Author: Climber, Golden Finance
Recently, Binance has made great progress: On August 15, Binance was officially registered as a reporting entity with the Indian Financial Intelligence Unit (FIU-IND), achieving the 19th global regulatory milestone; on September 6, Binance Kazakhstan obtained a full regulatory license approved by the Astana Financial Services Authority (AFSA); and previously, Binance's Indonesian CEX Tokocrypto obtained a physical crypto asset trader license. In addition to compliance licensing, the Binance security team has also made remarkable achievements. As of the end of July 2024, the team has successfully recovered or frozen more than $73 million in user funds stolen by external institutions.
All these are somewhat different from the impression of Binance that users have of focusing on product services, project listings, and expanding wealth effects. What is presented to the outside world is no longer limited to the scope of exchange business, but rather it takes the lead in setting an example and striving to practice the principle of user asset security first and institutional compliance operation.
The reason behind Binance's outstanding performance is that it has been able to uphold the concept of user-first and has made great efforts and contributions in compliance supervision. As the crypto asset industry gradually matures, compliance is particularly important. Binance clearly sees this clearly. Richard Teng, CEO of the platform, said that this year it plans to recruit 1,000 people and spend more than $200 million to strengthen compliance.
In recent years, Binance has continued to increase its compliance investment, and has achieved great results in law enforcement training, case response, asset recovery, etc., while also providing guidance for other companies in the industry. As crypto assets are increasingly entering the mainstream, Binance is working hard to benefit the entire ecosystem and its users through compliance.
1. Compliance supervision: Full commitment and commitment to the highest industry standards
At the current stage, the approval of Bitcoin and Ethereum spot ETFs in the United States means that crypto assets are entering the mainstream, and the cryptocurrency industry has entered a stage of development and maturity. At this stage, regulatory compliance is crucial to user experience and security, business success, and responsible growth.
However, since the birth of the encryption industry, due to the lack of early compliance supervision, various financial crimes have emerged one after another, which not only caused heavy losses to investors, but also caused many originally high-quality encryption projects to collapse step by step.
It is based on the above situation that Binance, as a leading company in the industry, has always been committed to building a compliant, secure and transparent platform. Over the years, Binance has invested a lot of money and taken practical actions to strengthen compliance and security programs and build a talent team. The improvements made to the platform include:
Significantly improve internal anti-money laundering (AML) monitoring and analysis capabilities, including on-chain and off-chain monitoring;
Improve identity authentication (KYC) protocols and work with best-in-class third-party vendors to complement the platform's internal team and technology; strengthen the platform's market supervision capabilities;
Establishing an industry-leading Financial Crime Compliance Unit charged with assisting global law enforcement agencies with cryptocurrency-related investigations and sharing the skills and expertise needed to combat financial crime.
Specifically in terms of data and facts, cases where Binance has actively participated in improving security and compliance include:
In 2023, Binance reached a settlement with US regulators. After paying US$4.3 billion in settlement, the platform underwent changes in leadership and a transformation of its corporate governance structure, and gradually moved towards full compliance.
Throughout 2023, Binance's investment in compliance will reach $213 million, a 35% increase from $158 million last year.
As part of its compliance program, Binance has established a world-class Financial Crimes Compliance (FCC) department comprised of the industry’s top investigators, blockchain analysts, and former law enforcement officers. Distributed across multiple teams around the world, the FCC department plays an important role in protecting the ecosystem from malicious actors and fraudulent activity, leading the fight against cryptocurrency crime.
To further ensure user safety, Binance has improved its platform security measures and launched a series of security-focused educational activities. By the end of 2023, Binance's User Asset Security Fund (SAFU) was valued at $1.2 billion. The number of assets supported by Binance's Proof of Reserve (PoR) increased from 9 in 2022 to 31 in 2023, and anyone can check it online at any time. Binance always supports user assets at a 1:1 ratio plus additional reserves.
