What are the things worth noting about the Binance assistance to law enforcement agencies incident?

Recently, some Binance users in the Chinese community found that their accounts were temporarily blocked due to the request of some law enforcement agencies. After the screenshots were circulated in the community, it caused great panic. For this reason, Binance rarely issued two consecutive statements.

First statement on August 19:

In response to the recent account blocking incidents due to assisting investigations, Binance Chinese Channel responded: Binance will never do anything that harms the interests of users out of self-interest, especially the recent groundless rumors. Globally, when law enforcement agencies in various countries put forward reasonable requests for assistance, as a platform, we have the obligation to provide necessary assistance. However, some recent incidents have been maliciously distorted and interpreted. Please treat the rumors rationally, and we will continue to pay attention.

A second statement on August 24 released more information:

In response to the recent account suspension, Binance issued another statement on August 24, saying that as the world's largest exchange, protecting users has always been our highest principle. For accounts and funds involved in investigation cases, Binance has the responsibility and obligation to assist law enforcement agencies in investigations. At the same time, Binance also has strict standard operating procedures. This is Binance's consistent attitude and practice worldwide. Regarding the recent rumors and remarks about Binance's security in the community, please do not believe them. Users' funds in Binance are safe. If there is no further effective judgment by law enforcement agencies, assets and accounts will be unlocked within a limited time (the period varies depending on the specific case). If you find that your account is subject to risk control, please contact customer service for assistance in a timely manner. We will explain the situation to users based on the case. At the same time, we also remind users again to be cautious about receiving assets of unknown origin through over-the-counter transactions. Once it involves black production, your account may be subject to joint investigation and risk control. It is recommended that users choose regular platforms and merchants when trading (especially deposit transactions) to avoid risks and never lose the big picture for the small.

Compared with the first time, the statement added an explanation of the suspension time and reasons: "If there is no further effective judgment from the law enforcement agency, the assets and accounts will be unlocked within a limited time (the period varies depending on the specific case)"; and "Please be cautious when accepting assets of unknown origin through over-the-counter transactions. Once it involves illegal activities, your account may be subject to joint investigation and risk control. It is recommended that users choose regular platforms and merchants when conducting transactions (especially deposit transactions) .

From the latter sentence, it seems to imply that this incident was caused by a user who used legal currency to buy "black cryptocurrency/USDT" after an OTC transaction and transferred it to a Binance account. After the police investigated, they contacted Binance, and Binance assisted in blocking the account. In addition, the article emphasizes "especially deposit transactions", which is relatively rare. Because in the past, most of the problems were caused by withdrawals (cryptocurrency was exchanged for legal currency, and the bank card was frozen because the other legal currency was black money). This time, the emphasis on "deposit transactions" refers to the use of legal currency to purchase cryptocurrency. Cryptocurrency is black money, so the account was blocked, which also confirms the above suggestion.

The effective judgments of law enforcement agencies have also attracted attention. For example, another derivatives exchange said that they need a written request from the court before they will block the account, which seems to be intended to snatch customers. But for Binance, firstly, because of its larger size and more attention, compliance may need to be stricter; secondly, in the Chinese legal system or in the legal systems of different countries, written documents from the court are not necessarily required for investigation. In specific incidents, if you wait for slower court documents, it may cause hackers/criminals to flee again. But if you cooperate thoroughly like the cash bank, the freezing of thousands of accounts at one time like Dongguan is still in front of you, which is unacceptable to users. Therefore, it is particularly important for exchanges to grasp the boundaries and clarify them in a timely manner.

In addition, Binance's government and law enforcement information query assistance system has also attracted attention. In fact, this is not a system that was suddenly released recently. In a press release in March this year, it was stated that "a law enforcement request system has been implemented, and governments and law enforcement agencies can use this system to submit information requests." The system should have been launched in 2021. The transaction hash in the information submitted by the system is from April 6, 2021, and the webpage plug-in determines that the release time is June 23, 2021.

The system guide states that Binance collects, uses and stores user information in accordance with the Terms of Use and Privacy Policy. User information includes information provided by users to open a Binance account, user information collected by Binance to provide services, and other compliance information (e.g., mandatory record retention, anti-money laundering (AML), know your customer (KYC) obligations, etc.). In order to assist law enforcement officials from government and law enforcement agencies in providing information about Binance users in ongoing criminal investigations, we will ask you to provide a valid court warrant, investigation order, execution order or other judicial order with legal jurisdiction. Upon receipt of a judicial preservation order related to a criminal investigation, Binance will take appropriate measures to preserve relevant information and records for ninety (90) days. If the retention period of information and records needs to be extended, law enforcement officials from government and law enforcement agencies must make additional requests through LERS.

In short, centralized exchanges have historically been actively cooperating with government requests. Recently, FTX has even taken the initiative to block accounts that interact with coin mixing tools with the support of third-party tools. The frequent occurrence of such incidents currently only reflects that law enforcement agencies are paying more attention to cryptocurrencies, and with the assistance of more technical partners, they can track the flow of cryptocurrencies. But for ordinary users, it is inevitable to panic. It is more difficult to judge the transactions and flows of cryptocurrencies, and it is more difficult to prevent whether they have received black money. In this regard, large institutions such as Binance FTX should do more to clarify doubts, assume the responsibility of communicating with law enforcement agencies, and provide more preventive guidance to ordinary users.