On October 30, a report from Forbes once again caused turmoil in the exchange industry. Binance He Yi and a number of Huobi people in the circle of friends and the community commented on Forbes that “Binance may be attacked by the FBI. The “investigation” remarks generated a lot of disputes and even “wars of words.”
In fact, under the current special exchange background, the disputes extended by the events reported by Forbes have gone beyond the level of whether the facts themselves are true, and have become important tools and materials for the game between Huobi and Binance, and reflect Both parties are deeply anxious about compliance.
Author|Echo, Gong Quanyu
01
The cause and course of the dispute
In the early morning of October 30th, “Forbes” published an investigation manuscript titled “Leaked “Tai Chi” Document Reveals Binance Evasion of Bitcoin Regulator’s Careful Planning”, stating that Binance had designed a series of The detailed strategy of distracting the attention of US regulators to avoid the scrutiny of US regulators and speculating that Binance may be under FBI investigation.
One hour after the manuscript was published, Changpeng Zhao urgently tweeted 7 consecutive tweets to deny the allegations reported by Forbes, and stated that “the statement and accusation in the article are incorrect”, “Binance has been operating within the legal limits”, ” Anyone can make a strategy document, but it doesn’t mean that Binance will follow it.”
But a few hours later, the newsletter images from the Golden Finance and other media were still rapidly spreading and fermenting in the Chinese community, with conspicuous headlines such as “The FBI and the Internal Revenue Service may be investigating Binance”, which triggered many Users have a crisis of trust in Binance.
Due to the close relationship between Golden Finance founder Du Jun and Huobi, Binance’s dissatisfaction with Golden Finance and other media spreading “false” news was immediately transferred to Huobi. He Yixian accused the media of irresponsibility and trust in the circle of friends. Nonsense, pointed out that Golden Finance Du Jun deliberately discredited Binance, and then dispelled rumors against the investigated remarks in various communities such as the Catcher Academy. At the same time, he also had many disputes and conflicts with Huobi.
For example, after He Yi dispelled the rumors, Huobi related personnel questioned “then it is also an obligation to remind users how far Binance is from the facts under investigation and how much risk, instead of deceiving users saying that Binance is okay”, He Yi claimed Huobi has also been tracked by Shanxi police, hoping that Huobi will cooperate in the investigation of OKEx. Huobi responded, “Huobi has an upright office, where are more than 800 people working in Binance?”
During the dispute, the two sides changed the subject of each other, poke at each other’s sore spots, and staged a good “war of curse” again and again.
At the same time, Binance issued a statement formally responding to Forbes reports, claiming that the “Binance PPT” mentioned in the article was a proposal to Binance by a third-party law firm, not created by Binance employees, and was ultimately not adopted. Binance always strictly abides by the laws and regulations of various countries and regions, and works closely with law enforcement agencies of various countries to jointly promote the positive development of the industry. At the same time, relevant reports have been distorted in the Chinese community as “investigated by the FBI and IRS” completely false, which has seriously damaged Binance’s brand and reputation.
But the dispute between the two parties has evolved to this point. The discussion extended by the Forbes report has gone beyond whether the facts themselves are true, and has become an important tool and material for the game between Huobi and Binance.
02
A detailed review of Binance U.S. compliance strategy
From a preliminary point of view, Binance has grasped the argument that the document was written by the law firm, not actually implemented, and that it has not been investigated, and repeatedly discussed it to alleviate concerns about the outside world. It has strong logic and persuasiveness, but these statements are after all It is Binance’s unilateral remarks. To judge the true situation of Binance America, it is necessary to compare and analyze the details of Forbes’ report on Binance America.
In the “Forbes” report, the author Castillo pointed out in the first paragraph that a document believed to have been created by Binance senior management and obtained by “Forbes” shows that the world’s largest cryptocurrency exchange Binance Holdings Limited conceived A well-designed corporate structure designed to deliberately deceive regulators and secretly profit from cryptocurrency investors in the United States.
The document was created in 2018 and detailed Binance’s plan for an unnamed American company described as a “Tai Chi entity”. The aforementioned unnamed entity company will establish an operating agency in the United States, pretending to be interested in compliance, and decentralizing The attention of regulators, but it will take measures to transfer revenue to Binance in the form of licensing fees.
More specific strategies include advocating participation in the US Department of Homeland Security (DHS) cornerstone program to discover weaknesses in the financial system; should be willing to “accept nominal fines in exchange for law enforcement tolerance”; key Binance personnel should be located outside the United States Develop business locally to avoid law enforcement risks; call for “strategic” use of virtual private networks (VPN) to hide the location of traders in order to avoid regulatory review by the SEC and NYDFS.
PPT document obtained by Forbes
Changpeng Zhao and other Binance executives called the article a false report, and the document was not produced by former or current Binance employees, but was a proposal from law firm personnel, which was ultimately not adopted. The author Castillo also mentioned in the manuscript that the obtained file is called “Presentation 2”, pointing out that Binance may be considering other strategies, but he still believes that analysis of the file shows that many of the details described therein have been implemented In place.
