Britain, Japan and other countries are "encircling" the world, but why is Binance most worried about the United States and Canada?

Wu Shuo Author | Tan Shu

Editor of this issue | Colin Wu

In the past two days, regulators in Canada, Japan and the United Kingdom have successively issued warnings to Binance, and Binance quickly issued an announcement on June 26 to stop providing services to citizens of Ontario, Canada. In response to the UK’s warning, Binance responded belatedly on the 28th, saying that Binance Group acquired Binance Markets Limited (BML) in May 2020, but has not yet launched its UK business or used its FCA regulatory license.

Binance said that BML is an independent legal entity and has no influence on Binancecom by not providing any products or services on the Binancecom website. We take a collaborative approach when working with regulators and take our compliance obligations very seriously. We are actively learning about the changing policies, rules and laws in this new field. But Binance did not explain whether it would continue to provide services to British users.

Bybit, which was previously warned by the UK, responded very quickly, requiring: If you are a UK resident or citizen, please close all positions and withdraw all account balances before 8 am on March 31, 2021. All this stems from the UK's crackdown on cryptocurrency derivatives. The UK FCA emphasized that we do not regulate crypto assets like Bitcoin or Ethereum, but we regulate certain crypto asset derivatives (such as futures contracts, CFDs and options), as well as those crypto assets that we consider to be "securities".

In May this year, in an interview with Daniel Roberts, editor-in-chief of Decrypt, Binance founder Zhao Changpeng insisted that Binance had no headquarters. Prior to this, Binance had moved out of China and went to Malta, but the Maltese authorities had clarified that Binance was not allowed to operate in Malta. Five months later, the Malaysian Securities and Exchange Commission issued an announcement stating that Binance was operating illegally in the country. After that, Binance was also registered in the Cayman Islands and Seychelles, but where its headquarters is has become a mystery.

Despite responding to Canadian regulators, The Block interviewed a Binance spokesperson regarding Japan’s warning, only to receive the reply that “Binance does not operate in Japan and does not recruit Japanese users.” The spokesperson refused to answer the question of whether Japanese users could access Binance and conduct transactions.

Binance has not yet responded to the UK's warning. A long time ago, Binance stopped serving US users and launched Binance.US, which is specifically designed to serve US users.

Why does Binance have different attitudes towards regulators in different countries? This starts with the jurisdiction and enforcement of the law.

Jurisdiction in international criminal cases

In terms of legal jurisdiction, in order to avoid legal conflicts between different countries, the principle of international criminal cases is generally based on the territorial principle, that is, the local law enforcement agency manages the case.

In addition to the territorial principle, there are the nationality principle, the protection principle and the principle of universal jurisdiction. The nationality principle means that if a citizen of a country commits a crime abroad, the country still has jurisdiction over the citizen. For example, in the telecom fraud cases that often occur in my country, although the criminals often hide in Southeast Asian countries, my country still has jurisdiction over these criminals.

The protection principle is based on the maximum protection of the country's interests. Even if the suspect is not in the country and is not a citizen of the country, this principle can be applied to protect the country's interests.

In the case of New York Attorney General's Office v. Tether/Bitfinex, Tether had raised a defense that the New York Attorney General's Office had no jurisdiction over Tether, but the defense was rejected by the judge. Since Tether has users located in New York State, then for the benefit of New York State residents, the New York Attorney General's Office has jurisdiction over the company.

The principle of universal jurisdiction is based on the protection of the common interests of all countries. No matter what nationality the criminal is or where the crime is committed, as long as the criminal appears in a country and the crime he committed is an international crime recognized by that country, that country has criminal jurisdiction over the crime. Crimes such as drug trafficking, terrorism, extortion, etc. often fall into this category.

Enforcement of laws in different countries

Having jurisdiction is one thing, but enforcing laws across borders is another. At present, the country with the best international enforcement of laws across borders is the United States - which is why most non-compliant exchanges actively avoid American users.

Specifically for this warning, Binance responded quickly to the Canadian regulator because Zhao Changpeng is a Canadian citizen. According to the principle of nationality, Canada has jurisdiction over Binance and it is enforceable.

In contrast, although Binance also has customers from Japan, the United Kingdom, or other countries, other countries often lack the enforcement strength similar to that of the United States. Therefore, although many countries have corresponding laws, not every country can implement them smoothly.

Where is Binance going?

At present, the biggest threat to Binance's regulation still comes from the United States. The United States not only has strong overseas law enforcement capabilities, but also has jurisdiction over all .com domain names. On July 25, 2017, the U.S. authorities directly deactivated the domain name of the cryptocurrency exchange btc-e.com used for money laundering.

On May 14 this year, according to Bloomberg [report](4), the U.S. Department of Justice and the Internal Revenue Service were investigating Binance for money laundering and tax evasion. In the following five days, the price of Bitcoin fell day by day, dropping by $20,000 in five days. Although the reasons for the decline included various market factors, Binance’s compliance concerns were likely one of the triggers.

In an era without compliance issues, Binance quickly grew into the world's largest cryptocurrency exchange, with a trading volume far exceeding that of the compliant exchange Coinbase. If we extrapolate from the ratio of trading volume, Binance's market value should far exceed that of Coinbase. However, in recent years, the actions of regulatory authorities in various countries towards Binance have undoubtedly shown that Binance has a considerable compliance cost.