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Binance moved billions through two US banks, regulators say

Binance moved billions through two US banks, regulators say

 


Binance, the giant cryptocurrency exchange accused of mishandling customer funds, used two US banks to move billions of dollars around the world, the Securities and Exchange Commission said on Wednesday, detailing how Huge sums of money flowed in and out of accounts sometimes within a year. duration of days.

In court filings, SEC accountant Sachin Verma detailed a tangle of transactions that companies associated with the giant cryptocurrency exchange had made through two banks: Silvergate Bank and Signature Bank, which both failed this year. The filing showed Binance officials, including company founder and CEO Changpeng Zhao, moved hundreds of millions and in some cases billions of dollars through regional banks to accounts associated with companies. in places like Kazakhstan, Lithuania and the Seychelles.

The SEC separately said it believes Binance’s unpaid taxes over the past four years resulted in an interest penalty of over $13 million. Although it estimated that Binance earned nearly $225 million from 2019 to 2023, the regulator did not specify how much the company paid in taxes during the period, or how much it should have paid.

This week, the SEC sued Binance in federal court in Washington, DC, accusing the company of mishandling customer funds, lying to regulators and investors about its operations, and engaging in manipulative trading. US regulators asked a federal judge to temporarily freeze assets tied to Binances’ US subsidiary, and Wednesday’s filing was in support of that request.

The SEC also sued Mr. Zhao, better known as CZ, claiming he was the architect of the scheme to transfer billions of dollars to an offshore entity he controlled.

A Binance spokesperson said the transactions detailed in the documents did not involve customers’ money and that transfers of funds to various locations around the world were done in the normal course of Binances’ business operations. Binance has denied any wrongdoing and has pledged to vigorously defend itself in the SEC case.

Although Wednesday’s filings did not offer an explicit theory as to why Binances executives moved money this way, anti-money laundering experts said the large transfers and rapids should have alerted the bankers.

Banks are required to file a Suspicious Activity Report, or SAR, with federal regulators when they suspect a transaction may involve money laundering or fraud. Reports are confidential but may provide investigative leads to authorities.

In one case, in February 2022, according to the filings, $20 million was paid into one of Binances Silvergate accounts and $19.9 million came out, all within a matter of days, leaving the account with a starting balance of $7.6 million at the start of the month and $7.7 million at the end of the month.

A Binance account at Signature brought in $1 billion in deposits and $1.3 billion in withdrawals in the same month, according to filings. The outgoing money went to Merit Peak, the company Mr Zhao controlled and where the SEC alleges client funds were secretly mixed.

This is one of the most significant cases of financial misconduct I have ever seen, the documentation is overwhelming, said Louise Shelley, a professor at George Mason University who specializes in money laundering, adding that she was amazed that the two banks had moved billions of dollars overseas for Binance for such a long time.

It’s so gigantic and should raise some red flags.

Regulators did not say whether Silvergate or Signature reported the activity on Binances accounts. Silvergate, which voluntarily liquidated in early March after suffering billions of dollars in losses from its cryptocurrency clients, closed some Binances accounts in 2021 and 2022.

Both Silvergate and Signature have enabled clients invested in digital currencies to quickly transfer US dollar funds around the world at any time of the day. With many banks in the United States refusing to do business with crypto trading companies, Silvergate and Signature quickly developed a niche business serving this market.

Both banks were among those that failed this year amid panic over the stability of smaller banks as customers withdrew deposits from lenders. California-based Silvergate simply shut down during the mini-banking crisis in March. Signature, the larger of the two banks, was eventually taken over by the Federal Deposit Insurance Corporation and the New York State Department of Financial Services on March 12.

Based in New York, Signature at one point had 40 branches in the United States and had just under $100 billion in assets when it was taken over by regulators. In 2018, the New York regulator approved an application for Signature to begin accepting deposits from crypto trading clients through its Signet platform, its specialized digital payments platform.

In an April report on Signature’s collapse, New York banking regulators said that while the regional lender was perceived as a crypto bank, that was a bit of a misnomer. The regulator said virtual currency business accounted for 18% of banks’ deposit base in March 2023 and the failure was an old-fashioned run on the bank by uninsured depositors.

The report did not address the relationship between Signatures and companies like Binance. The New York regulator said in a statement: As part of an ongoing review of operations and in coordination with the Department, Signature was in the process of reducing its concentration of high-risk customers at the time of the bank’s failure.

Sources

1/ https://Google.com/

2/ https://www.nytimes.com/2023/06/07/business/binance-cash-bank-accounts.html

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