Binance was long the exchange of choice for many crypto investors. With a large number of tokens claimed, fast settlement and relatively low fees, it managed to grow into a billion-dollar business. But last month, Binance no longer appeared to be welcome in Israel and Singapore. Two admittedly small markets, widely seen as forerunners, and that sent a very bad signal to the larger global markets. The question is when will Binance finally get serious about cracking down on money laundering?
In December, Binance Singapore customers suddenly received notification that the company would withdraw from Singapore within weeks. Customers were urged to transfer all their funds to accounts elsewhere and close their accounts by mid-February. Binance's PR machine came out with glowing lyrics about renewed focus and strategic rethinking, but it sounded as believable as a school student claiming to be struggling with a flat tire and an open bridge on the way to a test that he would have studied really hard for.
According to insiders, Binance had been admonished by Singapore's National Bank (MAS) to pack their bags because it had no chance of being licensed under the internationally renowned Payment Services Act (PSA), which established Singapore as a global leader in crypto regulation. Two years after the PSA was enacted, only a handful of licenses have been awarded while over 300 applications had been submitted. Even for progressive Singapore, achieving conclusive regulation of the opaque crypto market is difficult.
Within Binance, it maintains that it withdrew its license application in Singapore on its own initiative, as did major players such as Apple, Adyen, Google and Revolut and with them 100 other companies. The difference is that these companies do not have to withdraw from Singapore, but most of them have been made to understand by MAS (especially the parties that do not manage customer assets) that no license is required for them. In fact, Singapore wants to bring in mostly large exchanges. This is precisely why it is wry that Binance has to leave and says it is now focusing on the United Arab Emirates as the location of its new headquarters.
Hired with much drumbeat in August as Binance Singapore CEO, Richard Teng, who had no less than 13 years of experience at MAS and was also Chief Regulatory Officer at the Singapore Exchange, has now been transferred to the Emirates as head of Middle East and Africa. There is no one who believes this was the intention when he was appointed. Teng did, however, just proudly announce that Binance has obtained a license in Bahrain. Nice, but incomparable to a license in Singapore, the business hub of more than a billion people in Southeast Asia.
And with that, Binance is making the exact same feint it made a few years ago. After all, it was less than four years ago that Binance founder Changpeng Zao(CZ for crypto friends) triumphantly announced that Malta would become Binance's new center, after China had radically closed the doors to Binance and all crypto-exchanges and Hong Kong still had to tolerate more influence from China than had been hoped for. But after Malta was told from Brussels to crack down on money laundering, the love between Binance and Malta soon cooled. It remains to be seen how long Dubai will leave the red carpet rolled out for CZ after China, Malta and Singapore.
Because in the same week that Binance had to shut down Singapore, leaving behind only a bare website, Israel also came out with a warning about Binance. And let's not forget Israel is working hard to strengthen economic relations with the Emirates and Bahrain, where crypto is a topic of conversation. It is not likely that Israel will forget to remind its new home friends Abu Dhabi and Dubai of all the international CDD/AML/KYC rules that it does enforce itself. Especially not after Israel announced last weekend that it does not want to be a go-between for assets allegedly originating from Russia.
Reuters was already able to get its hands on internal reports indicating that Binance is taking a dim view of the fight against money laundering:
"In encrypted Telegram messages seen by Reuters, Binance staff, including Chief Compliance Officer Samuel Lim and former Global Money Laundering Reporting Officer Karen Leong, raised worries about weak "know-your-customer" checks aimed at preventing money laundering. Three former senior Binance employees told Reuters they voiced such concerns to Zhao himself but he ignored them."
It is to be hoped for the crypto industry that Binance succeeds in growing into a serious global market player. The company has always been very innovative and had a speed and clout that competitors like U.S.-based Coinbase and Kraken looked at admiringly. As an outsider, it is probably impossible to imagine the enormous obstacles Binance has managed to circumvent in growing from China into an international crypto powerhouse. The question is whether the need for reform and alignment with international anti-money laundering policies permeates CZ.
Meanwhile, the almost equally unregulated FTX is developing into a major competitor and Crypto.com is embarking on massive marketing campaigns. And although Coinbase recently faced a massive security breach, the U.S. company continues to grow strongly, including through a high-profile commercial featuring only a QR code during the Superbowl. Aired exactly on the day Binance closed its doors in Singapore.
Thus, 2022 appears to be the year of truth for Binance. The pioneer needs to get serious about money laundering, because at some point you run out of countries to flee to.