MAS says it is aware of investigation of Binance’s subsidiaries by several countries; S’pore’s arm backed by Temasek stressed it is a separate legal entity

Last Friday (25 Jun), Britain’s financial regulator, Financial Conduct Authority (FCA), banned UK’s subsidiary of Binance in its latest cryptocurrency crackdown. Binance, run by Canadian Chinese Zhao Chang Peng, is one of the world’s largest cryptocurrency exchanges.

In a statement last week, FCA said Binance cannot conduct any regulated activity in UK and issued a warning to consumers about the platform, which is increasingly coming under growing global scrutiny. FCA said Binance Markets Ltd in UK “must not, without the prior written consent of the FCA, carry out any regulated activities… with immediate effect”.

Binance’s trouble with the British authority started when it acquired a FCA-regulated entity last year so as to offer cryptocurrency trading services using pounds and euros. FCA is concerned that Binance is being used by criminals to launder money and conduct other financial crimes.

Last week, Japan’s Financial Services Agency (FSA) also issued a warning to Binance for operating in Japan without proper authorization, saying that it is operating illegally. It was a second warning for Binance.

While the previous warning for Binance happened back in 2018, it did warn that continued operation could bring criminal charges to those involved. Binance’s response was merely to move their headquarters from Japan to Malta. Binance’s Japanese website and new user registration area continue to be accessible from IP addresses within Japan.

In Apr, Germany’s financial regulator BaFin also warned Binance for breach of European Union securities law by issuing securities-tracking digital tokens without publishing an investor prospectus. “BaFin has grounds to suspect that Binance Germany is selling shares in Germany in the form of ‘share tokens’ without offering the necessary prospectuses,” it said.

And in May, the US Department of Justice (DOJ) and the Internal Revenue Service (IRS) announced they were investigating Binance. The investigation came about after blockchain forensics have shown that more funds tied to criminal activity passed through Binance than any other single exchange in the world.

This is a great concern for US investigators and officials as it is presumed much of that activity is to not only hide illegal transactions but also evade taxes. The illegal transactions in question are most likely illegal sales involving guns, drugs, or stolen property.

Moving out from China

Zhao himself was hailed from China. He founded Binance in 2017 but soon had to move its servers and core people out of China to Japan, ahead of China’s crackdown on cryptocurrency trading that year.

Within a year of starting Binance, Forbes Magazine placed him third on their list of “The Richest People In Cryptocurrency” in 2018, with a crypto net worth of more than US$1 billion.

Last Oct, however, Forbes released leaked documents alleging that Binance and Zhao created an elaborate corporate structure designed to intentionally deceive US regulators and secretly profit from cryptocurrency investors located in the country. Binance officially blocks access from IP addresses located in the US, but “potential customers would be taught how to evade geographic restrictions”, Forbes wrote.

MAS aware of regulatory actions against Binance

Meanwhile, yesterday (2 Jul), in response to the investigations conducted by several countries against Binance, Singapore’s MAS told the media that it is aware of actions taken by other regulators against the cryptocurrency exchange.

In response to Straits Times’ query, MAS noted that Binance’s Singapore arm, Binance Asia Services, is exempted from holding a licence under the Payment Services Act for the provision of digital payment token services as its licence application is being reviewed.

Binance Asia Services runs the Binance.sg platform, popular with Singaporeans trading in Bitcoin and several other cryptocurrencies.

Under the transitional arrangements in the Act, which took effect on 28 Jan last year, entities which were carrying on regulated business before the commencement of the Act are allowed to continue providing their services while their licence applications are being processed.

A spokesman for Binance Asia Services, which is backed by Temasek unit Vertex Holdings, stressed that the company is a separate legal entity from the other Binance entities abroad.

“We take a collaborative approach in working with regulators, and we take our compliance obligations very seriously… We are actively keeping abreast of changing policies, rules and laws in this new space,” the spokesman added.

MAS also said that licence applicants will have to meet all requirements as set out in the central bank’s regulations, notices and guidelines.