In June 2019, the second year after the aforementioned secret document was created, Binance announced that it would stop providing services to individual and corporate customers in the United States. It also announced the launch of Binance US in cooperation with BAM Trading Services. The platform is operated by BAM (the report states that the full name It is responsible for the operation of Binance America, which is related to Binance. It also uses Binance’s wallet and matching engine technology to provide services to the US market in full compliance.
This action is basically in line with the plan mentioned in the document. An independent operating agency is established to be responsible for the expansion of Binance in the US market. Binance is mainly responsible for technology output. The intention may be to divide the relationship between Binance and Binance US as much as possible. If Binance US The suspected violation of anti-money laundering and other rules in the operation of the extremely strictly regulated U.S. market has been investigated and will not affect the operations of the main body of Binance.
Castillo also analyzed that if Binance US is only an actual subsidiary, then its parent company may become liable for the company’s regulatory violations, but Binance US will not be liable if it only has a contractual relationship with Binance. Catherine Coley, CEO of BAM Trading, also told Castillo that the company has no ownership relationship with Binance and Changpeng Zhao.
However, in addition to this point, there is no actual evidence to support the other specific measures to distract regulatory attention pointed out in the secret document. As for the development of the U.S. market in the form of cooperation, it is not Binance’s unique strategy. Huobi’s previous development strategy in the U.S. market is also the same, emphasizing that HBUS is not “Huobi America”, and Huobi is not a subsidiary company or affiliate. The relationship between the two is only an “exclusive strategic partner.”
It can be considered that this strategy is a compromise that exchanges are not willing to give up the most influential US market, but are worried that high compliance costs and stringent compliance procedures will affect their own market competitiveness, such as radical The market promotion and currency listing mechanism may be difficult to continue. Therefore, reducing operational risks and costs may be the main motivation for exchanges to adopt this strategy.
However, the exchange’s evasion of supervision also indirectly shows that its compliance mechanisms such as customer identity verification cannot meet the most stringent regulatory standards. In particular, some exchanges can trade and withdraw without KYC, which may be laundered in the eyes of regulatory authorities. Such illegal activities provide convenience and need to be severely cracked down. Castillo pointed out in the manuscript that there is speculation that the US Federal Bureau of Investigation and the US Internal Revenue Service may be investigating Binance, but there is also no evidence to support it.
03
Exchange’s compliance anxiety
Although there is no evidence for many speculations, under the special atmosphere and background of the current exchange industry, those fairly realistic documents and speculations are enough to grab the attention of many people and even become important materials for exchange public relations battles.
In fact, since OKEx founder Xu Mingxing was detained by the police some time ago, there have been many targeted public relations battles between Huobi and Binance. Many communities have rumored that Huobi legal affairs were taken away by the police. The announcement offered a reward of 1 million U to collect evidence of rumors, and pointed the finger at Binance.
This time, Binance appeared “black material” and was widely spread through Golden Finance. He Yi immediately pointed the finger at Huobi, causing disputes between multiple communities and Huobi. Huobi’s Du Jun, Qi Ye and others were also involved. , The fierceness of the exchange public relations battle can be seen.
Nowadays, compliance has become the most sensitive pain point of mainstream exchanges. Even if the trading business reaches the forefront of BitMEX and OKEx, it will not escape the “iron fist” of the regulatory authorities of various countries, and it has an extremely significant impact on the competitiveness of exchanges. The negative impact of Huobi and Binance has also led to a sharp increase in compliance anxiety between Huobi and Binance, and their response to related rumors is also particularly sensitive.
Undoubtedly, Binance’s trading business has been smooth this year. With the opportunity to deploy DeFi currency early, and the detention of BitMEX, OKEx executives and other assistance from friends, a large number of investors and quantitative institutions have moved the trading home. As for Binance, the Chinese market has also made major breakthroughs. Since the third quarter of this year, it has achieved impressive results in spot, contract, and platform currencies.
However, in terms of compliance, although Binance has been promoting the acquisition of fiat currency licenses in many countries, and has maintained close cooperation with many law enforcement agencies around the world, it has not yet obtained any official exchange licenses from any major country. The warnings of regulatory agencies in many countries, including Malta, and Malta, have yet to have a definite “place to settle down.” Compliance issues are equivalent to the sword of Damocles hanging on Binance for a long time.
Huobi believes that relying on domestic operations and regulatory logic is its important advantage and will not cause substantial losses to user assets. However, from the recent accidents encountered by OKEx, apart from the extreme possibility, different types of regulatory strikes may also occur, even if The suspension of withdrawals in the short and medium term will still cause huge panic and losses for users, and the competitiveness of the platform will be severely weakened.
Limited by the development stage of the industry, compliance must be a long-term proposition for exchanges. Now mainstream exchanges have seized the pain points of both sides to attack and harm each other, reflecting the fierce competition in the exchange industry, but this cannot be solved. The problem will eventually return to the product and service level, and not doing evil is the biggest prerequisite for compliance.
