[HN Gopher] Binance kept weak money-laundering checks even as it...
___________________________________________________________________
Binance kept weak money-laundering checks even as it promised
tougher compliance
Author : 2OEH8eoCRo0
Score : 141 points
Date : 2022-01-21 15:59 UTC (7 hours ago)
(HTM) web link (www.reuters.com)
(TXT) w3m dump (www.reuters.com)
| young_unixer wrote:
| KYC is already hard to deal with, I dread the day I mistakenly
| log into my Binance account from a US exit point, because my
| account could just get frozen.
|
| I prefer they keep being like this instead of things being even
| harder.
|
| And them doing everything to avoid governments getting data from
| their customers would suggest me that their loyalty lies with
| their customers first, and governments last, as it should be.
| tyre wrote:
| Their loyalty is to making as much money as possible. It's
| simply greed.
| cblconfederate wrote:
| I mean yeah, it's finance
| Consultant32452 wrote:
| My loyalty is to making oversight by regulators as difficult
| as possible. And if Binance makes a lot of money doing that
| in the process, I am happy to see it.
| efdee wrote:
| That's a weird goal in itself.
| Consultant32452 wrote:
| It's no weirder than wanting to tattle on Binance to
| people who demonstrably do not have my best interest at
| heart.
| WinstonSmith84 wrote:
| Yes, Binance are greedy capitalists unlike any other stock
| companies. Oh wait...
| sgjohnson wrote:
| Ah, the wonders of FATCA.
|
| As long as they don't suspect you of being a US person, they
| don't need to take action. Which is great for all parties
| involved, as long as you don't slip up.
| 2OEH8eoCRo0 wrote:
| How do binance wallets work? Does everybody's coins go into a
| large shared wallet?
| miohtama wrote:
| Correct. It is called a hot wallet.
|
| https://ethereum.stackexchange.com/questions/84401/how-to-bu...
| 2OEH8eoCRo0 wrote:
| Would that essentially act as a tumbler?
| from wrote:
| Ironically, yes. Casino sites can also do the same thing
| (although obviously if you deposit 1.215179 BTC from one
| address and then withdraw the exact same amount to a
| separate address it's probably still going to be possible
| to link the two addresses) This is why some blockchain
| analysis companies increase the risk score of coins from
| exchanges with effectively no KYC like Huobi or Kucoin.
| cowpig wrote:
| What's the irony?
| dustymcp wrote:
| Not really binance would have a registry, and most likely
| comply with law enforcement.
| mikeodds wrote:
| I've gone through corp compliance checks with Binance and through
| the same checks with various traditional payment processors.
| Requirements weren't particularly different.
|
| If anything, Binance was more stringent than some high risk
| payment processors I've dealt with.
| sgjohnson wrote:
| Good. Crypto was not meant to be regulated. Good to know that
| there's a crypto exchange that won't ask stupid questions when
| buying or selling crypto for fiat.
| svw1907 wrote:
| bobulous wrote:
| "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..."
|
| I don't see the point of giving them the benefit of the doubt.
| Their outfit is clearly designed to avoid the kind of regulation
| that would discourage money laundering.
| thebean11 wrote:
| If you believe regulators are out to get you, this is rational
| behavior regardless of whether you are breaking the law or not.
| cowpig wrote:
| This seems like a thought process that can easily rationalize
| any kind of illegal or immoral activity as "rational," given
| what you can get away with.
|
| Seems that if society at large thinks this way then we are
| all much worse off.
| thebean11 wrote:
| Is not having a corporate headquarters illegal or immoral?
| arcticbull wrote:
| I'm shocked. Shocked! Well... not that shocked.
| leifg wrote:
| General question: are crypto exchanges not regulated the same way
| banks are regulated (in the US)?
| legutierr wrote:
| Crypto exchanges are typically regulated as money transmitters
| (like PayPal, for instance), usually by state banking
| regulators. In New York a special "bitlicense" is required,
| which is issued by NY state banking regulators.
