US Investigators Summons Hedge Funds Involved in Alleged Binance Money-Laundering Breach

Editing by Nathaniel Cajuday

• The Federal Prosecutors have sent subpoenas to hedge funds that are allegedly connected with crypto exchange giant Binance in the latter’s alleged violation of the country’s money-laundering rules.
• One of the reasons why Binance is in a hot seat is because the exchange is believed to play a role during the fall of its rival exchange, FTX.
• Though experts see that the investigation is just for the prosecutors to conclude whether a case should be filed against the exchange, a former prosecutor revealed that the investigation may also look into the fact that Binance violated the Bank Secrecy Act, which requires financial institutions to conduct proper KYC protocols and report suspicious activities on their platforms.

The federal prosecutors, headed by the U.S. Attorney’s Office for the Western District of Washington in Seattle, revealed that they are investigating the alleged connection between Binance and U.S.-based hedge funds, which could be part of the crypto exchange’s possible bypassing of the country’s money-laundering regulations. 

According to a report by the Washington Post, the investigation has been sending subpoenas to firms, requesting records of their dealings with Binance, the world’s largest crypto exchange by daily trading volume, in the past months. 

Although the exchange has already been receiving intense media and regulatory scrutiny, these probes increased following the FTX collapse last year. Binance was believed to play a big role in the fallen exchange when its CEO, Changpeng “CZ” Zhao, announced that he plans to liquidate the remaining FTT in his and the exchange’s portfolios after a Coindesk article revealed the imbalance in FTX’s books. 

CZ’s move then triggered public speculation that his announcement was to bring down the rival crypto exchange; he later denied this and even had a non-binding deal to buy FTX’s non-U.S. businesses in the hope of rescuing the company from a liquidity crisis. However, the exchange later dropped the bid because “the issues are beyond our control or ability to help,” thus leaving the FTX on the brink of collapse. (Read more: FTX Founder Pleads Not Guilty, Trial to Start in October)

Albeit the subpoenas, authorities are unlikely to bring charges against Binance or its founder, as federal authorities are still discussing a potential settlement with the exchange and are still evaluating whether the evidence they have is enough to file charges.

Moreover, according to ex-prosecutor John Ghose, the Justice Department may also be looking into whether Binance violated the Bank Secrecy Act, which requires financial institutions to conduct proper know-your-customer (KYC) protocols and report suspicious activities on their platforms.

Last year, the exchange joined the U.S. Chamber of Digital Commerce, a trade group representing the blockchain and cryptocurrency industry, to cooperate and participate in research, roundtables, working groups, and discussions with policymakers and regulators. (Read more: Binance Joins US Trade Group to Help Form Crypto Regulations)

Binance has been even more active in establishing its presence worldwide. In December, Binance was in negotiations to acquire the Indonesian crypto exchange Tokocrypto. It also acquired the Japanese crypto exchange Sakura Exchange Bitcoin (SEBC). Last July, the Bank of Spain granted Binance’s Spanish subsidiary, Moon Tech Spain, S.L., a Virtual Asset Services Provider (VASP) registration. Then, in October, Binance secured registration as a financial service provider with the New Zealand Ministry of Business, Innovation, and Employment (MBIE)—this also marked the official launch of Binance New Zealand. Lastly, in August, the exchange signed a Memorandum of Understanding (MoU) with the City of Busan, South Korea, which states that Binance will support the city in creating infrastructure and providing the technology to develop its own blockchain ecosystem.

Currently, Binance is still trying to secure a license in the Philippines. However, since it was affected by the three-year moratorium of the Bangko Sentral ng Pilipinas (BSP), which will be active until 2023, the exchange revealed that it is trying to acquire a local company with the necessary licenses.

Binance chief strategy officer Patrick Hillmann reiterated that the company is in daily contact virtually with every regulator around the world, but he declined to comment on the status of the investigation.

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