Binance and Our Commitment to the Letter of Law

I write this from Geneva, Switzerland where I have been invited by the World Economic Forum to participate in a meeting of The Global Coalition to Fight Financial Crime. 

Being here, surrounded by colleagues and peers from across the world, a question I often get asked is: Why the blockchain industry, why Binance?

After 17 years of working as a sanctions expert both in intergovernmental and financial institutions, my answer is always, “find me an industry or an organization that is doing more exciting and dynamic work on sanctions today where you can make a real impact on the lives of billions today and countless more billions of people tomorrow.”

I’ve spent much of my career in the hallowed halls of inter-governmental organizations, such as the United Nations and EU, ensconced within the heart of the global financial system in HSBC, and being at the forefront of international policies to prevent financial crime. 

Blockchain and, by extension, Binance was the chance to bring my experiences to one of the most exciting industries in the world right now.

My own journey with crypto started out as a skeptic. After all, to a person that had worked in and with traditional finance for decades, the concepts of “virtual money” and “digital assets” made absolutely no sense. 

The slow but steady journey to becoming a true believer was helped in no small way by an industry that has evolved and embraced change faster and more readily than any other that I have ever seen.

The potential of the technology to deter crime, bring illicit actors to justice, and create more transparency in global finance is incredible, and its ability to leverage connected communications to improve lives and create a fair, more equitable world is, to me at least, staggering.

In many ways, my first few months in my role as Binance’s global head of sanctions has been about getting to grips with the sheer magnitude of this impact.

In particular, and also having a background in human rights advocacy, it is hard not to appreciate the potential that blockchain technology and Web3 as a whole can have, especially for the nearly 2 billion unbanked people around the world.

What has become clear is that building this future will require close cooperation with governments, regulators, and legislators who share our belief that people deserve a chance to access all the tools they can to improve the lives of their communities.

It is for this reason that I felt this was the right time to give people a little bit of a peek behind the curtain to gain a deeper understanding of how we handle the delicate balance of building the world’s largest and most innovative centralized exchange while still respecting and strictly following the letter and spirit of international law.

Binance’s Role as the Industry Leader

I’ve recently had a conversation with a colleague who asked me if I thought Binance was a technology company or a financial institution. 

The answer is, of course, that it is somewhere in between.

On the one hand, we are a global technology company, leading the way in our industry as we develop the sort of cutting-edge tech that will become core to a Web3 future. At the same time, we offer many of the same services as financial institutions do. On our platform, you can trade, buy and sell blockchain-based commodities and deposit and withdraw fiat. 

It is this complex combination that thoughtful regulators and other public servants across the globe are busy creating legislation to address for the blockchain industry as a whole. As a former senior policy staffer myself, I can relate to those attempting to tackle this important challenge. 

It is no small task to create legislation to ensure consumer protection, anti-money laundering, and the integrity of the financial system for an ecosystem as complex as has been developed on the blockchain. 

Moreover, very few people understand the technology, let alone global sanctions laws and their interrelation with the  blockchain. 

So the obvious next question one would ask is, “but banks are regulated all over the world; why is this any different?”

Well, the first thing to remember is that banks in their modern form have been around for at least a century and thus they have had over 100 years to evolve and develop regulatory frameworks that are now central to both the global economy and people’s personal finances.

By comparison, Satoshi mined the first Bitcoin only 13 years ago, and Binance as a company celebrates its 5-year anniversary this month. Just 4 years ago, Binance was 15 brilliant tech nerds in a small office in Japan trying to figure out how to build a better blockchain platform to best serve customers. 

Neither those participating in the nascent industry nor those in government understood at that time how blockchain-based products could or should be regulated.

As it became evident that the technology would serve customers in need of financial freedom in previously unfathomable ways, the blockchain industry has had to move at hyperspeed to fit its fundamentally new paradigm into the financial industry regulatory frameworks that have been evolving for over a century and do not match up perfectly with the technology. 

This industry did not have the benefit of clear guidance and a bench of tens of thousands of experts to draw from as we had in traditional banking. As would be expected in any fast moving start-up community, there was initially immaturity and a lack of expertise in highly specialized areas, such as KYC, AML, and sanctions.

What this translates to for someone like me at Binance is that we need to have the risk protection of the world’s most established financial institutions while still evolving like a fast-growing tech company – not an easy bill for anyone to fit. 

Binance is a very different company than it was 1 year ago, let alone 5 years ago. The same can be said for the blockchain industry more broadly.

I firmly believe that Binance is leading the way – from hiring the best teams in the business to employing the most sophisticated KYC and transaction monitoring technology in the world. However, I will be the first one to say that the blockchain industry as a whole still has room to mature its capabilities. 

Despite our best efforts, our tireless product teams cannot simply create these capabilities overnight. In addition we cannot simply port over an established sanctions program from the banking industry, members of which still struggle with many of the same shortcomings that blockchain companies are working furiously to rectify. 

This focus on people and product has propelled us as true market leaders with users from the four corners of the globe.

The last part of that sentence is especially important to me in my role. In a nutshell, it is my job to ensure Binance follows the global rules and enforces sanctions on people, organizations, and countries that have been blacklisted by the international community, denying such actors access to the Binance platform.

We do not allow access from countries like North Korea, Syria, Cuba, and Iran, to name a few, specifically because we believe in following international sanction laws. 

How do we accomplish this?

The first tool in our powerful arsenal today is our robust KYC stack that rivals any in the traditional banking system. 

Over the years, we have built a robust KYC system that is thorough, compliant in over 200 jurisdictions, and supported by industry-leading KYC companies such as Onfido, Jumio, and Trulioo, among others.

