September 2017, Beijing banned token issuances in a broad crackdown on cryptocurrencies. Without naming Binance, the Chinese central bank said recent ICOs “seriously disrupted the economic and financial order.”
Zhao moved Binance away from mainland China. In late September, he set up a new Binance company in Hong Kong, controlled by a Cayman Islands holding company, corporate records show. Zhao and his team relocated to Tokyo, he later told interviewers.

$20,000. Income surged, giving Binance profits of about $208 million for the six-month period since its launch, a company blog post said.
Zhao also started marketing Binance globally. He enlisted hundreds of so-called Binance Angels as volunteers in some 50 countries to promote the exchange to local crypto traders. The Angels spread Zhao’s thoughts on crypto via local Telegram groups, receiving discounts in return. “CZ is here to make us all rich,” an Angel in the Philippines group told customers.