|
| Among the differences between being a money transmitter and a
| being a bank include an obligation that 100% of client
| obligations be backed by cash-equivalent assets or surety bonds
| (as opposed to <20% fractional reserve required of banks).
| Money transmitters are not insured by the FDIC, so there is no
| federal-level prudential supervision. State regulation varies
| between completely hands-off (Montana, for instance, does not
| require licensing to operate in the state) and very strict (for
| instance in the case of New York).
|
| That being said, with regards to anti-money laundering, all
| money transmitters are overseen at the federal level by FinCEN,
| and are subject to the Bank Secrecy Act with regards to all KYC
| and anti-money laundering requirements. Regardless as to the
| states in which they operate, they must register with FinCEN,
| and like banks must take proactive steps to detect and report
| suspicious activity to that entity.
|
| In other words, there is no way for Binance to operate legally
| in the United States without being subject to the same strict
| anti-money-laundering rules and requirements that banks are
| subjected to.
| gruez wrote:
| Some of them are, eg.
| https://www.finextra.com/newsarticle/36582/crypto-exchange-k...
| [deleted]
| smt88 wrote:
| No. They fall under a variety of regulations because they sell
| securities, transmit money, and hold cash, but most of them are
| not banks yet. I think that will change soon, especially as the
| government equates stablecoin offerings as equivalent to
| banking.
|
| Also, Binance is not regulated in the US at all. It's banned
| from the US.
| kolanos wrote:
| > Also, Binance is not regulated in the US at all. It's
| banned from the US.
|
| Their website suggest otherwise?
|
| > Binance is unable to provide services to U.S. users.
| Binance.US (BAM Trading Services) is a US-regulated
| cryptocurrency trading platform. In approved states, U.S.
| customers can use Binance.US to buy and sell over 50
| cryptocurrencies with low fees.
|
| So it looks like Binance has a U.S. entity that is regulated.
| latchkey wrote:
| Binance.com is banned in the US. If you are a US citizen
| (and KYC'd as such), you can't access their site services
| at all. Even if you do get in, you can't deposit /
| withdraw.
|
| As a US citizen, I tried to setup an account with
| Binance.US when it launched and for whatever reason, their
| automated systems locked me out and I didn't bother trying
| to investigate it further.
|
| So yea, despite what Reuters says, my personal experience
| is that their platform is pretty tough on compliance.
| Tenoke wrote:
| Binance.us is so much more limited and separate from
| Binance.com that it's easier to think of it as a seperate
| entity that Binance lends their name to.
| WJW wrote:
| Nope. They don't have a banking license so they are not banks
| so they are not regulated like banks.
|
| (Whether they _should_ be regulated like banks is a different
| question, and one that is still being debated)
| kolanos wrote:
| While they're not regulated like a bank, nor should they be,
| since they're not a bank... They are regulated, such as by
| FinCEN [0] which imposes AML and KYC measures on all fintech
| (including crypto) companies operating within the United
| states. Additionally, since crypto is classified as
| securities in the U.S., I believe they are regulated by the
| SEC as well.
|
| [0]: https://www.fincen.gov
| miohtama wrote:
| United States does not have regulation for
| cryptocurrencies. They also do not have classification for
| cryptocurrencies.
| efitz wrote:
| Binance.us is a joke (as a "free" US citizen, I am of course not
| permitted [ed: by my government's regs] to use the original
| site.)
|
| I recently tried to change my email address. I failed. It's a
| customer support interaction, because who would want to change
| their email address, right?
|
| So they sent me back through their KYC verification Whig was
| unable to accommodate the fact that I have moved to another state
| since I initially registered and have a different driver's
| license (because who would move, and who would get a new drivers
| license, amiright?)
| glerk wrote:
| Kucoin with a VPN is the way to go until everything moves to
| decentralized exchanges and we don't have to deal with this
| nonsense anymore.
| sgjohnson wrote:
| Actually there's plenty of international financial
| organizations that just don't want to deal with US persons
| because of FATCA.