In August of this year, the platform's CEO Richard Teng said in an interview that Binance will hire 1,000 people this year, many of whom will be designated for compliance positions. The cryptocurrency exchange's annual expenditure to meet regulatory requirements (including US supervision under the plea agreement) exceeds US$200 million.
This year, Binance further strengthened its compliance leadership team, bringing in world-class expert and former senior vice president of compliance Steve Christie to return to Binance as deputy chief compliance officer.
In addition, in order to combat criminal activities in the digital asset field at an earlier stage, Binance uses the most advanced tools and technologies, combining automatic and manual methods to monitor transaction flows within and outside the platform.
In 2023, the platform improved its transaction monitoring capabilities, and the platform's on-chain monitoring team processed 677,772 on-chain alerts, achieving a 150% increase in on-chain transaction monitoring efficiency.
Binance not only analyzes blockchain risks, but the platform’s enhanced dedicated tools can also internally monitor abnormal transactions and activities.
In 2023, the platform’s analysts reviewed and closed 2,648,318 off-chain alerts. By implementing new internal and external tools, the platform was able to increase the efficiency of these efforts by approximately 40% compared to the previous year. In 2023, the platform’s team recorded a 157% increase in the total number of internal investigations conducted and a 180% increase in work efficiency.
Finally, in terms of market surveillance, the platform’s team, which is responsible for monitoring Binance’s trading activity and ensuring the integrity of the platform’s markets, introduced new third-party monitoring solutions and reached an average rate of investigating 20,000 alerts per month.
These efforts have enabled Binance to make significant progress in regulatory compliance, and to date, Binance has helped authorities freeze and seize more than $1 billion worth of crypto assets in public and private collaborations. In 2023, Binance's FCC division responded to more than 58,000 law enforcement requests, held 120 workshops and training sessions with law enforcement, and completed more than 51,600 suspicious activity reports (SARs) - an increase of 180% from 2022 - involving sanctions, scams, fraud, hacking, and more.
It is worth noting that on August 15, Binance announced that it had registered as a reporting entity with the Financial Intelligence Unit of India (FIU-IND), achieving the 19th global regulatory milestone, ranking first among all centralized cryptocurrency trading platforms.
In addition, according to Chainalysis' report, in 2023, the most illustrative indicator of crypto-related crime - the proportion of illegal transactions in the overall crypto trading volume - fell from 0.42% to 0.34%. During the same period, key indicators of Binance's compliance and security progress increased. By comparing the two, we can see that Binance has made a huge contribution.
2. Law enforcement training: Sharing expertise and helping to combat crypto crime
As cryptocurrency becomes more popular, more criminals are looking to abuse the cryptocurrency ecosystem in order to make ill-gotten gains. Therefore, it is increasingly important for law enforcement officers fighting cybercrime and financial crime to master cryptocurrency investigation skills.
However, law enforcement agencies are often passive, resulting in a severe lack of experts in the field of blockchain and cryptocurrency, and no relevant personnel are available to meet business needs and train investigators and prosecutors.
In addition, there are often obstacles in the way of cooperation between the private and public sectors in this regard. Law enforcement agencies need timely access to relevant data held by cryptocurrency companies, but many service agencies, including trading platforms, are slow to respond and unable to effectively assist in investigations. In addition, many agencies, especially those in developing countries, have difficulty accessing the latest high-quality training resources.
In response to this, in September 2022, Binance launched a global law enforcement training program to help law enforcement detect financial and cyber crimes and assist in prosecuting criminals who use digital assets. Binance's comprehensive training courses provide law enforcement with the skills and knowledge needed to handle complex cryptocurrency investigations, filling in some of the professional knowledge blind spots that law enforcement personnel may have.
Binance has an experienced team of former law enforcement officers and financial investigators who are able to provide practical assistance, case consulting services, and operational support, which makes the platform stand out in the industry and become a member of other exchanges and companies in the industry.
