Binance, the giant cryptocurrency exchange accused of mishandling customer funds, used two US banks to move billions of dollars around the world, the Securities and Exchange Commission said on Wednesday, stating that it never- Sometimes a large amount of cash flows into the accounts. days duration.
In a court filing, SEC accountant Sachin Verma detailed a tangle of transactions that companies affiliated with the giant cryptocurrency exchange conducted through two banks: Silvergate Bank and Signature Bank, both of which failed this year. The filing shows that Binance executives, including the company’s founder and chief executive Changpeng Zhao, transferred hundreds of millions, and in some cases billions, of dollars through regional banks to accounts linked to the companies in places such as Kazakhstan, Lithuania and Seychelles.
The SEC separately said it estimated more than $13 million in interest penalties owed to Binance over the past four years on unpaid taxes. While it is estimated that Binance earned approximately $225 million from 2019 to 2023, the regulator did not specify how much the company paid in taxes during this period, or how much it should have paid.
This week, the SEC sued Binance in federal court in Washington, DC, accusing the company of mismanaging customer funds, lying to regulators and investors about its operations, and engaging in manipulative trading. Was accused. US regulators have asked a federal judge to temporarily freeze assets linked to a Binance subsidiary in the United States, and Wednesday’s filing was in support of that request.
The SEC has also sued Mr Zhao, who is known as CZ, claiming he was the architect of a scheme to move billions of dollars to an offshore entity he controlled.
A Binance spokesperson said the transactions detailed in the filing did not involve customer funds and that the transfer of funds to various locations around the world was carried out as part of Binance’s normal course of business operations. Binance has denied wrongdoing and vowed to defend itself “vigorously” in the SEC case.
While Wednesday’s filing didn’t offer a clear theory as to why Binance leaders moved the money in this way, anti-money-laundering experts said the large, rapid transfer should have raised red flags for bankers.
Banks are required to file a Suspicious Activity Report, or SAR, with federal regulators when they suspect a transaction may involve money laundering or fraud. The reports are confidential but may provide investigative leads to authorities.
In one instance, in February 2022, the filing said, $20 million flowed into one of Binance’s Silvergate accounts and $19.9 million flowed out of it, all within a few days, leaving the account with an opening balance of $7.6 million. left. $7.7 million at the beginning of the month and at the end of the month.
According to the filing, one of Signature’s Binance accounts reported $1 billion in deposits and $1.3 billion in withdrawals in a single month. The outgoing money went to Merit Peak, a company Mr. Zhao controls, where the SEC alleges client funds were secretly mixed.
“One of the more massive cases of financial misconduct I’ve ever seen — the documentation is overwhelming,” said Lewis Shelley, a professor at George Mason University specializing in money laundering, adding that he was “surprised” that two banks were involved over such a long period of time. Billions of dollars were transferred overseas to Binance.
“It’s so huge and should raise red flags.”
The regulator did not say whether Silvergate or Signature reported activities in the accounts to Binance. Silvergate, which voluntarily liquidated itself in early March after suffering billions of dollars in losses from its crypto customers, is closing some Binance accounts in 2021 and 2022.
Both Silvergate and Signature allow customers investing in digital currencies to transfer funds in US dollars around the world at any time of the day. With many banks in the United States refusing to do business with crypto trading firms, Silvergate and Signature quickly developed a niche business serving that market.
Both banks were among those that failed this year during a panic over the stability of small banks — as customers pulled deposits from lenders. Silvergate, based in California, closed its doors in March during the mini-banking crisis. signature – the larger of the two banks – was ultimately taken over on March 12 by the Federal Deposit Insurance Corporation and the New York State Department of Financial Services.
Based in New York, Signature at one point had 40 branches in the United States and had less than $100 billion in assets when it was acquired by regulators. In 2018, New York regulatory approved a request Signature begins accepting deposits from crypto trading clients through its exclusive digital payments platform, the Signet Platform.
in one April reports on the fall of the signature, New York bank regulators said that although the regional lender was “presumed to be a crypto bank,” it was a misnomer. The regulator said that “virtual currency trading accounted for 18 percent of the bank’s deposit base by March 2023” and that the failure was an old-fashioned ploy by uninsured depositors on the bank.
The report did not address Signature’s transactions with firms such as Binance. The New York regulator said in a statement: “As part of an ongoing review of operations and in coordination with the Department, Signature Bank was in the process of reducing its concentration of high-risk customers at the time of the failure.”