Cryptos Slide After Report Binance Under Investigation By IRS, DOJ

It’s not a good day for cryptos which after being hammered earlier on the Elon Musk reversal, just legged lower after a Bloomberg report that the world’s biggest cryptoexchange Binance is under investigation by the Justice Department and Internal Revenue Service.

The report notes that “officials who probe money laundering and tax offenses have sought information from individuals with insight into Binance’s business.”

Binance – which is led by Changpeng Zhao, “a charismatic tech executive who relishes promoting tokens on Twitter and in media interviews” – is incorporated in the Cayman Islands and has an office in Singapore but says it lacks a single corporate headquarters. Chainalysis Inc., a blockchain forensics firm whose clients include U.S. federal agencies, concluded last year that among transactions that it examined, more funds tied to criminal activity flowed through Binance than any other crypto exchange.

To be sure, in the aftermath of the Colonial Pipeline ransomware hack – where we learned that the hackers were immediately paid $5 million in crypto – it was virtually inevitable that there would be some blowback.

“We take our legal obligations very seriously and engage with regulators and law enforcement in a collaborative fashion,” Binance spokeswoman Jessica Jung said in an emailed statement, while adding that the company doesn’t comment on specific matters or inquiries. “We have worked hard to build a robust compliance program that incorporates anti-money laundering principles and tools used by financial institutions to detect and address suspicious activity.”

Meanwhile, Zhao has said Binance closely follows U.S. rules, blocks Americans from its website, and uses advanced technology to analyze transactions for signs of money laundering and other illicit activity. Last year, the firm warned that U.S. residents would have their accounts frozen if they were found to be trading, crypto trade publications have reported.

Bloomberg notes that along with the CFTC, the Justice Department is likely to examine steps that Binance has taken to keep U.S. residents off its exchange. One person familiar with Binance’s operations said that prior to the establishment of Binance.US, Americans were advised to use a virtual proxy network, or VPN, to disguise their locations when seeking to access the exchange.

Jung, the Binance spokeswoman, said the exchange has never encouraged U.S. residents to use VPNs to get around its rules, as doing so would be something “that has always been contrary to our company’s principles.” In January, Zhao tweeted that Binance’s security systems block Americans even if they try to connect through one of the networks.

“We have implemented strong access controls that have been tested via external audit and are under continuous review and evaluation by Binance to ensure that the appropriate restrictions are in place and are effective,” Jung said.

Tyler Durden
Thu, 05/13/2021 – 12:58

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