Binance, the giant cryptocurrency exchange accused of mishandling customer funds, used two American banks to move billions of dollars around the world, the Securities and Exchange Commission said on Wednesday, detailing how huge sums of cash flowed in and out of the accounts sometimes within a span of days.
In court filings, the S.E.C. accountant, Sachin Verma, detailed a tangle of transactions that companies associated with the giant cryptocurrency exchange had made through two banks: Silvergate Bank and Signature Bank, both of which failed this year. The filing showed that Binance officials, including the company’s founder and chief executive Changpeng Zhao, moved hundreds of millions and in some cases billions of dollars through the regional banks to accounts associated with companies in places like Kazakhstan, Lithuania and the Seychelles.
The S.E.C. separately said it estimated unpaid taxes by Binance over the past four years carried an interest penalty of more than $13 million. Though it estimated that Binance earned almost $225 million from 2019 to 2023, the regulator didn’t say how much the company paid in taxes over the period, or how much it should have paid.
This week, the S.E.C. sued Binance in federal court in Washington, D.C., accusing the company of mishandling customer funds, lying to regulators and investors about its operations and engaging in manipulative trading. U.S. regulators have asked a federal judge to temporarily freeze assets tied to Binance’s subsidiary in the United States, and Wednesday’s filing was in support of that request.
The S.E.C. also has sued Mr. Zhao, who is better-known as C.Z., claiming he was the architect of the plan to move billions of dollars to an offshore entity that he controlled.
A Binance spokesman said that the transactions detailed in the filings did not involve customer money and that the transfers of funds to various locations around the world were carried out as part of the normal course of Binance’s business operations. Binance has denied wrongdoing and vowed to “vigorously” defend itself in the S.E.C. case.
Although Wednesday’s filings did not offer an explicit theory for why Binance’s leaders moved money this way, anti-money laundering experts said the large, rapid transfers should have raised red flags for bankers.
Banks are required to file with federal regulators a suspicious activity report, or SAR, when they suspect a transaction may involve money laundering or fraud. The reports are confidential but can provide investigative leads to the authorities.
In one instance, in February 2022, the filings said, $20 million flowed into one of Binance’s Silvergate accounts and $19.9 million flowed out of it, all within the span of a few days, leaving the account with a starting balance of $7.6 million at the beginning of the month and $7.7 million at the month’s end.
A Binance account at Signature reported $1 billion in deposits and $1.3 billion in withdrawals all in the same month, according to the filings. The outgoing money went to Merit Peak, the company that Mr. Zhao controlled where the S.E.C. alleges customer funds were secretly commingled.
“It is one of the more sizable cases of financial misconduct I’ve ever seen — the documentation is overwhelming,” Louise Shelley, a George Mason University professor specializing in money laundering, said, adding that she was “amazed” that the two banks had moved billions of dollars overseas for Binance for such a long period of time.
“This is just so mammoth and should be raising red flags.”
Regulators did not say whether Silvergate or Signature reported the activities in Binance’s accounts. Silvergate, which voluntarily liquidated itself in early March after suffering billions of dollars in losses from its cryptocurrency customers, closed some of Binance’s accounts in 2021 and 2022.
Both Silvergate and Signature allowed customers invested in digital currencies to quickly transfer funds in U.S. dollars around the world at any time of day. With many banks in the United States refusing to do business with crypto trading firms, Silvergate and Signature quickly developed a niche business serving that market.
Both banks were among those that failed this year during a panic over small bank stability — as customers pulled deposits from the lenders. Silvergate, based in California, simply closed it doors during the mini-banking crisis in March. Signature — the much larger of the two banks — ultimately was taken over by the Federal Deposit Insurance Corporation and the New York State Department of Financial Services on March 12.
Based in New York, Signature at one time had 40 branches in the United States and had just under $100 billion in assets when it was taken over by the regulators. In 2018, the New York regulator approved a request by Signature to begin taking deposits from crypto trading customers through its Signet platform, its specialized digital payments platform.
In an April report on the collapse of Signature, New York bank regulators said that although the regional lender was “perceived as a crypto bank,” that was something of a misnomer. The regulator said that the “virtual currency businesses accounted for 18 percent of the bank’s deposit base as of March 2023” and that the failure was an old-fashioned run on the bank by uninsured depositors.
The report did not address Signature’s dealings with firms like Binance. The New York regulator said in a statement: “As part of an ongoing review of operations and in coordination with the Department, Signature was in the process of winding down its concentration of high-risk customers at the time of the bank’s failure.”
Source: New York Times
