Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Leaked Document Reveals Binance’s Elaborate Scheme To Evade Regulators

Leaked Document Reveals Binance’s Elaborate Scheme To Evade Regulators

Binance Holdings Limited, the world’s largest cryptocurrency exchange, conceived of an elaborate corporate structure designed to intentionally deceive regulators and surreptitiously profit from crypto investors in the United States, according to a document thought to be created by its senior executives and obtained by Forbes.

Cayman Islands-based Binance is currently responsible for about $10 billion in total crypto trades per day and its founder and CEO Changpeng “CZ” Zhao is one of the few known cryptocurrency billionaires.

The 2018 document details plans for a yet-unnamed U.S. company dubbed the “Tai Chi entity,” in an allusion to the Chinese martial art whose approach is built around the principle of “yield and overcome,” or using an opponent’s own weight against him.

While Binance appears to have gone out of its way to submit to U.S. regulations by establishing a compliant subsidary, Binance.US, an ulterior motive is now apparent. Unlike its creator Binance, Binance.US, which is open to American investors, does not allow highly leveraged crypto-derivatives trading, which is regulated in the U.S.

The leaked Tai Chi document, a slideshow believed to have been seen by senior Binance executives, is a strategic plan to execute a bait and switch. While the then-unnamed entity set up operations in the United States to distract regulators with feigned interest in compliance, measures would be put in place to move revenue in the form of licensing fees and more to the parent company, Binance.

All the while, potential customers would be taught how to evade geographic restrictions while technological work-arounds were put in place.

Forbes reached out to Binance founder CZ as well as its chief compliance officer Samuel Lim about the leaked document and didn’t receive a response to our questions. Binance.US CEO Catherine Coley and Harry Zhou, the person identified as creating the document, also didn’t comment. [After the article was published CZ responded with several tweets claiming that the story was incorrect and that the document was not created by a current or former employee. He further wrote that “Binance has always operated within the boundaries of the law.” Ed note: Chief compliance officer Lim had previously sent an email to Forbes confirming that Zhou had been a Binance employee.]

The source of the document, whose identity we’ve agreed not to reveal, says it was first presented to CZ in Q4 2018 by Binance mergers and acquisitions manager Jared Gross, an attorney who Forbes believes is actually the exchange’s general counsel.

The source says the document was created by former Binance employee Harry Zhou, a serial entrepreneur, who is the co-founder of Koi Trading, a San Francisco-based cryptocurrency exchange partially owned by Binance. The file is named “Presentation 2” so there may have been other strategies being considered. Still, an analysis of the document reveals that many of the specifics outlined within it, are already in place.

“U.S. Enforcement Mitigation”


The strategy document has four main components, Goals, Proposed Corporate Structure, Regulator Engagement Plans and Long Term License Plans. The first goal, enforcement mitigation, is designed to minimize the impact of U.S. regulation. It explicitly mentions the need to undermine the ability of “anti-money laundering and U.S. sanctions enforcement” to detect illicit activity.

More specifically, it describes a detailed strategy for distracting the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and Office of Foreign Assets Control (OFAC), the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the New York Department of Financial Services (NYDFS).

To do this, the document advocates for participating in the U.S. Department of Homeland Security (DHS) Cornerstone Program for detecting weaknesses in the financial systems. A representative of the Department tells Forbes that Binance.US did participate in the Cornerstone program, as a standard part of the process of becoming a Money Service Business, but declined to comment further.

Interestingly, Binance itself is now a client of the DHS-funded CipherTrace, based in Menlo Park, California, one of the first security firms with technology explicitly designed to investigate on-chain transactions of the exchange’s own cryptocurrency. Another CipherTrace client is the U.S. Securities and Exchange Commission, which signed a one-year deal with CipherTrace this July.

While the SEC declined to comment as to whether or not its engagement of CipherTrace was part of a larger investigation into Binance or Binace.US, the contract explicitly states that one of the main reasons for selecting CipherTrace is it is “the only known blockchain forensics and risk intelligence tool that can support the Binance coin (BNB) and all tokens on the Binance network.”

“Insulate Binance from US enforcement”


The proposed corporate structure section starts off with a bold bullet point, “Key Binance Personnel continue to operate from non-U.S. location to avoid enforcement risks.” In the same section the document details how the Tai Chi entity would act as a magnet for regulatory inquiries, and should be willing “to accept nominal fines in exchange for enforcement forbearance.”

