Three U.S. Senators have asked Binance executives Changpeng Zhao and Brian Shroder to provide financial and compliance documents to defend the legitimacy of Binance’s business model and practices.
The letter, penned by Senators Elizabeth Warren, Chris Hollen, and Roger Marshall, asks for documents relating to the corporate structure and Know-Your-Customer (KYC) policies of Binance, as well as information on the relationships between the firm and its subsidiaries as relates to U.S. customers.
Senators Target Financial and Compliance Transparency
The senators allege Binance avoided U.S. regulatory oversight by setting up the U.S. division with limited products to serve U.S. customers.
They argue that despite the separation of business units, funds owned by Binance.US customers were reportedly held in Binance’s holding company in the Cayman Islands. As a result, the lawmakers have asked for information on links between Binance and its subsidiaries and the percentage of Binance customers in the U.S. since 2017.
Furthermore, the senators cite a 2021 Reuters report describing the movement of $400 million from Silvergate Capital into the account of a trading firm that Zhao managed as evidence of the firm’s lax approach toward the management of U.S. Customer funds.
Also on the senators’ radar was Binance’s allegedly weak compliance program that they allege facilitates the illicit flow of funds.
According to the senators, Zhao allegedly advocated minimal compliance efforts on new signups and hired a manager in 2022, which caused many compliance staff members to leave because they could not conduct requisite money laundering checks fast enough. This policy, the senators argue, allowed the firm to actively recruit and facilitate transactions for sanctioned entities, including Iranian companies. They have asked Zhao and Shroder to disclose policies relating to Binance’s AML program and any communications where Zhao instructed employees to lower KYC standards.
Senators also requested that the duo supply balance sheets for Binance and all subsidiaries dating back to 2017. They are also asked to provide a list of U.S. entities that interacted with Binance and disclose the business relationships between different Binance entities.
Senators Marshall and Warren last year introduced a draft bill that will re-classify certain crypto firms as money transmitter businesses to bring them under the Bank Secrecy Act and compel them to comply with anti-money laundering (AML) rules.
Binance CEO Introduces Code to Battle Relentless FUD
The letter from the senators is the most recent headwind for an exchange beset by news threatening to tarnish its public image and that of its chief executive.
However, a finance professor at the University of Texas said the senators’ letter made some good points.
“I think the letter is a nice summary of some of the issues at Binance. They are at the center of crypto space and all its problems. It is trying to play both sides of the coin,” John Griffin told Bloomberg.
Zhao recently rejected comparisons to collapsed exchange FTX in a recent Forbes piece criticizing Binance’s bookkeeping and management of user funds. He also recently had to remind the public that Binance did not issue the BUSD stablecoin that the SEC alleges is security.
He affirmed earlier today that recent bad news surrounding himself or Binance should be ignored as false through a recently introduced numerical code where the number 4 means to ignore fearmongering, known in crypto parlance as FUD.
He also affirmed that a recent news report in Hong Kong claiming the U.S. Federal Bureau of Investigation shot him used a photoshopped image and was false.
Today, Binance announced a new initiative to partner with law enforcement to combat scams.
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BeInCrypto has reached out to company or individual involved in the story to get an official statement about the recent developments, but it has yet to hear back.