In April this year, Binance held its first online Law Enforcement Training Day event, aimed at helping to combat cybercrime and providing advanced cryptocurrency education to the international law enforcement community.
To fill these gaps, Binance provides a variety of training and sharing sessions for law enforcement partners. The content covered is quite wide, ranging from cryptocurrency basics, user experience of wallets and cryptocurrency exchanges, to advanced topics such as cryptocurrency mixers and cross-chain transactions.
Additionally, Binance’s team of law enforcement training experts will provide insights into recent cryptocurrency crime trends, typologies, and modus operandi, as well as present case studies using commercial blockchain analysis tools and open-source cryptocurrency intelligence tools.
Binance has one of the most professional teams in the crypto industry. The team consists of approximately 30 former law enforcement investigators, each with extensive experience in the crypto industry or cybercrime investigations. This expertise enables Binance to provide effective support to law enforcement agencies. When receiving a legitimate request, the data provided by the platform often helps identify suspects or can greatly advance the investigation.
Binance’s efforts in assisting law enforcement have already been fruitful. In recent years, the platform has assisted in large-scale investigations, helping law enforcement agencies successfully dismantle multiple international criminal networks and seize funds worth hundreds of millions of dollars. The platform’s efforts have been recognized globally: the platform has won the Cyber Security Professional Award (CSPA) from the Hong Kong Police Force; the head of law enforcement training has received a certificate of commendation from the Commissioner of the Korean National Police Agency; and the platform has been invited to hold joint press conferences with government agencies such as the Royal Thai Police.
In addition to practical assistance, the Binance Law Enforcement Training Program also held more than 120 in-person and online training sessions in 2023, focusing on practical investigative methods to help law enforcement agencies effectively deal with complex cryptocurrency investigations.
3. Case Response: Building Web3 Ecosystem Security
According to Chainalysis' 2024 Crypto Crime Report, in 2023, cryptocurrency crime has significantly decreased, the value of illegal cryptocurrency addresses has decreased, and the share of illegal transactions has shrunk. This is due to the industry's enhanced security and compliance work and better cooperation with law enforcement partners. However, this is inseparable from Binance's efforts. The platform actively responded to law enforcement agencies in various crypto-related illegal cases, effectively reducing criminal behavior throughout the ecosystem.
Binance sees ecosystem security as a shared responsibility among industry participants, users, regulators, and law enforcement agencies, and has stepped up its collaboration to combat crime. At the same time, in order to combat illegal activities involving crypto assets, the platform has stepped up its cooperation with global anti-crime organizations.
In order to safeguard the interests and security of users and the reputation of the entire crypto industry, Binance actively responds to the needs of solving various cases and helps law enforcement agencies combat online and offline criminal activities. The main types of case responses are:
1. Fight against criminal gangs
In 2020, Binance worked with the Ukrainian Cyber Police on the Bulletproof Exchanger project, which aims to track transactions between Binance and high-risk entities. The project led to the identification and arrest of a cybercriminal group that launched a ransomware campaign and laundered more than $42 million in cryptocurrency over the past two years.
The following year, Binance investigators participated in an international case with the Ukrainian Cyber Police, the Korean National Police Agency Cyber Bureau, U.S. law enforcement agencies, the Spanish Civil Guard, and the Swiss Federal Police, among others, arresting members of FANCYCAT, an active cybercriminal gang responsible for more than $500 million in losses by launching cyberattacks and laundering proceeds through darknet operations and high-profile cyberattacks.
Binance’s anti-money laundering analysis tools detected suspicious activity on the Binance platform and expanded the group of suspects. After mapping out the complete network of suspects, the team worked with private sector blockchain analysis companies TRM Labs and Crystal to analyze on-chain activities, ultimately identifying and arresting FANCYCAT members.
In a notable counterterrorism case in 2023, Binance worked with the National Bank of Tajikistan and blockchain analytics firm TRM Labs to arrest several key members of the terrorist organization Islamic State-Khorasan Province (ISKP).