|
| Try opening something more than a most basic bank account in
| any European country. There's a fair chance that they simply
| won't want you as a customer.
| hammock wrote:
| Same thing happened to SWIM when doing the binance.com one.
| dustymcp wrote:
| This is the same for most exchanges Ive used its really a
| hassle to change email..
| seany wrote:
| We really should just get right of AML laws.
| sgjohnson wrote:
| s/right/rid
|
| it's not like AML even works.
| https://www.icij.org/investigations/fincen-files/
| helloworld11 wrote:
| Good. KYC and AML laws are a travesty for basic individual
| freedom and privacy in modern times and a hypocritical joke in
| many contexts.
| Animats wrote:
| Binance, remember, is the company behind Tether. Binance issues
| insane amounts of Tether, backed by almost nothing. This only
| works as long as long as there is a net inflow of USD to Binance.
| If that ever stops, the bottom will fall out.[1]
|
| [1] https://www.coalexander.com/post/the-tether-binance-axis-
| and...
| miohtama wrote:
| The company behind Tether is Bitfinex. Tether was founded 2014,
| Binance 2017. This blog post has multiple of its facts wrong or
| as speculation, while it is still a fact that Tether is super
| shady.
| 2OEH8eoCRo0 wrote:
| Which facts does the blog post get wrong?
| Animats wrote:
| Right, Bitfinex, not Binance, is behind Tether.
|
| Tether is a lot like Madoff's fund. Everything is just great,
| until there's a net outflow, which happens during a
| recession. Then the house of cards collapses.
| [deleted]
| Johnie wrote:
| I see this so often with many FinTechs.
|
| First thing that FinTechs fail to address early is risk/fraud.
| They learn pretty quickly to address this.
|
| Second area regulatory and compliance (ie KYC/AML).
| silksowed wrote:
| seems like a vested interest for them to launder here, then come
| back and say "oops" were fixing our gaps if/when it becomes a PR
| storm
| TheGigaChad wrote:
| vmception wrote:
| > Binance said documents reviewed by Reuters were "partial and do
| not accurately reflect the full picture
|
| I believe that, having worked with many lawyers over a variety of
| crypto projects over the last half decade most of the information
| is with different attorneys under attorney client privilege.
|
| They know the law better than the public sector agencies do,
| spending months on a rationale from a variety of case law,
| journals, and less binding private opinions from the same
| regulators. and law firms may even accept liability on behalf of
| their client.
|
| Even if its not "better", as it is inconvenient for a regulator
| to disagree with you at any point, it is more expensive for a
| regulator by orders of magnitude for two reasons:
|
| 1) The regulator doesnt know how you're structured or what legal
| rationale you are relying on. They dont know what exemption or
| compliance you are relying on. And there are many possibilities,
| sometimes infinite permutations.
|
| 2) They dont get to know even because of the attorney client
| privilege.
|
| They cant assume you're doing something wrong just because
| Reuters decided to use some negative adjectives for things likely
| currently legal.
|
| Regulators are stuck with a high expense to most likely just
| embarrass themselves. Its better for them to go after lower
| hanging fruit.
|
| Binance is accurate in that legislatures have not made a specific
| encompassing law. So regulators are flying blind. Legislatures
| also dont know what to pass since nobody will talk to them
| either, the firms most effected dont want anything on the piblic
| record because then an overzealous regulator will know about any
| weakness in the company's regulatory strategy. Legislatures are
| also at a place where they could neuter the regulator agency, its
| not a specific anti-crypto future that people think "governments"
| are heading towards.
|
| So literally everyone is flying blind, while the well funded
| fiat-interfacing crypto service has the most comprehensive view
| of the law because of their expensive lawyers.
| arberx wrote:
| > So literally everyone is flying blind, while the well funded
| fiat-interfacing crypto service has the most comprehensive view
| of the law because of their expensive lawyers.
|
| This is literally the case with anything. Well funded tech
| monopolies have the most comprehensive view on...everything.
