What makes Binance fearless against Regulators worldwide?

Binance has become a constant point of discussion among regulators in different jurisdictions.

Binance has locked horns with all the major regulators of the world such as Germany, the Us, the UK, Ontario(Canadian Province), and Japan.

Some of these regulators have already issued the notice to stop the operations carried on by binance and the rest may also follow the lead if binance remains adamant to not comply with regulations.

What’s going on with binance due to which it has become the most adored crypto exchange among regulators around the world?

And doesn’t Binance have any fear that its operations could get completely shut down?

Let’s find out

Binance tussle with regulators around the world/worldwide

Germany

• At the end of April, Germany’s financial supervisory authority BaFin warned binance that they are violating security laws of the country which could lead to a $6 million fine.
• They were offering tokenized stocks to german investors such as Tesla, Apple, Coinbase, etc without publishing an investor prospectus.

United States

• On 13 May 2021 Bloomberg reported that binance is being probed by the U.S. Authorities in matters related to money laundering and tax evasion.
• This investigation is suspected to be on the basis of the ‘Crypto Crime Report 2020’ by Chainalysis, a blockchain analysis company.
• In this report, it was shown that in 2019, 27.5% of the total of $2.8 billion illicit bitcoin (earned through criminal activities) went through binance.
• Investigations by the Commodity Futures Trading Commission (CFTC) are also going on in the matter that Binance has allowed U.S. users to trade in the derivatives segment.

Japan

• On Friday, 25th June, Japan’s Financial Services Agency (FSA) issued its 2nd warning to binance in 3 years that the exchange is still operating in Japan without registration.
• Despite Binance’s assurance last year that it will ‘phase out’ its services to Japanese residents, its services are still running for Japanese residents.

Ontario, Canada

• On 25th June Binance announced that it will stop its services in the Canadian province.
• This action hints that Binance didn’t wish to get registered and follow Ontario Securities Commission (OSC) regulations.

United Kingdom

• On Saturday, 26th June, came another blow for Binance when UK’s Financial Conduct Authority (FCA) banned the operations of Binance Markets Limited(BML), a U.K. subsidiary of the Cayman Islands-based Binance Group.
• BML was banned in the U.K. as it was not registered and was operating without the express approval of FCA.
• In mid-May, Binance withdrew their application to register with FCA as they were not able to comply with the anti-money laundering regulations imposed by FCA.
• Binance further tweeted in response, claiming that the FCA notice would have no “direct impact” on the services it provides from its website Binance.com

It seems like Binance is not ready to give in to the regulations of any country. Binance has been dodging registration in every jurisdiction UK, Japan, Ontario.

And this has garnered a reputation for avoiding regulation, as explained by Bharat Mistry, the technical director in UK and Ireland at security company Trend Micro.

This begs the question why are binance shying away from complying with the regulations?

Is it simply because these regulations are too rigorous & time-consuming as claimed by block?

However, there are these six firms in the UK that have got themselves registered despite the long arduous registration process by FCA. Coinbase also recently completed its registration process and got approval to operate both in Japan and Germany.

Hence, Getting registered is not that big a deal, it seems. Maybe binance has other ideas in terms of how they wanna operate their business.

But what makes Binance so confident in defying the regulators?

Binance doesn’t fear regulators or at least it appears to be. Nearly every month they’re in headlines over regulatory concerns in some jurisdiction or the other. Their statements always convey that they respect regulators and work in tandem with them, their actions tend to speak otherwise.

It’s all thanks to their byzantine — elaborated corporate structure. They are currently giving services in 50 countries without having their proper registered headquarter.

Binance was founded in 2017 with its initial headquarter in china, then it moved to Japan, Taiwan, Malta, and recently its supposed headquarter is the Cayman Islands. The reason I say ‘supposed’ is because the CEO of Binance Changpeng Zhao just doesn’t want to reveal where is the headquarters of binance.

Keeping mystery about its headquarters seems to fall in the grand scheme of plans of Binance as reported by Forbes.

Forbes revealed in their article about a leaked ‘Tai Chi’ document which explains this elaborate corporate structure of binance is a well-thought move to avoid the regulatory interactions.

Key Findings from the document are:

• The document highlights the need to undermine the “anti-money laundering and U.S. sanctions enforcement”.
• For the above objective it proposes to set up a “Tai Chi entity” — U.S. Binance which will act as a magnet for regulatory authorities and all the regulatory attention will be given to it.
• To “Insulate Binance from US enforcement” the U.S. entity would not be a subsidiary because then its parent co. could be held accountable. Hence, Binance U.S. is a separate company to binance.
• It advises key personnel of the company to operate from outside the U.S. to avoid enforcement risks.
• The document explicitly calls for “Strategic treatment of VPN”. In this way potential consumers in restricted locations such as the U.S. can circumvent these restrictions and use binance.
• Binance should consider joining various self-regulatory groups such as Virtual Commodity Association, Chamber of Digital Commerce, etc to “demonstrate compliance willingness.”

Interestingly, many of its proposed moves of the document are in place now. According to the document, one last masterstroke that is still left to be played out is acquiring the U.S.entity at a nominal price by the Cayman Island-based binance when it has served its purpose.

The thing to be noted here is that this is an alleged 2018 document that was specifically to bypass U.S. regulators. It was named ‘Presentation 3’, which implies that there may be other such strategies for jurisdictions other than the U.S.

Now the picture is getting somewhat clearer, it is because of this large complex corporate structure, and with the help of some loopholes of law, Binance does what it wants to do.

Conclusion

Binance is a centralized profit-driven company that has time and again have found itself on the wrong side of regulators.

The revelation of the ‘tai-chi’ document above implies that Binance does these infractions of law intentionally because they have already planned their future course in advance.

Binance has already anticipated the potential moves by the regulators and has devised its counter in advance.

It wouldn’t be wrong to say that Binance is staying a step ahead of the regulator all the while. Getting banned in the U.K. but still being totally accessible via its site is the perfect example for it.

This tussle between binance and regulators will be a long one and it’ll be interesting to see who comes out on top and who bows down.