Though not readily apparent, the document reveals that the Cayman Islands-based holding company will be connected to an unnamed Delaware C-corporation and the separate Tai Chi entity (see image above), showing how revenue from the U.S. business could be funneled back to Binance, the parent company. “License and service fees paid by the US Service company to Binance are functionally US-sourced trading fees,” the document states.

But unlike an actual subsidiary whose parent company could be held accountable for regulatory violations, the Tai Chi entity would have little more than a contractual relationship, further “insulat [ing] Binance from U.S. enforcement,” according to the document. Essentially, it would be a decoy.

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
16 Billion Login Credentials Leaked in Unprecedented Cybersecurity Breach
Senate hearing on who was 'really running' Biden White House kicks off
Hungary Ranked Among the World’s Safest Travel Destinations for 2025
G7 Leaders Fail to Reach Consensus on Key Global Issues
FBI and Senate Investigate Allegations of Chinese Plot to Influence the 2020 Election in Biden’s Favor Using Fake U.S. Driver’s Licenses
Trump Demands Iran's Unconditional Surrender Amid Escalating Conflict
Shock Within Iran’s Leadership: Khamenei’s Failed Plan to Launch 1,000 Missiles Against Israel
Wreck of $17 Billion San José Galleon Identified Off Colombia After 300 Years
Man Convicted of Fraud After Booking Over 120 Free Flights Posing as Flight Attendant
Iran Launches Extensive Missile Attack on Israel Following Israeli Strikes on Nuclear Sites
Beata Thunberg Rebrands as Beata Ernman Amidst Sister's Activism Controversy
Hungarian Parliament Approves Citizenship Suspension Law
Prime Minister Orbán Criticizes EU's Ukraine Accession Plans
Hungarian Delicacies Introduced to Japanese Market
Hungary's Industrial Output Rises Amid Battery Sector Slump
President Sulyok Celebrates 15 Years of Hungarian Unity Efforts
Hungary's Szeleczki Shines at World Judo Championships
Visegrád Construction Trends Diverge as Hungary Lags
Hungary Hosts National Quantum Technology Workshop
Hungarian Animation Featured at Annecy Festival
Israel Issues Ultimatum to Iran Over Potential Retaliation and Nuclear Facilities
UK and EU Reach New Economic Agreement
Coinbase CEO Warns Bitcoin Could Supplant US Dollar Amid Mounting National Debt
Trump to Iran: Make a Deal — Sign or Die
Operation "Like a Lion": Israel Strikes Iran in Unprecedented Offensive
Israel Launches 'Operation Rising Lion' Targeting Iranian Nuclear and Military Sites
UK and EU Reach Agreement on Gibraltar's Schengen Integration
Israeli Finance Minister Imposes Banking Penalties on Palestinians
U.S. Inflation Rises to 2.4% in May Amid Trade Tensions
Trump's Policies Prompt Decline in Chinese Student Enrollment in U.S.
Global Oceans Near Record Temperatures as CO₂ Levels Climb
Trump Announces U.S.-China Trade Deal Covering Rare Earths
Smuggled U.S. Fuel Funds Mexican Cartels Amid Crackdown
Austrian School Shooting Leaves Nine Dead in Graz
Bezos's Lavish Venice Wedding Sparks Local Protests
Europe Prepares for Historic Lunar Rover Landing
Italian Parents Seek Therapy Amid Lengthy School Holidays
British Fishing Vessel Seized by France Fined €30,000
Dutch Government Collapses Amid Migration Policy Dispute
UK Commits to 3.5% GDP Defence Spending Under NATO Pressure
Germany Moves to Expedite Migrant Deportations
US Urges UK to Raise Defence Spending to 5% of GDP
Israeli Forces Intercept Gaza-Bound Aid Vessel Carrying Greta Thunberg
IMF Warns of Severe Global Trade War Impacts on Emerging Markets
Low Turnout Jeopardizes Italy's Citizenship Reform Referendum
Transatlantic Interest Rate Divergence Widens as Trump Pressures Powell
EU Lawmaker Calls for Broader Exemptions in Supply Chain Legislation
France's Defense Spending Plans Threatened by High National Debt
European Small-Cap Stocks Outperform U.S. Rivals Amid Growth Revival
Switzerland Proposes $26 Billion Capital Increase for UBS
×