Binance, the world’s largest cryptocurrency exchange company, finds itself in the spotlight following accusations that it has been mixing customer funds with company revenue, allegedly violating U.S. financial rules.
The claims were raised by three independent sources, who disclosed to Reuters that the dubious activities allegedly occurred in 2020 and 2021, involving billions of dollars.
One case reported that Binance combined $20 million from a corporate account with $15 million from a customer account on Feb. 10, 2021.
The alleged actions prompted three former U.S. regulators to assert that Binance had jeopardized customer assets by masking their exact location, pointing to deficient internal controls within the exchange.
Nevertheless, Binance has disputed the allegations, asserting its accounts were dedicated to facilitating customer transactions.
Reports suggest that Binance had been using Silvergate Bank as a central fixture in its financial operations. Notably, the exchange is alleged to have combined customer funds with company revenues in a third Silvergate account, which were then converted into the dollar-linked token, Binance USD (BUSD).
Silvergate Bank refrained from commenting when contacted by Reuters. In March, the bank announced its closure following customers’ withdrawal of deposits amidst a period of upheaval.
Binance currently faces civil charges filed by the Commodity Futures Trading Commission (CFTC) for purportedly “structuring entities and transactions” to circumvent U.S. regulations. Simultaneously, the Department of Justice (DOJ) is investigating the exchange over potential money laundering and sanctions violations.
Binance had been reliant on a small, San Diego-based bank, Silvergate, for its U.S. dollar banking operations.
An investigation by Reuters emphasized Silvergate’s focus on cryptocurrency lending and its readiness to bank crypto firms. This report also highlighted that Binance has established several offshore accounts in light of increased scrutiny from U.S. regulators over cryptocurrency exchanges.
The U.S. Commodity Futures Trading Commission (CFTC) filed a lawsuit against Binance last week, alleging that the platform conducted unlawful transactions.
As per sources and documentation acquired by Reuters, Binance is claimed to have employed a business registered in Latvia, Merit Peak, to channel billions of dollars of customer funds onto its platform.
Merit Peak would purportedly receive customers’ dollars or euros into Silvergate Bank accounts, mix them with other funds, and then utilize them to purchase BUSD, a “stablecoin,” on Binance. The exchange is said to have pocketed transaction fees and investment gains, taking advantage of the less regulated European financial ecosystem.
Following these operations, Binance reportedly transferred the stablecoins back into the Merit Peak account, in exchange for dollars or other customers’ funds for withdrawal.
Binance has shifted a portion of its operations to Lithuania, where its subsidiary, Bifinity, converts users’ currencies into cryptocurrencies, according to Reuters.
Binance reportedly established Bifinity to shield profits from tax authorities. A former executive has intimated that the firm has never divulged where its Binance.com trading platform is based or the corporate taxes it pays.
In 2022, Bifinity paid €42.5 million in tax in Lithuania, ranking among the country’s leading corporate taxpayers. However, Lithuania has also initiated an investigation into Binance’s unlicensed investment services.