| vmception wrote:
| Yep. A lot of crypto detractors levy standards at crypto
| things that they seem to not know apply to things they
| respect or ignore.
|
| So its just worthwhile spelling out whats happening and how
| its happening. Many people don't know that the crypto space
| is and has been so comprehensive already behind the scenes,
| since its more of an entertainment sector in front of the
| scenes, so people underestimate it.
| omginternets wrote:
| Re #1: in theory, could we require companies like Binance to
| disclose how they are structured, and to declare _a priori_ the
| legal rationale for why this is allowed? The idea here is that
| they would be bound to that particular legal theory in the
| event of regulatory investigations.
|
| Or does this run afoul of some constitutional issues?
| vmception wrote:
| Its more of a business decision of the government, as well as
| risking the need for a complete overhaul of contract law.
|
| Jurisdictions are in competition with each other. While the
| business can always form a local subsidiary shielded from the
| rest while pooling most processes. Binance already has
| Binance US, for example.
|
| A lot of people dont like the idea of governments having
| overlapping conditions of a business, but it is something you
| can rely on.
|
| They can shoot themselves in the foot all they want.
|
| A no action letter from the SEC, for example, does limit a
| business to a specific unchanging structure and
| circumstances. But people arent going to risk going to the
| regulator to find out. I get that you are thinking of a
| requirement in advance. Bye bye businesses if you try that.
| skybrian wrote:
| Suppose the company needs to get regulators to approve
| something. Couldn't they just say "no" to anything new that
| they don't understand?
|
| All I know about it is what I learn from reading Matt Levine,
| but it's my understanding that for most finance companies,
| cooperation with regulators is important.
| vmception wrote:
| Binance has Binance US a local subsidiary for that purpose.
|
| Everywhere else, it depends, as usual on any legal matter. I
| could talk all day about what happened in Malta. Every
| jurisdiction is different, and at that point in time.
| latchkey wrote:
| I'll bite, what happened in Malta?
| vmception wrote:
| Summary: Microstates within new monetary unions have
| higher masters. Eurozone's masters are in Brussels and
| Frankfurt who are both skeptical of Malta and also into
| heavy regulation and not into crypto. So Malta would be
| down for whatever but they also have to try remain in the
| graces of their masters. Malta is also not a competent
| jurisdiction, its a pirate den with sovereignty, so
| whenever they bandwagon jump on an industry they try to
| attract they mess up the regulations because they dont
| know what a comprehensive approach looks like. Their
| crypto regulations fell into a mixture of incompetence
| and appeasing brussels.
|
| Other microstates like Leichtenstein, for example, are
| not Eurozone and also competent. They are in a monetary
| union with Switzerland who is also very crypto friendly
| at all public sector levels except the incumbent banking
| private sector. So Malta dropped the crystal ball and is
| in a less geopolitical circumstance to repair it.
| Scoundreller wrote:
| The funny thing is that regulators pull the same stunts with
| lawyers. Not finance/crypto, but I'm battling a regulator to
| release the legal opinion they're (suspectedly) using to deny a
| service that the law clearly (to me) requires them to provide.
| vmception wrote:
| Yeah thats true I've seen that periodically too, in non
| finance/crypto contexts.
| salawat wrote:
| The solution to that conundrum is you tell the lawyer "come
| talk with us". It's Administrative Law. It is what the
| regulator says it is. And no, an attorney cannot with old that
| information. That is what they call, "bad faith".
|
| The tough part is actually sitting down, combing through the
| paperwork, and coming up with questions. Regulation is as much
| a descriptive as a prescriptive exercise.
| djbebs wrote:
| So guilty whenever the bureaucrat wants you to be?
|
| Is this an actual stance that you hold?
| efdee wrote:
| That's pretty much what a regulator does. Using the
| pejorative "bureaucrat" doesn't change that.
| Zigurd wrote:
| The flip side of that it is: Allowable as long as no
| specific law spells out it is illegal. That's great for
| civil liberties of individuals. In finance, that's how
| crashes happen.