Unlike many other exchanges out there, we do not allow users to trade on our platform without passing KYC checks that include country of residence and personal identification information. We employ tools like Reuters World-Check now (Refinitiv World-Check), a comprehensive database of Politically Exposed Persons (PEPs) and heightened risk individuals and organizations.

Even after passing the first level of KYC, accessing the full Binance platform requires advanced KYC data that includes proof of residency. 

We continue to build out our KYC and AML capabilities, and our policy imposes a zero-tolerance approach to double registrations, anonymous identities, and obscure sources of money. 

You could say that this goes against the spirit of a decentralized Web3, but we believe that for the industry to achieve its true potential, centralized exchanges like Binance have a responsibility to enact measures to drastically reduce the chances of illegitimate funds making their way into the larger Web3 ecosystem.

For most organizations, this is enough. But for Binance, and this is something echoed strongly by our leadership team, we always have to be proactive in protecting our customers from illicit activity and protecting the integrity of the blockchain ecosystem.

Please refer to this post for an exhaustive look at how our KYC stacks up against the biggest players in the industry.

We follow legal requirements around the world and often put measures in place before they are mandated by regulators or law enforcement. 

A case in point is our activities in Iran, a country facing certain sanctions imposed by the US.

Binance is not a U.S. company, nor are we headquartered there, but out of respect for US law and the role of America in the global economy, we blocked all access to our platform to anyone based in Iran as we implemented more advanced complex detection tools that allowed us to further crack down on users in sanctioned regions that had access to sophisticated masking tools.

This is in contrast to other exchanges that are still offering services to Iran-based users. And you’ll probably find similar flows in North Korea, etc.  

It’s certainly not purposeful, but these other exchanges still have a long way to go in growing their bench of compliance experts and their internal controls as we did while we were staffing up our compliance and investigative teams over the past year. We have over 400 industry leading experts working on our global compliance and investigations team, almost twice the size of other exchange’s entire staff. 

We have a responsibility as market leaders to be an example for other exchanges when it comes to following international law, and thus we do.

With that said, I cannot ignore the elephant in the room about traders in sanctioned jurisdictions using readily available tools like VPNs to access platforms. VPNs are a useful tool for keeping your identity safe on the internet, especially when connected to a public hotspot or for those citizens who live under authoritarian regimes with brutal surveillance systems and policies.

In fact, both the Federal Trade Commission and Cybersecurity & Infrastructure Security Agency (CISA) have recommended the use of VPNs. Media has also widely pushed the use of this tech, including TechRadar, Forbes, CNN, etc.

The effect of this technology is the ability to circumvent geolocation blocking. While we are actively working on identifying users based on additional factors such as user behavior as opposed to only geolocation, some users do slip through the cracks for us, like they do for every other business out there. 

Again though, let’s be clear that every tech and financial institution across the globe is trying to tackle this challenge - from Netflix to your neighborhood bank. We view this as a critical challenge to be overcome and have devoted significant resources to working on this issue.

There is also the innate nature of the blockchain, where all transactions are public and trackable. This is unlike traditional finance, where transactions are hidden and require a subpoena, to come to light.

We have a variety of tools in place to track and monitor activity on the blockchain to ensure that everything that passes through Binance is compliant and legal, and we continue to improve these tools to meet international standards.

Case Studies

At Binance, we don’t just talk the talk, we walk the walk. Be preemptive, be proactive is a common mantra shared by our senior leadership.

No exchange out there has a security and forensics team quite like we do and the results of this focus on data, analytics and law enforcement pedigree has been our effectiveness in helping law enforcement deal with cyber crime.

A good example would be in how we dealt with the removal of sanctioned exchanges like Suex, Chatex and Garantex from Binance and helping law enforcement deplatform these bad actors across the industry.

Another example I like to share with my peers outside the blockchain community is how Binance was vital in dealing with Lazarus, a cybercrime group run by the North Korean state.

Our teams at Binance proactively share intelligence with law enforcement to map out North Korea’s modus operandi globally. We also continue to build out our investigations capabilities to block North Korean funds that attempt to touch our platform. 

There is no exchange out there that North Korea has not attempted to use to funnel illicit funds but I can say with pride that no other exchange is as aggressive as dealing with this as Binance.

Our team was also instrumental in working with law enforcement on the recent Lazarus theft from Ronin/Axie Infinity to freeze an estimated $5.8M worth of related cryptocurrency from the theft.

These teams wrote the playbook for leveraging blockchain tracing to identify and take down the worst of the worst actors in the crypto space, including the takedown of Hydra Market, BTC-e, Welcome to Video, Alphabay, Silk Road, DPRK actors, and many other investigations. 

They continue to leverage those skills to protect our users and help law enforcement target and dismantle those who seek to exploit the blockchain for criminal purposes.

You can read more about our efforts against the likes of Lazarus, Hydra and other cybercrime organizations here.

Conclusion

As a senior sanctions subject matter expert, I have no doubt that Binance is the global leader when it comes to adhering to international sanctions law, and I personally believe this is very much a marathon and not a sprint.

It took banks and other financial institutions over a century to build out the robust global system of regulations in use today. Still, according to the UN, between $800 billion and $2 trillion is laundered every year, a vast majority through these legacy financial systems.

In the five years since our founding, we have helped spark a global conversation around the future of equity, equality and the fair distribution of wealth. 

I am confident that in due time, exchanges like Binance will be as essential, as regulated and as integrated as legacy financial institutions; the only difference is that it will not take us over a hundred years. Binance actively welcomes the opportunity to engage with and partner with regulators world-wide to help lead this evolution.