Binance, the largest crypto exchange by volume, reportedly allowed users in Iran to trade in contravention of U.S. sanctions, a Reuters investigation alleges.
The report found that the exchange might have circumvented sanctions put in place by the U.S. in 2018. This is contrary to Binance’s claims that it halted servicing Iranian clients in Nov of the same year.
Traders note Binance’s weak verification standards
While the exchange noted that it had liquidated the accounts of all Iranian traders soon after, at least seven traders claim to have bypassed the ban to continue using the exchange to undertake traders.
Reuters alleges that these traders continued to use their Binance accounts until Sept 2021 when stricter anti-money laundering (AML) rules were put in place. The paper said 11 others claimed to have been active traders on Binance.
Asal Alizade, a trader in Tehran, told Reuters: “There were some alternatives, but none of them were as good as Binance. It didn’t need identity verification, so we all used it.”
Another anonymous trader under the name Ali argued: “Cryptocurrency is a good way to circumvent sanctions and make good money,”
Be[In]Crypto was unable to independently verify the report or find claims to substantiate the investigation.
CZ explains VPN workarounds
Changpeng Zhao, commonly known as “CZ”, the founder and CEO of Binance took to Twitter to say that “Binance has been using Reuters WorldCheck as one of the KYC verification tools since 2018,” to hit back at the report.
Soon after, the executive also tweeted about its commitment to AML protocols. The blog post argued: “Binance is not a U.S. company, nor are we headquartered there, but out of respect for U.S. law and the role of America in the global economy, we blocked all access to our platform to anyone based in Iran as we implemented more advanced complex detection tools that allowed us to further crack down on users in sanctioned regions that had access to sophisticated masking tools.”
However, Binance hints at traders using tools like VPN to bypass surveillance. “The effect of this technology is the ability to circumvent geolocation blocking,” the blog noted.
“While we are actively working on identifying users based on additional factors such as user behavior as opposed to only geolocation, some users do slip through the cracks for us, like they do for every other business out there.”
Exposé claims top execs were aware of the bypass
The investigation claims that “at least three senior Binance employees were aware that the exchange remained popular in Iran and was used by clients there,” after the 2018 ban.
The report might deepen troubles for the exchange, which is already under investigation in the U.S. Despite Binance’s holding company being based in the Cayman Islands, the exposé might spill the probe open into the exchange’s compliance with Russian sanctions as well.
“[Non-U.S. exchanges] can face consequences for facilitating sanctionable conduct, whereby they have exposure for allowing the processing of transactions for sanctioned parties, or if they’re on-boarding those types of users,” Erich Ferrari, principal attorney at Ferrari & Associates law firm in Washington told Reuters.
But, Binance.US being a separate entity from its holding company, might offer some federal protection to the exchange says experts.
Binance.US recently hired Tammy Weinrib, former VP of the financial crime compliance department at a French bank, and the European arm poached Jonathan Farnell, former Head of Compliance at eToroX, to fill its top offices as it continues global expansion.
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