Binance のコンプライアンス支出の解明: $2 億ドルはどこへ消えたのか?

Original author: Jasmine

Original translation: Wen Dao

The total amount of illegal activity on the chain has dropped by nearly 20%, this is the conclusion given by the well-known blockchain data company Chainalysis in August this year. The company believes that this shows that legal activities are growing faster than illegal activities.

The rapid growth of legal activities is closely related to the increasingly strict global regulatory approach to crypto-asset crimes, which has forced companies engaged in crypto-asset businesses to continuously raise the compliance red line and actively separate themselves from crimes such as fraud, money laundering, and extortion.

Especially after Binance, the worlds largest cryptocurrency trading platform, reached a settlement with the U.S. Department of Justice with a high fine in 2023, various cryptocurrency companies have almost reached a consensus that they must comply with regulatory requirements.

As the worlds largest platform that was fined the heaviest, Binance, which has a demonstrative effect, is determined to increase its investment in compliance. Previously, the companys annual compliance expenditure has exceeded US$200 million. Compliance has almost become the companys keyword in 2024, and cooperation with law enforcement agencies is an important part of its implementation.

As of January 2024, Binance has helped authorities freeze and seize more than $1 billion worth of crypto assets in public and private collaborations to stop malicious behavior; by July 2024, Binance had processed nearly 174,000 cooperation requests in total, responding to more than 63,000 law enforcement requests this year alone, up from 58,000 in 2023. In 2023, it also held 120 workshops and training courses with law enforcement agencies and completed more than 51,600 suspicious activity reports (SARs) involving sanctions, scams, fraud, hacking, etc.

Behind Binances compliance program is a mature reporting procedure and a set of technical means to support it, as well as a mysterious executive team FCC. They are both compliance experts who can carry out training and investigators who travel around the world to assist in law enforcement.

When law enforcement agencies, blockchain data platforms, and on-chain security companies become an inseparable entity, Binance, which is stacked with various compliance buffs, fills in the key puzzle pieces that crypto financial companies can use to exert their strength in the industry compliance chain.

FCC Investigative Team Assists Law Enforcement in Fighting Crypto Crime

On April 29, it was reported that ZKasino, a platform that uses crypto assets for gambling, was smashed by the Dutch police for being involved in a large-scale fraud case. A man was arrested on suspicion of fraud, embezzlement and money laundering, and millions of euros were frozen.

On May 2, the Indian Enforcement Agency cracked the E-Nugget online gambling company fraud case, involving 2,500 bank accounts and 190 million rubles. The main culprit Aamir Khan used part of the fraud proceeds to invest in crypto assets.

On May 17, law enforcement agencies in Taiwan uncovered a major money laundering case involving fake personal currency traders, involving nearly NT$200 million.

Binance was actually involved in the process of cracking these crypto crime cases that have attracted local attention. The department that assists local law enforcement agencies is called FCC within Binance, which stands for Financial Crime Compliance and is dedicated to handling financial crime investigations and compliance matters for Binance.

On August 26, Binance’s blog revealed that they received a letter of thanks from the Organized Crime and Triad Bureau (OCTB) of the Hong Kong Police Force, thanking them for assisting the police in identifying suspects of a criminal group through intelligence analysis in a recent major kidnapping case. It was the FCC that made the contribution.

Hong Kong OCTB sent a thank you letter to Binance

The FCC is part of Binance’s compliance program and is comprised of experienced investigators, including former employees from banks and compliance departments in the traditional financial sector, as well as law enforcement and intelligence agencies from governments around the world. Some of the most notable agencies include the US Federal Bureau of Investigation (FBI), the US Internal Revenue Service (IRS), and the Treasury Department, as well as the EU’s Europol, the UK Home Office, the Singapore Ministry of Home Affairs (MHA), the Hong Kong Police Force (HKPF), and more.

Prior to joining Binance, these world-class crime fighters had participated in or even led investigations into major crypto-asset crime cases, such as the Silk Road darknet market, BTC-e exchange, and the Mt. Gox hack.

Interestingly, some FCC investigators worked with Binance when they were working for their old employers, such as James, who is now on the FCC’s Suspicious Activity (SAR) team. “The strong support I received from Binance during my law enforcement investigation solidified my decision to join the company. I had no doubt that Binance was the career path I wanted.”

Binance attends Royal Thai Police Cyber Crime Investigation Bureau press conference and commendation ceremony

FCC, like Binance’s own “FinCEN”, has different teams including dedicated case teams, SAR (suspicious activity) teams, special investigation teams, sanctions investigation teams, etc. The members are not only investigators but also compliance experts.

Internally, the FCC implements Binances disclosure procedures, assists in handling incidents that require further investigation in specialized areas such as sanctions, fiat currency, and transaction monitoring, and proposes initiatives; when external requests or alarms sound, members provide important support to law enforcement agencies, armed with advanced blockchain analysis, intelligence collection, and data visualization software to help them track clues on the chain and understand Binance records that are helpful in solving the case.

