Binance under scrutiny, capitalising on ‘veneer of legitimacy’ given by Malta government

Binance, a cryptocurrency exchange that Malta had welcomed with open arms when the country sought to establish itself as ‘the Blockchain Island’ in 2018, was exposed by a Reuters investigation as a company operating outside the rules that govern both traditional finance firms as well cryptocurrency rivals, yet still using the credit gained from promotion by the Maltese government.

The cryptocurrency exchange giant, whose trading volume in November of last year hit the $914 billion mark, has become the focus of an ever-widening crackdown from various financial regulators across the world. In its report, Reuters cites confidential correspondence between Binance and financial regulators as well as Telegram messages between senior staff of the company.

They reveal how the company’s chief executive, Changpeng Zhao (featured photo), known widely as ‘CZ’, was preaching about welcoming government oversight while the company did its utmost to withhold information from regulators. Binance failed to have adequate checks on customers’ finances and even went against its own compliance recommendations in high-risk countries.

The Reuters investigation further illustrates how Binance had capitalised on the veneer of legitimacy granted to it by the Maltese government. In 2018, Binance had announced it would open offices in the country, employing up to 200 people and even donating funding to the Malta Community Chest Fund.

While the company did open up a local branch, little else was seen of Binance’s promises, with the government slowly winding down the hype it had raised over blockchain technology, largely through the enthusiastic promotion of the sector by then-parliamentary secretary for the digital economy, Silvio Schembri.

An investigation by The Shift in 2018 showed that cryptocurrency exchanges moving to Malta before October 2019 could operate until 2020 without complying with anti-money laundering and market manipulation rules. Before that concession period expired, Binance informed the Malta Financial Services Authority that it had aborted its plan to relocate to Malta.

Yet Binance nonetheless kept exploiting the coverage it got in Malta to tell its users across the globe that it was “governed under the laws of Malta”.

The Reuters’ investigation, which cited four people with direct knowledge of Binance’s decision making, Zhao was “spooked” by the requirements imposed by Malta’s legislation, leading to its decision to abort its licence application process altogether.