Binance's Control over Bank Accounts Exposed, Raising Concerns of Regulatory Compliance

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In a shocking turn of events, a recent investigation by Reuters has revealed that cryptocurrency exchange Binance exerted control over the bank accounts of its U.S. affiliate during the period between 2019 and 2020. This disclosure brings into question the alleged independence of Binance U.S. and highlights potential compliance issues faced by the exchange. The report suggests that Binance executive Guangying Chen, a close associate of CEO Changpeng Zhao, held significant authority over the affiliate's financial operations, including an account containing funds belonging to American clients.

Bank records obtained during the investigation underscore the extent of Binance's control over its supposedly independent U.S. affiliate. Employees at Binance U.S. were required to seek approval from Chen before making payments, even for crucial functions such as payroll. Such revelations contradict previous claims made by Binance regarding the autonomy of its U.S. operations.

Unsurprisingly, Binance U.S. spokesperson Christian Hertenstein swiftly denied the allegations, asserting that the affiliate has enjoyed complete self-governance since the appointment of current CEO Brian Shroder in late 2021. Additionally, in April, Krishna Juvvadi, Binance U.S. head of legal, dismissed suggestions that the parent company had ever controlled its subsidiary's bank accounts. However, the report points out a notable discrepancy between the time period mentioned by Hertenstein and the one emphasized by Juvvadi, leaving room for speculation and further scrutiny.

These revelations come at a crucial juncture for Binance, as it faces mounting regulatory pressure from U.S. authorities. The U.S. Securities and Exchange Commission (SEC) recently initiated legal action against the exchange, alleging 13 different violations, including the co-mingling of user funds and enabling high-value American customers to use its global platform. Earlier, the U.S. Commodity Futures Trading Commission (CFTC) filed a lawsuit against Binance and CEO Changpeng Zhao, accusing them of multiple infractions related to trading and derivatives rules dating back to 2019.

Interestingly, the timing of these claims against Binance and its U.S. affiliate seems to coincide with the escalating legal actions taken by U.S. regulators. While the SEC and CFTC cases are still ongoing, the Reuters report suggests that executives at Binance U.S. were apprehensive about how American regulators would view the control structure, which reportedly persisted until early 2021. In an attempt to address these concerns, one Binance U.S. executive suggested granting separate control to BAM Trading, an entity controlled by CEO Changpeng Zhao, to alleviate potential regulatory scrutiny.

As the investigation unfolds, the spotlight remains on Binance and its compliance with U.S. regulations. These revelations cast doubt on the exchange's claims of independence and further fuel concerns surrounding its control over user funds. Binance must now navigate the legal challenges posed by U.S. regulators and work diligently to restore trust among its user base, while ensuring transparency and adherence to regulatory guidelines.

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