US puts stop to Binance requests for thank you notes

“No thanks.” That is the US justice department’s response to Binance Holdings, which has sought thank you notes from other federal agencies in return for aiding probes into illicit funds flowing through its cryptocurrency exchange.

Binance — facing mounting government scrutiny about the world — has publicly touted the messages to argue it is one of the good guys.

But behind the scenes, the requests have so bothered the US’s top law enforcement agency that it sent an e-mail in July to the Federal Bureau of Investigation (FBI), Secret Service, Internal Revenue Service (IRS) and others demanding agents stop signing the letters, said two people familiar with the matter. The rebuke is the latest sign of rising tensions between the US and Binance, which runs the biggest digital-token trading platform in the world.

The department’s e-mail argued that Binance is bound by law to co-operate with criminal investigations, so appreciative notes should not be necessary to secure the company’s aid, said the people who asked not to be named in discussing internal communications.

Illegal transactions

Regulators have repeatedly raised alarms that cryptocurrencies are being used to conceal proceeds linked to everything from money laundering to drug dealing to terrorism. That makes assistance from Binance and other financial intermediaries crucial when watchdogs are hunting down illegal transactions and the criminals behind them.

But Binance itself is now being scrutinised by the department, IRS and other US agencies, putting the government in the awkward position of investigating a firm that publicly says it is a partner to global authorities in rooting out misconduct. In press releases and tweets, the exchange has cited the thankful letters to back up CEO Changpeng Zhao’s assertions that it is committed to following the rules.

A justice department spokesperson declined to comment.

“We engage with regulators and law enforcement in a collaborative fashion to combat cybercrimes as part of our ongoing effort to help make the industry a better place,” a Binance spokesperson said in an e-mailed statement. “The letters we’ve received acknowledging our assistance speak for themselves.”

Multiple letters

Binance provided multiple letters it has received to Bloomberg. A note from a UK criminal investigator thanked Binance for assisting with a drug-trafficking probe that was tied to the dark web. A letter from an IRS agent acknowledged the firm’s aid with a grand jury subpoena.

Several of the notes had similar words throughout, including the phrase: “I have much pleasure in sending you this note of appreciation for your co-operation in assisting our investigations.” Most end with a promise to continue “collaborating” with Binance.

Robert Gonzalez, a detective with the Corona, California police department, said Binance sent him the text for a proposed letter that he signed after making some tweaks. In an interview, he said the company has been responsive to requests for assistance whether through subpoenas or otherwise.

Former federal investigators said they have never seen firms seek such affirmation from authorities and questioned the utility of it. But companies under investigation sometimes do cite their prior government assistance to try to avoid or reduce penalties, said Ken Joseph, a former enforcement official with the US Securities and Exchange Commission.

“My sense is the fact that you show up with a letter of commendation is likely to have no impact on whether the government continues its investigation,” said Joseph, who is now a MD at Kroll.

Rising scrutiny

The department and IRS probes into Binance are being led by officials who focus on money laundering and tax offences, Bloomberg reported in May. The exchange faces pressure in other jurisdictions, as well, with the UK telling a Binance affiliate in late June that it lacked authorisation to carry out regulated activities in the country. Thailand also filed a criminal complaint against Binance last month for operating without a licence.

It is debatable whether Binance is legally required to co-operate with investigations into other entities, as the department asserted in its e-mail to US agencies. That is because Binance is not based in the US, or really anywhere. Zhao, who goes by CZ, has repeatedly said that the company lacks a true corporate headquarters.

Still, Binance might be forced to comply if law enforcement can show it is doing business in the US, according to Chuck Pine, a former IRS criminal investigator. “It’s grey, but the whole industry is,” said Pine, who is now a partner at BDO USA. 

Bloomberg News. More stories like this are available on bloomberg.com