Given the 24/7, fast-moving nature of cryptocurrency trading, Binance FCC investigators are on almost 24-hour standby because they must quickly track the flow of illegal funds to prevent victims from suffering further losses.

Charlotte from the SAR (suspicious activity) team experienced an emergency. It was a weekend when a payment service channel provider was hacked and funds were stolen. When the emergency request was sent to Charlotte, most of her team members were on vacation. Although Binance’s workplace is decentralized, Charlotte immediately formed a working group and quickly checked more than 90 suspicious accounts that may have received the stolen funds. Charlotte’s sharp response played a key role in the subsequent recovery of funds for victims.

Sometimes, the time spent assisting law enforcement officers in solving a case can be very long.

The law enforcement assistance for the E-Nugget gambling app scam began in 2022, and the cooperation between the Indian Enforcement Directorate (ED) and Binance FCC lasted for two years.

During this period, the FCC trained law enforcement officers on technical expertise while assisting them in analyzing on-chain data, unraveling transactions and tracking on-chain fund flows and wallet relationships. This year, the FCC ultimately identified members of the criminal team led by the main culprit Aamir Khan and successfully froze 42 cryptocurrency wallets related to the fraud, involving $6 million in illegal proceeds.

Working with law enforcement around the world

Another difficulty faced by law enforcement officers is precisely one of the most significant advantages of crypto assets – borderlessness, which is used in cross-border cybercrime. Not only that, the anonymous flow of crypto assets on the chain also greatly increases the difficulty of identifying criminals.

The characteristics of crypto crimes are very different from the work of traditional law enforcement agencies within their jurisdiction. They require both common sense about blockchain and crypto assets and effective international cooperation and coordination, which often puts law enforcement agencies in a passive position when facing this new type of crime.

For Binance, which has been operating globally for many years, the needs of law enforcement agencies in combating crypto crimes coincide with the help that Binance can provide.

Akbar from the FCC Special Investigations Unit was involved in a successful international cooperation case against crime. At that time, an account holder had been the focus of multiple law enforcement requests around the world, but the evidence was insufficient. After analyzing the account holders activities, transactions, and law enforcement request history, the FCC questioned the person, and the other partys vague answers were very suspicious.

Binance Law Enforcement Workshop with Brazilian Law Enforcement Officials

Based on these clues, Akbar contacted the Cyber Crime Investigation Bureau of the Royal Thai Police, and after cross-checking the team’s findings with the police database, he found that this case was related to another scam being investigated by US law enforcement. Ultimately, this breakthrough by Binance FCC assisted law enforcement agencies in both countries in cracking a gang crime case.

Binance was able to quickly get in touch with law enforcement agencies in many countries thanks to its active cooperation with law enforcement agencies in exploring compliance in recent years. In addition to using its expertise and platform advantages to assist law enforcement agencies in combating crime, the FCCs work on more ordinary days is to train law enforcement officers to understand the neutrality of blockchain/encryption technology and how to solve and prevent technology from being used for evil.

In 2023, Binance held 120 workshops and training courses with law enforcement agencies, covering a wide range of content, from the basics of crypto assets, user experience of wallets and crypto asset trading platforms, to advanced topics such as mixers and cross-chain transactions.

バイナンス holds anti-crime training for Macau Judiciary Police officers

During the on-site training, the FCCs law enforcement training experts will conduct practical exercises focusing on real crimes encountered over the years. A popular topic is What specific assistance can Binance provide to law enforcement agencies and How to interpret the complex data provided by Binance to support investigations.

In addition, the law enforcement training experts will provide insights into recent crypto-asset crime trends, typologies and modus operandi analysis, and present case studies using commercial blockchain analysis tools and open source cryptocurrency intelligence tools.

FCC expert Carlos Mak emphasized the value of the Binance platform in this type of assistance work, Many Binance employees have served as law enforcement officials and are very familiar with the various needs of the agency. In accordance with their experience, Binance has taken a proactive approach to efficiently resolve problems. We value the trust of our law enforcement partners and always work closely with them during the case handling process.

Carlos said that the ultimate goal of providing training for law enforcement personnel is to enable law enforcement agencies to conduct such investigations on their own. It is crucial to have the ability to investigate new types of crimes. With the help of coercive force, the illegal personnel in the crypto asset ecosystem can be effectively removed, and the entire industry and its participants can benefit from it. In addition, experienced investigators are less likely to make mistakes when identifying suspects, which also helps protect the safety of users. It is a good thing for Binance and other crypto financial companies.

Erin West, deputy district attorney for Santa Clara County, California, once commented, “Binance and other platforms are very happy to help, as they often say, ‘We don’t want dirty money on our platform, and we don’t want bad guys to transfer funds on our platform.’”

