Last month it was widely reported that Binance, the world’s largest cryptocurrency exchange, was under investigation by U.S. authorities. Both US Department of Justice (DOJ) and the Tax service (IRS) are said to be scrutinizing digital market activity. Binance quickly issued a statement saying it takes its legal obligations very seriously and works with regulators and enforcement officials:

“We have worked hard to put in place a strong compliance program that incorporates the anti-money laundering principles and tools used by financial institutions to detect and deal with suspicious activity,” the company said.

Earlier this year, it was reported that the Commodity and Futures Trading Commission (CFTC) was also studying Binance’s trading.

All of this comes at a time of change in the US government as the Biden administration takes over and new leadership steps come in to guide policy and regulatory issues. The new president of the Security and Trade Commission (SECOND), Gary Gensler, has repeatedly mentioned that he is concerned about the lack of regulatory oversight of crypto exchanges. This led to more discussions on the new rules and possible enforcement measures.

Recently, Crowdfund Insider connected with Clark frogley who spent ten years as Federal Bureau of Investigation agent investigating matters such as fraud and money laundering. After stints at major banks and other global companies like Goldman Sachs and Deutsche Bank, Frogley is now responsible for financial crime solutions at Quantexa – a deep data company providing services to the financial industry. CI discussed the news of the Binance investigation and what may be in store for crypto exchanges in the future. Our discussion is below.


Were you surprised by the report that Binance is under investigation?

Clark Frogley: I wasn’t really surprised. One thing we learn in law enforcement is that if there is a way to make legitimate money, it can and will be exploited by others to launder the proceeds of crime. Anyone who receives ill-gotten goods must find a way to integrate them into the financial system. The unregulated aspects of crypto exchanges make it an attractive avenue for these reasons, so finding that there was an investigation was not a major surprise.

Binance has been around for many years. Why did authorities take so long to investigate Binance?

Clark Frogley: Crypto exchanges and digital assets are still largely unregulated, so the laws governing them are not always as clear as law enforcement would like. The fact that an investigation has been announced just means they’re finally ready to go public, not that they haven’t investigated Binance or other exchanges in some time. Suspicion of wrongdoing constantly leads to investigations, but it is more difficult to prove wrongdoing, especially if the laws are unclear. I guess the investigation has been going on for years and has finally found enough information to move forward.

Binance has an office in Singapore but no defined head office (to our knowledge). Does this complicate the task of regulators?

Clark Frogley: American regulators and law enforcement have never had much difficulty in assuming their jurisdiction, even when the legitimacy of this claim was not clearly defined. The AML Act of 2020 also extends regulatory authority to all foreign branches of U.S. financial institutions. So while crypto regulatory laws are still not clearly defined at the federal level, anyone trading in US-based products or assets will fall under US regulatory jurisdiction. no matter where they are based. Law enforcement may not be able to collect the fees they would have for a bank, but just as Al Capone was dismantled for tax evasion, there are other laws in place that could be used. . It probably won’t cause as much of a slowdown as Binance is hoping.

Will this have an impact on Binance.us?

Clark Frogley: There has already been some impact on all crypto exchanges as people pull out as a result of the investigation. However, this will mostly be short-lived. Once a little time has passed and wrongdoing is announced or dismissed, the exchanges will intensify.

If any wrongdoing is discovered, I think Binance.us will struggle. They are smaller and do not offer anything unique that other exchanges cannot. I think Binance was so popular because it was so big and diverse. For those looking for ways to hide illegal earnings, anonymity in the dark is a great asset. The legitimate traders have found solace in the variety of offers and also some form of justification with so many others using the exchange.

Binance, like most other international crypto exchanges, prevents US addresses from trading, but it’s easy to get around. What do you think about this?

Clark Frogley: Yes, it’s easy to get around and will hardly pause for those whose intentions already lean towards laundering the proceeds of illegal activity. Criminals thwart BSA laws in financial institutions every day, even with cumbersome regulatory processes in place. Cryptos aren’t held to the same standard for knowing your customer (KYC) or monitoring transactions, so Binance is unlikely to really capture all or even most of the world tour.

In recent years, Binance has made additional efforts to integrate AML / KYC requirements. Is this something that regulators will take into consideration? And what kind of coercive measures can the Feds take? And CZ, what can happen to him?

Clark Frogley: It will depend on what actions have been taken, when, to what extent and whether they are found to be effective. The requirements of an AML program are very clear for regulated institutions. And yet, each year, many find themselves in non-compliance and are fined. Crypto exchanges have a lower AML / KYC load and I have yet to see any institution spending money to be a dime more compliant than required. So what happens to Binance will depend on what actions they actually took and how they were implemented, and what they are legally required to do.

Responsibility rests at the top, so CZ is responsible for any non-compliance or wrongdoing unless he can show someone lied to him or it happened despite the best efforts of the company. Usually someone like an AML manager or a compliance officer is directly responsible, but they act on behalf of the CEO and the top tone, management oversight, AML culture, etc. will all be considered.

Blockchain transactions are fairly easily tracked, and authorities are now turning to specialist companies to uncover harmful activity. Are the days of illicit activity, including money laundering, using cryptography over? What about the cups? What about the nations working against US regulators?

Clark Frogley: It would be nice if we could detect 100% of illegal activity. The effectiveness of the blockchain always depends on the accuracy of the information entered and the ability to confirm identity. Identity theft, fake IDs, etc. still allow fraud and deception, even in the blockchain. The more we can understand each individual entity, the better we can track and identify suspicious behavior and combat criminal activity in our financial system.

If Binance is challenged, can we expect all other smaller crypto exchanges to receive the same kind of treatment?

Clark Frogley: Maybe, but I think Binance was more vulnerable due to its size and volume and all the rumors that the exchange was being used by criminal organizations.

If a small exchange isn’t careful and implements good anti-money laundering programs and proven anti-money laundering technology, it can also end up on the wrong side of an investigation. federal. It’s only a matter of time before regulatory requirements get stricter, so an ounce of prevention, in this case, is worth quite a bit of Bitcoin.



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