2. Protect against hackers
In 2022, Binance recovered funds stolen from the Axie Infinity vulnerability. When the North Korean hacker group Lazarus transferred stolen assets from 86 different wallet addresses to Binance, the platform immediately withheld the transactions and eventually recovered $5.8 million worth of cryptocurrency.
In August 2022, Binance froze crypto assets stolen from Curve Finance users, worth about $450,000, or 83% of the hacked amount. The Curve Finance hackers used various techniques to bypass the platform's security controls to send assets to Binance, but were eventually discovered. Binance worked closely with law enforcement to return the funds to users.
In 2023, several teams at Binance worked together to identify two individuals involved in exploiting the decentralized protocol Platypus Finance. They then handed the case over to French law enforcement, who arrested the suspects.
3. Stop crimes that infringe on personal rights
Two cases that occurred in São Paulo, Brazil in 2022 are vivid examples. In one of the cases, the Binance investigation team worked closely with the São Paulo Prosecutor's Office to track down the proceeds of kidnapping and extortion, which resulted in the loss of approximately 2 million Brazilian reals (over $400,000). The suspects attempted to use the advanced privacy features of crypto wallets to obfuscate their transactions, but this was not enough to prevent investigators from identifying the suspects' deposit addresses.
Binance’s investigative team worked closely with the São Paulo Civil Police to track and freeze proceeds from another extortion case. In both cases, Binance’s collaboration with law enforcement and the Know Your Customer (KYC) procedures implemented on the Binance platform played a key role in the subsequent arrests of the perpetrators.
In October 2023, the platform’s investigation team was contacted by the Royal Malaysian Police Attaché regarding the kidnapping of a Malaysian citizen in Manila earlier this year. Unfortunately, the victim did not survive. However, Binance investigators were able to assist law enforcement with their investigation. The arrest of the identified suspect by Philippine law enforcement was another win for the collaboration since the start of Binance’s training promotion campaign.
4. Fight fraudsters
In 2023, Binance supported the FBI and Department of Justice (DOJ) in a major hog slaughter case, seizing more than $112 million in funds. The platform’s investigation team acted quickly to identify and restrict the flow of illegal funds through the platform. This directly helped recover the victims’ lost funds. The team’s efforts complement the work done by federal authorities.
In one case, Binance assisted the Central Investigation Bureau (CIB) of the Royal Thai Police in another cryptocurrency scam, which led to the dismantling of a large transnational criminal organization network. The arrests were carried out at 30 locations in Bangkok, Samutprakarn, and Udon Thani, with more than 200 law enforcement officers deployed.
5. Provide assistance in real time
The Turkish artist whose funds were stolen contacted Binance customer support to report the incident, and the platform’s investigators identified the suspects and entered into negotiations with them.
Eventually convincing them to return the assets to the rightful owners. The story of the 23-year-old investor also followed a similar scenario, with the thieves eventually returning the funds. The fake "friend" of the Belgian caregiver was identified and sentenced by a Nigerian court. With the help of Binance, the kidnapped cryptocurrency CEO successfully recovered a previously paid ransom of approximately $2.6 million.
From the above crypto cases that Binance responded to, it can be seen that the platform has played a huge role in solving the cases. Data shows that in 2023, Binance responded to more than 58,000 law enforcement requests and supported law enforcement agencies in solving a series of high-profile cases, assisted in the capture of many criminals and terrorists, seized billions of illegal proceeds, and destroyed multiple international criminal networks.
IV. Asset Recovery: User Safety First
When it comes to protecting user assets, Binance takes a proactive, hands-on approach and is committed to achieving collaborative security in the Web3 space.
As of July 31 this year, the Binance security team has successfully recovered or frozen more than US$73 million in user funds stolen by external institutions. This amount exceeds the US$55 million recovered in the whole of 2023.
