Binance secretly transferred $400M to CZ owned firm

money laundering
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A new report suggested, crypto giant Binance had secret access to a bank account of its US based partner and transferred nearly $400 million from that account to a trading firm, Merit Peak Ltd, managed by CEO Changpeng “CZ” Zhao.

Fresh Troubles Brew

According to a new investigative report by Reuters, Binance moved the funds between January and March 2021 from the Binance.US account that was registered under the name of BAM Trading to Merit. Although the report didn’t disclose whether the transfers involved customer funds, the report showed Binance’s public terms of use at the time said its customer deposits were held at Silvergate and a Nevada-based custodian firm called Prime Trust LLC.

It seems the recent development could attract a potential investigation from the United States Securities and Exchange Commission (SEC) amid a tightening regulatory purview regarding digital assets.

The Reuters report claimed Binance US executives were unaware of the outflows expressing concerns as the transfers took place without their knowledge. Catherine Coley, Binance US’ chief executive at the time, called the transfers “unexpected,” specifying “no one mentioned them.” However, Coley, who left Binance.US in 2021, didn’t respond to questions related to the transfers.

Moreover, the report suggested that a person with direct knowledge of the transfers noted that an unspecified portion of the $400 million was subsequently sent to the Silvergate account of a Seychelles-incorporated firm called Key Vision Development Limited.


Binance Defends Allegations

A 2021 corporate filing by another Binance unit identified CEO Zhao as a director of Key Vision. A former Silvergate executive confirmed that Key Vision held an account at Silvergate at the time. The Department of Justice (DOJ) and the SEC have already sought information from Binance and Binance.US about their relationship as part of ongoing investigations into potential breaches of financial rules. Defending the allegations, Kimberly Soward, a Binance US spokesperson said,

“Merit Peak is neither trading nor providing any kind of services on the Binance.US platform. Only Binance.US employees have access to bank accounts.”

As the news broke out, Binance.US took to Twitter to respond to the allegations stating that it would never lend out customer funds and always maintains 1:1 reserves,that are subject to regular audits and regulatory reporting by government entities. The firm claimed that while there was a market making firm named Merit Peak that had operated on the Binance.US platform, but it had ceased all activities on the platform in 2021. The U.S. arm of the world’s largest cryptocurrency exchange tweeted,

“Our leadership team is staffed with former DOJ, SEC, FBI, and NYFed employees who are committed to operating a platform that is safe and abides by U.S. laws and regulations.”

Binance Admit Shortcomings

This comes at a time when crypto firms continue to face heat from regulatory agencies especially in the United States. Recently, Patrick Hillmann, Chief Communications Officer at Binance said the crypto exchange expects to pay monetary penalties to settle existing U.S. regulatory and law enforcement investigations of its business.

Hillman admitted that Binance faced several shortcomings during the implementation of its security measures, such as the Know-Your-Customer (KYC) protocol and the Anti-Money Laundering (AML) rules designed to combat money laundering activities. He also revealed that Binance is currently in talks with United States regulatory agencies for a possible settlement to halt existing regulatory investigations into its business operations in the country.

Increasing Scrutiny

Binance is one of several large crypto companies facing investigations in the U.S. over its crypto offerings. Authorities with the New York Department of Financial Services have also reportedly targeted Binance’s reserves, which led to a crackdown on its BUSD stablecoin.

Last week, the SEC hit crypto exchange Kraken with a $30 million fine for failing to properly register its staking service with the Commission. The regulatory agency was also preparing to sue Paxos, the stablecoin provider behind the dollar-pegged Binance USD, for violating investor protection laws.


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