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Unraveling the truth behind Binance’s accusation of money laundering, SEC opens an investigation into BNB token

  1. The occurrence overview
  2. Evidence of Binance neglecting anti-money laundering
  3. SEC starts the strike on BNB token
  4. Binance and CEO Changpeng Zhao’s response
  5. The future of Binance and BNB
  6. Conclusion

The cryptocurrency market is really getting "shaken up" due to the recent legal troubles of the Binance exchange. However, is the truth really as what the media has reported?

The occurrence overview

Evidence of Binance neglecting anti-money laundering

At the beginning of June 2022, the famous British news agency for global financial markets Reuters suddenly published evidence related to the lax regulatory control process in Binance’s identity verification system, resulting in criminals taking advantage of the exchange to carry out a series of money laundering activities, amounting to approximately $2.35 billion from 2017-2021.

Because the amount of money laundered through Binance is too large and carried out in different forms that are quite complicated, BHO Network will only focus on three main factors causing the greatest damage, as well as serious legal consequences related to the exchange.

Firstly, in September 2020, a group of North Korean hackers named Lazarus broke into a small Slovak cryptocurrency exchange and successfully stole approximately $5.4 million worth of crypto. This has become Lazarus's cyber-terrorism mission that the US has officially confirmed to fund Pyongyang government's nuclear weapons program.

Hours later, those hackers opened at least two dozen anonymous accounts on Binance to convert and conceal the origin of the stolen funds. The danger lies in the fact that Lazarus is the leader for hack cases in 2022, causing $ 1.7 billion in damage, and more than 90% of which falls in the DeFi sector. Generally, Lazarus also took most of North Korea's cyber criminals list who stole $400 million in cryptocurrency in 2021.

Secondly, the data shows that from 2017 to 2022, buyers and sellers are on the world's largest illegal "darknet" market (also known as the black market). Specifically, a notorious Russian darknet site called Hydra, had used Binance to make and receive $780 million worth of cryptocurrency payments.

Binance has become the primary payment provider for Hydra. After being founded in 2015, Hydra has distributed banned items, “dirty” deals, etc. all priced in Bitcoin, to millions of users mainly in Russia.

Finally, over the past five years, Binance has allowed traders on its platform to buy and sell Monero (XMR), a cryptocurrency that provides anonymity to its users. While Bitcoin transactions are recorded on a public blockchain, Monero hides the digital addresses of the sender and receiver.

Monero has proven to be popular among Binance users. Until the end of May 2022, Binance is processing about $50 million worth of Monero transactions per day, many times more than other exchanges.

On several popular “darknet” forums, many users were found discussing buying Monero on Binance to exchange banned substances and using Binance to convert stolen funds into Monero.

SEC starts the strike on BNB token

While Binance was not even able to respond to Reuters' accusations yet, just a day later, Bloomberg immediately confirmed that the US Securities and Exchange Commission (SEC) had opened an investigation into the exchange's BNB token to determine whether BNB is a security.

And now it is similar for Binance itself as well, as the SEC is said to be looking into the possibility that Binance was not registered with a legal entity in 2017 when conducting the BNB ICO (initial public offering of tokens).

Essentially, the SEC's action against Binance is similar to the crypto industry’s shaking lawsuit filed by the regulator against Ripple. Accordingly, the SEC sued Ripple because the company sold XRP tokens as unregistered securities, the case so far has not come to an end.

Binance and CEO Changpeng Zhao’s response

It didn't take long until Binance quickly posted a blog on its official homepage, with a series of solid arguments and evidence to refute the false rumors from Reuters about aiding money laundering for notorious criminal organizations in the world.

Binance explained that cryptocurrency is a very “bad” vehicle for money laundering for a number of reasons. First, identity verification (KYC) is very strict in the crypto industry, compared to opening a bank account with fake identification at a bank in any country.

Second, users simply cannot move large amounts of assets into crypto unnoticed, and ultimately all transactions are traceable. Even most “private” coins like Monero (XMR) are much more transparent and traceable than traditional cash. Therefore, Reuters is giving a completely one-sided picture to the detriment of Binance's reputation.

In addition, CEO of Binace Changpeng Zhao himself also expressed his disappointment with the Reuters reports by posting more than 50 pages of email records exchanged between the company's cybersecurity team and the media in the past, for the community to make its own judgment.

Changpeng Zhao asserted that the mass media only exaggerated rumors, and they did not provide any concrete evidence for the case. At the same time, he also urged the community not to believe such fallacies, and stated that Binance always ensures non-engagement in illegal activities.

As for Bloomberg, at the Consensus 2022 conference taking place this week, the Binance CEO said that although the exchange is indeed being questioned by the SEC and investigated for BNB tokens as securities, Binance itself has not yet been subpoenaed for SEC court proceedings, the case simply revolved around the solution of contacting the regulators. Besides, he also revealed that the SEC has often asked questions about Binance and its products, and the two have worked together very well.

The future of Binance and BNB

At first glance throughout the case, the community might be really confused if they don't carefully study the roots of the problem that Binance is facing. However, everything becomes simple and positive if we "dissect" the details of the case from many different professional angles.

  • For the allegation of abetting money laundering: The big question is, why Reuters has only now published evidence related to Binance, while the amount of illegal money is huge, up to 2.35 billion USD. Is it all set in motion for a move to stimulate the market’s fearful response, to continue to pressure the industry as a whole toward a deeper recession?
  • Overall, there have always been rumors of money laundering with major exchanges in history like Bitfinex, Gemini, etc., and all passed quickly. Why is Binance suddenly being called out now? The reason is simply that, in the context of the current decline, Binance is the minority representative next to FTX that is trying to expand and develop, not laying off staff like others in the same situation, in order to revive the market. And so the exchange has inadvertently become a “thorn” in the eyes of the traditional financial world, which has always been jealous of the blockchain space.
  • Next, is the BNB token really a security and will it affect Binance? The answer is simply “No”. Even if BNB is a security, the SEC has no rights to sue Binance, since it is not headquartered in the US.
  • If the SEC wants to exert pressure, there is only one way: put pressure on Binance.US, commonly known as the US branch of Binance. However, a long time ago, CEO Changpeng Zhao announced that both Binance and Binance.US are no longer related, becoming two independent organizations. Not only that, Binance.US is not an issuer of the BNB token ICO.
  • Finally, assuming the worst-case scenario is that Binance does indeed get caught up in the BNB token lawsuit for some “miracle” reason, take a look at Ripple. Despite being attacked by the SEC on the legal front for more than a year, XRP still has a very loyal community and the XRP price not only stay unaffected, but also had breakout times. Of course, the Binance community is much larger than XRP and so is BNB's position, being the 5th largest coin currently on the total crypto market cap chart.

Conclusion

With all the analyzed data just now, the BHO Network team hopes to help investors have a more comprehensive view of the legal picture of Binance to avoid accessing conflicting and disturbing information flows, which may influence their own participation in the cryptocurrency market.

Published on June 19, 2022

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