| AnthonyMouse wrote:
| In finance, crashes happen because large numbers of
| people are putting their money into something without
| realizing that it's overvalued, and then they all find
| out at once.
|
| The 2008 housing crisis was caused by banks buying
| insurance against borrowers defaulting. They used a bunch
| of banking words to make it sound complicated, but that
| was it. Just nobody thought about what it would do to the
| bank's incentives. Not the insurance companies, not the
| regulators.
|
| So the banks lent money to a bunch of uncreditworthy
| people because they were insured, and inflated a housing
| bubble. Then when they all started to default, the bubble
| popped and bankrupted the insurance companies and
| therefore the banks.
|
| The Savings and Loan Crisis in the 1980s was caused by
| the government propping up failed banks. The banks were
| then insured by the government (sound familiar?) so they
| took on a bunch of bad risks because if they paid off
| they made money and if they didn't it was the taxpayer on
| the line.
|
| The theme here isn't banks doing creative accounting,
| it's moral hazard. They do just what you'd expect them to
| do if you insulate them from risk.
|
| But importantly, none of this has anything to do with
| KYC/AML regulations, which aren't even supposed to
| prevent financial crashes. They're high cost low benefit
| regulations that don't do what they're intended to do
| either: https://www.icij.org/investigations/fincen-files/
| vmception wrote:
| Or don't bother at all. Binance made it to $90 _billion_ in
| liquid-enough assets before this Reuters article over the
| course of 4 years.
|
| This is without any revenue multiple applied or anything. The
| hit pieces are coming out because of admissions that Binance
| is considering an IPO and now people are surprised at how big
| it already is, while being effectively stateless. Binance has
| to fix the statelessness to provide confidence to stock
| investors. Other people are open to hampering their ability
| to find anywhere comfortable.
| grey-area wrote:
| Binance is going to zero, the bubble has already started to
| burst and after it's all over the truth will come out. They
| will never IPO because an IPO would involve conforming with
| securities law.
| vmception wrote:
| An entity can conform with securities laws for listing,
| which are mostly just accounting practices, while being
| in violation of other securities laws around the assets
| they hold and trade do not.
| cblconfederate wrote:
| Looking at the list of "transgressions", none of them crosses the
| line of being illegal. They are concerns about lax standards and
| a request from the police (which as i understand they fulfilled).
| Banks in europe do worse stuff than this
| from wrote:
| The article doesn't come out and say it, but what they really
| want is for Binance to "de-risk." This could mean any or all of
| the following:
|
| - Banning users from 2nd and 3rd world countries ("high risk
| jurisdictions")
|
| - Banning VPN/Tor users
|
| - Banning users with funds associated with gambling, darknet
| markets, or anything the FATF complains about
|
| - Implementing opaque procedures to "deter criminals"
| -> Holding funds hostage until adequate "source of funds" is
| provided -> Note that even if source of funds is
| proven they will still cut off communication in about a third of
| cases for no reason whatsoever -> Randomly requiring
| reverification (of course with selfies and maybe even over Zoom)
|
| - Removing smaller coins
| bushbaba wrote:
| Of course they did. Crypto and NFTs are some of the easiest ways
| to money launder now of days. This represents some of their
| biggest clientele.
|
| Terrorists love crypto.
| glennvtx wrote:
| This is flat wrong, Crypto is one of the _hardest_ places to
| launder money. This comment betrays a lack of understanding of
| how it works at even the most basic level..
| dogman144 wrote:
| This isn't particularly true, there are a lot of details to
| how KYC/AML for crypt works under the hood for that escape
| the discussion usually and leave gaping laundering holes.
| Crypto has its own equivalent of trad-fi shell companies to
| enable laundering, and it's a bit of a miracle for the space
| that these details haven't surfaced yet. I'm hoping they
| don't until the space is much more meshed into regulated
| finance, such that not much can be done about it.