Peter, a member of the FCC Special Investigation Team, explained that Binance has invested heavily in compliance. “The law enforcement agencies that have worked with us have seen how we create a safer ecosystem. These regulatory and law enforcement agencies actually bear great responsibilities and review obligations. We also hope that the way we demonstrate compliance can be enforced as an industry standard by regulators for all other exchanges.”

Instill compliance culture into all levels of the internal

One topic that cannot be avoided is that cooperation with law enforcement agencies seems to be inconsistent with the spirit of libertarianism advocated in the crypto community. However, the reality that the crypto community has to face is that the use of crypto assets to commit crimes has been infringing on the interests of ordinary people.

Although Chainalysis reported a 50% decrease in illegal activities involving crypto assets in the middle of the year, the report also showed that in 2024, the amount of illegal funds flowing into two types of illegal activities, exchange thefts and ransomware, almost doubled from US$857 million to US$1.58 billion, while ransomware inflows increased by about 2%, from US$449.1 million to US$459.8 million.

In addition, pig killing is the type of scam that has generated the most revenue so far this year. A Myanmar scam gang that was first discovered on the chain in 2022 has made at least US$101.22 million in profits so far this year.

Chainalysis’s data on the value of losses in various types of crypto crime victims

Illegal activities using crypto assets have lured unspecified groups of people and their property into fraud traps or money laundering chains.

Noah Perlman, Binance’s global chief compliance officer, said in a recent podcast, “I understand the importance of protecting privacy and the nature of libertarianism, but no one wants to be fooled. Most people don’t want to fund illegal activities and similar events without knowing it. So there must be a balance. But I want to reiterate that it is important to cooperate with law enforcement agencies to protect privacy under proper legal procedures.”

Noah is an executive who advocates the embedding of compliance as a corporate culture into all levels of Binance operations. He joined Binance in January 2023 after serving as Chief Compliance Officer and later Chief Operating Officer at crypto asset trading platform Gemini. Prior to joining the crypto industry, Noah held leadership positions at large law firms such as the US Drug Enforcement Administration (DEA) and banking giant Morgan Stanley, and has accumulated decades of experience in the field of compliance.

Noah joined Binance just as the company was going through its most turbulent period – Binance reached a settlement with the U.S. Department of Justice for a fine of more than $4 billion, and its founder Changpeng Zhao withdrew from the leadership.

“This settlement marks a ‘new chapter’ within Binance: achieving full compliance across the entire organization, not only complying with the actual letter of the law, but also upholding the spirit of enforcement.” Noah believes that this is a challenge and an opportunity for him – he wants to build a compliance culture at the world’s largest cryptocurrency trading platform, and set a benchmark for the entire cryptocurrency field.

Noah proposed that the key elements of building a strong compliance program can be divided into two categories: one is technology and resources, and the other is culture. He believes that Binance needs to have strong technical defenses, including in-depth transaction monitoring, security infrastructure, risk management mechanisms, and a robust operating framework.

“We need to ask questions like: Is the transaction monitoring program fit for purpose? Is it properly calibrated? Does it have a reasonable signal-to-noise ratio? How is our model validation? And other details. It is increasingly difficult to implement compliance programs at scale across different jurisdictions and different regulatory regimes. From know your customer (KYC) to screening, it is extremely difficult to achieve this both on-chain and off-chain.”

Even though Binance already has a first-class compliance program with strict disclosure requirements and reporting procedures, in Noahs eyes, the plan is far from perfect.

“Given our past, the outside world may not easily believe our promises, so we must stay focused and spare no effort to achieve our goals,” Noah added. “We can’t eliminate fraud, we can only reduce it, and what we can do is keep improving.”

Building a compliance culture at Binance may be a bigger challenge for Noah, which means that compliance must be firmly prioritized in every aspect of the company. “How do we measure compliance culture? How do we ensure that the company follows compliance principles at all operational levels?”

Today, compliance has become an important consideration for Binance. In order to highlight Noah’s importance in the company’s operations, he reports directly to the CEO and speaks at every general meeting of the company.

In addition, Noah also leads Binance to strike a balance between the libertarian spirit of the crypto industry and the need to cooperate with regulators. He said that Binance will always act in accordance with the law within its capabilities and common sense while protecting the freedom and privacy of users.

To date, Binance has processed nearly 174,000 law enforcement cooperation requests, and hundreds of law enforcement training courses have also achieved twice the result with half the effort. Through seminars, training, and assistance, Binance is establishing connections with law enforcement agencies in many countries and regions around the world, assisting in combating financial crimes while also fulfilling its own compliance commitments.

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This article is sourced from the internet: Uncovering Binance’s Compliance Spending: Where Did the $200 Million Go?

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