Why has Binance been investigated/warned by six countries in a row? How will Binance respond?

Wu Shuo Author | Tan Shu

Editor of this issue | Colin Wu

Binance was strangely investigated and warned by six countries all of a sudden, and the reason may be related to the United States. In addition to relying on Singapore as a "protection umbrella", Binance's full shift to BSC is also a trump card.

After Canada, the United Kingdom and Japan issued warnings to Binance last week, the Cayman Islands, Singapore and Thailand launched investigations into Binance this week. Why are regulators in various countries targeting Binance so intensively?

1 The US investigation into Binance is gradually deepening

According to a report by Bloomberg on May 13, the U.S. Department of Justice and the Internal Revenue Service are investigating Binance for money laundering and tax evasion. The investigation is bound to clarify Binance's operating entity and background information. The responses of various countries this time may mean that the U.S. investigation into Binance is moving towards a more in-depth stage.

Since Binance’s main site is not registered in the United States and its operator is not an American, if U.S. government agencies need to obtain information about Binance, they will inevitably need to go through the governments of other countries.

For example, Zhao Changpeng, the founder of Binance, is Canadian and lives in Singapore. The trademark of Binance is registered by him in the name of Binance Holdings Limited in the Cayman Islands. If the United States wants to investigate Binance, it will inevitably obtain relevant information from these countries. Before September 2017, Binance moved its office from China to Japan. Although it later moved out of Japan, Japan undoubtedly also has a lot of information about Binance. Of course, this is just a guess.

Due to Binance’s wide footprint, as the U.S. government’s investigation continues to deepen, perhaps more countries will suddenly “realize” that Binance is operating in their country and issue corresponding warnings.

2. Regulators in various countries begin to pay attention

In Thailand, the country’s SEC introduced the Digital Asset Businesses BE 2561 (2018) [Act](1) in 2018 to regulate the cryptocurrency industry. In April of this year, the Thai SEC issued a [warning](2) to Binance, stating that it provided services to Thai users without registering in accordance with the requirements of the Act. Binance did not respond to the warning, so three months later, the Thai SEC filed a criminal lawsuit against Binance.

The UK has also previously issued a warning to Binance. If Binance does not respond, the UK is likely to file a lawsuit against Binance like Thailand.

It is conceivable that since Binance provides services to global users, it is difficult to comply with the regulatory requirements of most countries, so there will be more warnings and lawsuits in the future.

3 Where is Binance going?

Today, Binance has achieved decentralized office without a headquarters. This approach has increased the difficulty of supervision, but it obviously cannot completely avoid supervision. Previously, in the article "Britain, Japan and other countries are "encircling" the world, but why is Binance most worried about the United States and Canada?", we mentioned several principles of jurisdiction:

Because CZ is in Singapore, according to the principle of territoriality, Singapore has jurisdiction over Binance; because CZ is a Canadian citizen, according to the principle of nationality, Canada also has jurisdiction over Binance; according to the principle of protecting American investors, the United States also has jurisdiction over Binance. The above three countries do not have too many obstacles in enforcing the law.

The ability to enforce laws across borders is a reflection of a country’s strength, and the United States currently has the largest scope of transnational law enforcement. Previously, a German-Finnish man named Kim Dotcom opened a network storage website Megaupload in New Zealand. Because users uploaded a large amount of pirated content, he was eventually arrested by the FBI from New Zealand. As a result, he is still indignant about the overbearing global law enforcement practices of the United States. He later became an advocate of cryptocurrency.

China's national strength has also gradually increased in recent years. In 2011, Burmese drug lord Naw Kham brutally killed Chinese crew members in the Thai basin of the Mekong River. Although Laos, Myanmar and Thailand each proposed territorial jurisdiction and demanded that Naw Kham be tried in their own country, the Chinese government still insisted on the principle of protection and extradited Naw Kham to Kunming for execution.

As for countries outside the law enforcement scope of the United States or China, I am afraid that Binance does not want to go there either, because countries with sound rule of law are bound to join various conventions (such as the Geneva Convention), alliances (the Five Eyes Alliance or the Fourteen Eyes Alliance led by the United States) or international organizations (such as Interpol), thus providing possibilities for transnational law enforcement by the United States. In countries with imperfect rule of law, property and even personal safety may not be protected after going there. After all, for a profitable company, it is better to have laws than no laws.

It is conceivable that before resolving compliance issues, Binance may "migrate" around the world like miners chasing abundant water. However, as more and more countries join the ranks of warning or even suing Binance, although they may not have the ability to enforce the law across borders, the possibility of forming joint law enforcement is gradually increasing. For Binance, there are always compliance risks that cannot be ignored.

4 Binance’s multi-hand preparation

Binance has naturally anticipated similar situations, or even worse ones, since the US and China have not yet taken action. The first thing it did to prepare was to accept investment from Singapore's state-owned capital Temasek after rejecting Sequoia's investment and even going to court. Therefore, we also see that Singapore's words are particularly mild, and it only said that it would "investigate as appropriate." How long Singapore's "protection umbrella" can last depends on the pressure from the US and China.

The second is the current strategy of some centralized exchanges: DeFi. For example, Bybit injected huge profits into BitDAO. Binance already has a strong DeFi system including BSC and Pancake. When everyone thought that BSC was competing with Ethereum, it was actually another option under strong regulation.

[1]:https://dfsobservatory.com/content/summary-royal-decree-digital-asset-business-operation-be-2561

[2]:https://www.bangkokpost.com/thailand/general/2096071/sec-issues-warning-on-binances-legality