Mr Zhao’s case has been widely reported in the press and follows the recent conviction of Sam Bankman-Fried for wire fraud and conspiracy to commit money laundering charges.

 Binance failed to comply with the basic AML and KYC according to US prosecutors. Further examination of the indictment against Zhao reveals what was said to be a disregard of the most fundamental US anti money laundering requirements. Zhao was said to operate Binance on a “Wild West model.”

 The full extent of the allegations against Zhao and Binance reveal a pervasiveness of wrongdoing within the institution with a pattern of violations that is required reading for anyone with an interest in how AML and KYC procedures are applied in the crypto industry:  

• ·       Binance made a “conscious decision” not to implement an effective Know Your Client” system.

• Binance allowed “Tier One“ customers to open accounts and deposit trade and withdraw cryptocurrencies by providing only an email address and performing no other KYC Enquiries. Tier 1 customers comprised most of Binances market.

• Binance did not systematically monitor transactions for suspicious activity and failed to file any suspicious activity reports with the Us Treasury Financial Crimes And Enforcement Network FINCEN.

• Binance’s failures allowed “illicit actors “to operate mixing services hiding the source and ownership of cryptocurrencies and transacting illicit proceeds from Ransomware attacks, moving proceeds of dark market transactions, exchange hacks and various Internet related scams.

• Binance facilitated direct transfers of approximately $106 million of bitcoin from binance.com wallets link to Hydra, the largest dark marketplace on the Internet.

• Binance processed more than $275 million in deposit from one of the world’s largest cryptocurrencies mixes – Best mixer – which was closed down by the Dutch authorities in May 2019.

• Binance facilitated the violation of US sanctions against Iran by providing Iranian custom with the ability to transact with the US customers.

US Attorney General Merrick Garland said after the case: “In just the past month, the Justice Department has successfully prosecuted the CEOs of two of the world’s largest cryptoasset exchanges in two separate criminal cases,” “The message here should be clear: Using new technology to break the law does not make you a disrupter. It makes you a criminal.”

Binance announced after the case that it was withdrawing its services from the United States.

The authorities in the US have sent a clear signal with Zhao’s prosecution that flagrant violations of the AML and KTC rules by crypto exchanges will no longer be tolerated, regardless of the fame, wealth or status of the participants involved.

BSQ maintains a watching brief on the latest developments in crypto crime and cryptocurrency regulation. If you need to stay updated about cryptocurrency law, please keep updated with our cryptocurrency & crime blog.

Companies or individuals requiring advice on AML and KYC compliance measures or pending investigations or prosecutions in the crypto industry should contact our London offices on (020) 3858 0851.