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(Kitco News) - The legal woes for Binance, the world’s largest cryptocurrency exchange, continue to mount as it has been revealed that French authorities have been investigating the exchange for money laundering since February 2022.
According to a report from the French news outlet Le Monde, the Judicial Investigation Service of Finance has been conducting a preliminary investigation into the exchange for the “illegal exercise of the function of service provider on digital assets (PSAN),” and for “acts of aggravated laundering, by competition for investment operations, concealment, conversion, the latter being carried out by offenders who have generated profits.”
In layman's terms, Binance is being investigated for failing to fulfill its obligations when it comes to conducting proper Know-Your-Customer (KYC) checks for users of its French unit, which is a key component in helping to prevent money laundering.
As a requirement to operate in the region, Binance is mandated to obtain an operating license, which it failed to do, leading regulators to charge the platform with illegally offering its services to French customers. All cryptocurrency exchanges operating in the country have been required to obtain approval from the Financial Markets Authority (AMF) since 2019.
Binance has reportedly been operating in France since 2020 but only received AMF approval in May 2022.
The parent company of Binance France, Binance Global, has faced similar accusations in the U.S., where the Securities and Exchange Commission (SEC) has accused the exchange of providing services to American customers illegally, and in some cases, even coached users on how they could find a workaround to a KYC check. The SEC estimates that in August 2021, only 25 million of the 62 million Binance users from around the world had completed proper KYC.
On June 5, the SEC filed 13 charges against Binance for a variety of violations, including operating an illegal platform in the U.S. and for the misuse of customer funds.
In addition to lax identification verification procedures, Binance France is also being investigated for illegally advertising to French citizens. Registration with the AMF is required for all companies wishing to advertise cryptocurrency services to the public. Binance is suspected of having purchased advertisements to promote its activity in the region before it was officially registered with the AMF in May 2022.
In response to the report, Binance CEO Changpeng Zhao (CZ) took to Twitter to try and calm the growing sense of FUD (fear, uncertainty and doubt) generated by this latest investigation into the popular exchange.
“In France, surprise (no advanced notice) on-site inspections of regulated businesses are the norm, for banks, and now for crypto too,” CZ said. “The surprise visit for Binance France happened a couple of weeks ago. It's not ‘news.’ Binance France cooperated fully. Binance also isn't the only crypto business inspected. This happened to other well-known crypto businesses in Paris too.”
In a follow-up statement posted on the official Binance Twitter feed, the exchange said that it “invests considerable time and resources into cooperating with law enforcement globally. We abide by all laws in France, just as we do in every other market we operate. We will not comment on the specifics of law enforcement or regulatory investigations except to say that information about our users is held securely and only provided to government officials upon receipt of documented appropriate justification.“
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Binance exits the Netherlands
As Binance moves to defend itself on multiple fronts, the exchange has announced that it will be leaving the Dutch market. Binance said that immediately following its announcement, no new users residing in the Netherlands will be able to register, and starting on Saturday, existing Dutch resident users will only be able to withdraw assets from the Binance platform.
“Binance has been in a comprehensive registration application process as a virtual asset service provider (VASP) with the Dutch regulator,” the announcement said. “Although we explored many alternative avenues to service Dutch residents in compliance with Dutch regulations, unfortunately this has not resulted in a VASP registration in the Netherlands at this time. Binance will continue striving to obtain authorizations to provide our products and services to users in the Netherlands.”
Dutch users have been encouraged to withdraw all assets from their Binance accounts.
“While Binance is disappointed that this has become necessary, it will continue to engage productively and transparently with Dutch regulators,” the exchange concluded.
This latest exit comes just days after the exchange revealed its plans to exit the Cyprus market. On Wednesday, the Cyprus Securities and Exchange Commission put Binance Cyprus “under examination for application for deregistration” on its website.
Binance responded to the development by saying, “We are working hard to prepare our business to be fully compliant with MiCA [Markets in Crypto-Assets] when it is implemented in the next 18 months. To that end, we have made the decision to pull back efforts in Cyprus to focus on our efforts on fewer regulated entities in the EU, especially our larger registered markets.”
