Binance Faces Allegations of Illegally Mixing Customer Funds and Company Revenue

In a breach of U.S. financial regulations, Binance, the world's largest cryptocurrency exchange, allegedly mixed customer funds with company revenue in 2020 and 2021, according to anonymous sources familiar with the matter. The commingling of funds, which occurred at U.S. lender Silvergate Bank, raises concerns about the lack of internal controls and the potential risk it poses to customer assets.

Three anonymous sources have revealed that Binance commingled customer funds with company revenue, a breach of U.S. financial rules that require customer money to be kept separate. The exact sums involved are said to be in the billions of dollars, and commingling occurred almost daily in accounts held by Binance at Silvergate Bank. However, Reuters was unable to independently verify the figures or the frequency of the commingling.

The mixing of customer funds and company revenue raises concerns about the lack of internal controls at Binance, as it becomes difficult to track and identify customer assets. This commingling puts client assets at risk by obscuring their whereabouts, according to three former U.S. regulators. It is crucial for customer funds to be clearly identifiable and segregated from company revenues to ensure the safeguarding of assets.

Binance has denied mixing customer deposits with company funds, stating that the accounts in question were used to facilitate user purchases of its bespoke dollar-linked crypto-token, BUSD. However, Binance's own previous representations to customers referred to the transfers as deposits. This discrepancy raises questions about the clarity and transparency of Binance's communications with its users.

Regulatory authorities, such as the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), have been scrutinizing crypto exchanges' compliance with financial regulations. SEC Chair Gary Gensler has highlighted the non-compliance of many crypto exchanges in safeguarding client money by separating it from corporate assets. While Binance has not faced any direct enforcement action from regulators, it is under investigation by the U.S. Department of Justice for suspected money laundering and sanctions violations.

The difficulty in adopting compliance solutions for the Travel Rule and the alleged commingling of funds further erode trust in Binance. The exchange allowed U.S. customers to trade on its platform despite publicly claiming to restrict access to Americans, which led to a complaint from the CFTC in March. The complex financial operations and reliance on Silvergate Bank, which collapsed in March, add to the challenges faced by Binance.

As regulatory scrutiny intensifies and financial institutions become more cautious, it remains to be seen which bank will become the next crucial player in Binance's operations. Binance's financial maneuvering and the use of various accounts in different jurisdictions raise concerns about tax obligations and the transparency of its financial activities. The company's compliance with financial regulations and its ability to protect customer assets will be closely watched by regulators and the cryptocurrency community.