Earlier this month, U.S. Senators Elizabeth Warren (D-MA), Chris Van Hollen (D-MD), and Roger Marshall (R-KS) sent a letter to Binance, the world's largest crypto exchange, accusing it of attempting to avoid laws and regulations.
The letter requested that Binance disclose its compliance policies and balance sheets and answer certain questions about the exchange's operations. Patrick Hillman, chief strategy officer of Binance, responded to the senators' inquiry with a 14-page letter that outlined the work Binance has done to engage with regulators, enhance its compliance program, cooperate with law enforcement, and provide transparency.
"Binance has maintained that the best form of user protection is regulation," Hillman wrote. " Smart regulation will protect both consumers and markets, and still allow for innovation and the preservation of crypto’s fundamental value propositions of financial independence and empowerment. Binance supports the United States’ effort to look holistically at regulations and have a whole-of-government approach, rather than the current patchwork of laws."
Binance "takes the issue of compliance very seriously, and it regularly engages with U.S. law enforcement," Hillman's letter said. "The public blockchain record (on-chain analytics) of crypto exchanges means that the platform has greater transparency as compared to traditional financial institutions, making it easier to track and trace the flow of crypto assets. Binance is setting an important standard we believe should be required of all exchanges/platforms by publishing its proof of reserves, cold and hot wallet information, and six commitments to a healthy exchange."
The senators said their concerns stem from the collapse of crypto exchange FTX, which filed for bankruptcy in November, and said that the fallout from FTX has revealed a need for more transparency and accountability in the industry, according to a release from Warren's office. “Your companies’ apparent attempts at evading the enforcement of anti-money laundering laws, securities laws, information reporting requirements, and other financial regulations cast serious doubt on the stability and legitimacy of Binance and its related entities, and on your commitment to your customers,” the senators said in the letter. “Your actions have called into question the legitimacy of your business and the safety of your customers’ assets and raised concerns about the potential impact of these activities on the stability of the crypto market and the broader financial system.”
Hillman wrote in his response that the senators referenced information from "several articles that are either incorrect or incomplete." In response to the senators' concerns, he outlined Binance's work on transparency, compliance, and regulation. He explained the controls Binance has in place to prevent illicit actors from taking advantage of the platform, such as know-your-customer (KYC) procedures and monitoring tools that enable Binance to screen transactions in real-time. He noted that Binance used those transaction monitoring tools to halt more than 54,000 transactions between Aug. 2021 and Nov. 2022. Hillman also highlighted the many members of Binance's compliance team who have previous experience with global law enforcement and regulatory agencies, such as Chief Compliance Officer Noah Perlman, who has more than 20 years of experience in compliance, including as Global Head of Financial Crimes and Global Head of Special Investigations at Morgan Stanley.
Binance holds regulatory licenses and registrations in more than 15 countries across the globe, from Australia to Japan to Canada, according to its website. Binance has a mandatory KYC process in place that ensures new users agree to comply with all legal and regulatory guidelines, such as laws governing money laundering.
In December, Tigran Gambaryan, the global head of Intelligence and Investigations at Binance, shared a summary of the work Binance had done throughout 2022 to combat financial cybercrime. Gambaryan, who previously worked as a Special Agent at the Internal Revenue Service-Criminal Investigation (IRS-CI) Cyber Crimes Unit for more than ten years, said Binance increased the headcount of its compliance and security team by more than 500%, and its members include people who have previously worked for investigative organizations and law enforcement agencies from around the world. Binance responded to more than 47,000 requests from law enforcement agencies between Nov. 2021 and Dec. 2022 with an average response time of three days, whereas many traditional financial institutions take months to respond to law enforcement requests. In working with law enforcement partners, Binance helped to recover millions of dollars and return the funds to the victims of cybercrimes. Through Binance’s Global Law Enforcement Training Program, the company held more than 70 workshops and training sessions to share knowledge and tools with law enforcement agencies and prosecutors to help them identify and combat cybercrimes. Gambaryan called the training program “truly the first of its kind, and a credit to the crypto industry when it comes to recognizing the importance of global security and compliance.”
Several weeks after the senators sent their letter, the U.S. Commodity Futures Trading Commission (CFTC) sued Binance, alleging in the complaint that the exchange has allowed U.S. users to trade crypto derivatives without proper regulatory approval.
Matt Levine, a former lawyer and investment banker, wrote in an opinion piece for Bloomberg that it is notable that the CFTC is not accusing Binance of stealing customer funds, as crypto exchange FTX did before its November collapse. Instead, Levine said, the focus of the lawsuit is that crypto derivative exchanges are not allowed to operate in the U.S. without registering with the CFTC, "and it’s not exactly easy to do that."