Through Binance’s proactive efforts and collaboration with industry participants and the public sector, Binance has successfully helped users recover misplaced and lost digital funds, of which approximately 80% of recovered funds were related to external hacks, vulnerabilities, and thefts.
Of course, the increase in recovered and frozen funds this year does not necessarily indicate an increase in criminal activity within the industry; instead, it indicates an increase in the efficiency of Binance’s proactive security measures.
In a public blockchain, all transactions are visible and traceable, making it easier to track and recover funds. At the same time, the public record also makes it easier to identify and monitor suspicious activities.
Jimmy Su, Binance’s chief security officer, attributes this achievement to Binance’s user-centric culture, which permeates all aspects of Binance’s operations; Binance is committed not only to protecting Binance users, but also to improving the overall security of the cryptocurrency ecosystem. “By working with more third-party services, Binance is able to expand its coverage when tracking and recovering stolen funds,” he said.
Jimmy added: “Based on what we have seen in recent months, market growth and volatility tend to lead to an influx of new investors who may be more vulnerable to scams and hacker attacks, while price increases during this period may lead to more financial losses.”
Furthermore, he said: “Blockchain technology provides platforms with powerful tools to collect vital evidence and take action against criminals, paving the way for a safer and more secure investment environment. While it is important to remain vigilant and conduct thorough research, rest assured that blockchain’s unique attributes give platforms an advantage in this fight against financial crime.”
Through proactive efforts to support Web3 users and collaborate with industry peers, Binance has successfully helped users recover misplaced and lost digital assets, as well as frozen and recovered ill-gotten gains that flowed into the Binance platform. In addition, Binance has worked closely with public authorities to ensure that affected users get the help they need.
In a successful case of law enforcement cooperation in May this year, Binance assisted Indian authorities in dismantling a fraudulent investment scheme disguised as a gaming platform and recovered assets worth millions of dollars.
Through meticulous blockchain analysis and significant on-the-ground operations, the joint operation identified and froze 42 digital asset accounts associated with the scam, totaling nearly $6 million in ill-gotten gains, and hundreds of bank accounts.
India’s Enforcement Directorate (ED) and Binance teamed up to hunt down the perpetrators and successfully froze 42 digital asset accounts related to the scam, totaling nearly $6 million. The collaboration went beyond blockchain analysis and included significant ground operations by the ED.
The ED’s tough action further led to the seizure of a large amount of illicit proceeds from the E-Nugget scam, including the discovery of 1,952 SIM cards linked to various bank accounts and a large number of bank cards and passbooks during raids. Nearly 2,500 bank accounts were scrutinized, with about 190 million rupees (about $2.3 million) in cash seized, and funds totaling nearly 900 million rupees (about $11 million) frozen in 70 accounts.
In addition, according to Chainalysis' 2024 Crypto Crime Report, the value received by illegal cryptocurrency addresses fell sharply in 2023, totaling $24.2 billion, down from $39.6 billion in 2022. The share of all cryptocurrency trading volume associated with illegal activities also fell from 0.42% in 2022 to 0.34%. The reduction in the amount greatly reflects the effectiveness of the proactive security measures taken by the industry, and Binance's contribution to recovering funds is enough to show that it plays a leading role in this regard.
Conclusion
The crypto industry has always been regarded as a dark forest. Due to the decentralized nature of crypto projects and the lack of supervision, low-quality projects emerge in an endless stream, and many well-known projects also lack self-discipline, which puts ordinary investors in great risk. With the passage of Bitcoin and Ethereum spot ETFs in the United States, it is an inevitable trend for crypto assets to move towards the mainstream, but it is precisely regulatory compliance that restricts the crypto industry.
Binance clearly recognizes the importance of compliance supervision and has spent a lot of manpower, material resources and financial resources to build a Web3 security ecosystem. As an industry leader, Binance's move has undoubtedly set a good example for the entire crypto industry. Whether in the current complex global economic situation or in the future of the long-term development of the blockchain industry, Binance is clearly at the forefront of the times.