| raesene9 wrote:
| So in this weeks crypto.com hack the attackers appear to have
| moved $30m through tumblers to launder the money
| (https://cointelegraph.com/news/crypto-com-breach-may-be-
| wort...), doesn't feel like they found it that hard to do.
|
| To put that in context laundering $30m in a country with even
| semi-decent Financial regs, like the (mainland) UK would take
| some doing. It's possible but it'd require more work than
| that.
| thr0waw4yz wrote:
| Sending crypto through a mixer isn't money laundering. You
| still need to effectively launder it afterwards to say -
| buy a house from it. Mixing is just the first step to cover
| the tracks after committing a financial crime.
| cobookman wrote:
| Say you have controll of wallet A that's clean and never
| used, and wallet B that has 30M of dirty crypto.
|
| You 1. mint a NFT with wallet A. Then 2. Sell the NFT to
| wallet B. You then deposit the proceeds into coinbase as
| its legitimate earnings on your NFT artwork.
|
| If you want to get creative you can do multiple buy and
| sells between a collection of wallets to reduce
| suspicions.
| raesene9 wrote:
| Why do you need to move it out of crypto to launder it?
| Laundering is concealing the source of funds to avoid it
| being associated with a criminal activity. You can run it
| through a tumbler then use the proceeds to buy an NFT,
| the coins used will appear to be clean.
|
| If you're feeling fancy you could then re-sell the NFT,
| no need to touch fiat.
| thr0waw4yz wrote:
| You need to provide origin of funds for purchases
| exceeding a few thousand bucks (depending on
| jurisdiction). At some point you would wanna sell the NFT
| to buy something from it.
|
| I mean sure, there is the dark web, or face to face
| trading... If you're into that.
| raesene9 wrote:
| I'm guessing that very much depends on the jurisdiction.
| Those people that took $30m this week and all the
| previous thefts this year alone, they all had a plan for
| how to move that money and I've not seen many of them get
| caught...
|
| According to
| https://blog.chainalysis.com/reports/2021-crypto-scam-
| revenu... - scammers took in $7.7b in 2021 alone, if they
| couldn't do anything with those funds, doubtful they'd go
| the effort of stealing them :)
| throwaway77384 wrote:
| > Terrorists love crypto.
|
| Please keep such low-effort hyperbole off HN. It's just so
| unnecessary and contributes so little.
|
| [some group you dislike uses thing everyone has access to] is
| just not a useful statement.
|
| What do we do now, ban all crypto currencies to force
| 'Terrorists' back into using cash?
|
| Has terrorism gone up since cryptocurrencies came around? Did
| Bin Laden have access to crypto?
|
| I'm not even a big fan of cryptocurrencies and think that the
| environmental impact of BTC is a heck of a lot worse than
| 'terrorists' possibly, potentially using it.
|
| But I just don't understand what you were trying to achieve by
| throwing such an incendiary statement into the discussion with
| so little evidence to back it up.
| raesene9 wrote:
| I would imagine that OPs could be thinking of the recent
| story (https://www.bbc.co.uk/news/business-59990477) about
| North Korean stealing $400m of crypto.
|
| It seems reasonable to suggest that groups who want to avoid
| scrutiny by various authorities would make use of a system
| which isn't covered well by standard regulators who are under
| the control of those authorities.
|
| Additionally there are a number of crypto currencies who
| provide anonymous transactions (e.g. Monero) which is
| obviously going to attract people who want to move money
| covertly.
|
| Terrorists would be one example of such groups of people.
| Bombthecat wrote:
| Or paying cash in germany for a house.
|
| Mafias love this
| tgv wrote:
| There are laws about large sums of money.
| raesene9 wrote:
| Houses leave a trail, and they can be easily seized at a
| later date if evidence turns up. Not saying it doesn't happen
| (obviously it does) but there's more to catch than with
| crypto currency.
| MomoXenosaga wrote:
| Self-regulation in the finance industry is a joke I'd have
| thought everyone learned that by now. They'll do whatever they
| can get away with.
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