Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
Binance Under the Microscope: Former FBI Agent Discusses Possible Investigation of World’s Largest Crypto Exchange
Crowdfund Insider | | Jun 3, 2021
Last month it was widely reported that Binance, the largest cryptocurrency exchange in the world, was under investigation by US authorities. Both the US Department of Justice (DOJ) and the Internal Revenue Service (IRS) were said to be scrutinizing the activity of the digital marketplace. Binance quickly issued a statement indicating they take their legal obligations very seriously and have been collaborating with regulators and enforcement officials:
“We have worked hard to build a robust compliance program that incorporates anti-money laundering principles and tools used by financial institutions to detect and address suspicious activity,” stated the company.
Earlier this year, it was reported that the Commodities and Futures Trading Commission (CFTC) was also looking into the Binance operations.
See: Binance has begun to block U.S. users from accessing its exchange platform
All of this arrives at a time of change in the US government as the Biden Administration takes over and new leadership steps in to guide policy and regulatory issues. The new Chairman of the Securities and Exchange Commission (SEC), Gary Gensler, has mentioned on several occasions that he is concerned about the lack of regulatory oversight at crypto exchanges. This has lead to more discussions about new rules and possible enforcement actions.
Recently, Crowdfund Insider connected with Clark Frogley who spent ten years as a Federal Bureau of Investigation agent investigating issues like fraud and money laundering. After stints at big banks and other global firms like Goldman Sachs and Deutsche Bank, Frogley is now Head of Financial Crime Solutions at Quantexa – a deep data firm providing services to the financial industry. CI discussed the news of the Binance investigation and what may be in store for crypto exchanges going forward. Our discussion is below.
Binance has been operating for many years. What took authorities so long to investigate Binance?
Clark Frogley: Crypto exchanges and digital assets are still largely unregulated so the laws governing them are not always as clear-cut as law enforcement would like. The fact that an investigation was announced just means they are finally ready for it to be made public, not that they haven’t been investigating Binance or other exchanges for some time. Suspicions of wrongdoing prompt investigations all the time, but being able to prove wrongdoing is more difficult, especially if the laws are not clear. I would assume the investigation has been going on for years and has finally found enough information to move forward.
Binance has an office in Singapore but no defined HQ (as far as we know). Does this make it more difficult for regulators?
Clark Frogley: US regulators and law enforcement have never had much difficulty assuming jurisdiction even when the legitimacy of that claim was not clearly defined. The AML Act of 2020 also extends regulatory authority over all foreign branches of US financial institutions, so while the regulatory laws over Crypto are still not clearly defined at the federal level, anyone trading US-based commodities or assets will fall under US regulatory jurisdiction no matter where they are headquartered. Law Enforcement may not be able to levy the charges it would for a bank, but just like Al Capone was taken down for tax evasion, there are other laws on the books that might be used. It probably will not cause as much of a slowdown as Binance hopes it will.
See: Ontario regulator clamps down on Poloniex crypto exchange
Will this have any impact on Binance.us?
Clark Frogley: There has already been some impact on all the crypto exchanges as people pullback in the wake of the investigation. However, this is mostly going to be short-lived. Once a little time has passed and wrongdoing is announced or dismissed, the exchanges will grow.
If wrongdoing is found, I think Binance.us will struggle. They are smaller and offer nothing unique the other exchanges cannot offer. I think Binance was so popular because it was so large and diverse. For those looking for ways to hide illegal gains, anonymity in obscurity is a great asset. Legitimate traders found comfort in the diversity of the offerings and also some form of justification with so many others using the exchange.
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