A REUTERS SPECIAL REPORT

How Binance CEO and aides plotted to dodge regulators in U.S. and UK

A REUTERS SPECIAL REPORT

How Binance CEO and aides plotted to dodge regulators in U.S. and UK

Binance founder Changpeng Zhao marks the exchange's fifth birthday in Paris. REUTERS/Tom Wilson

How Binance CEO and aides plotted to dodge regulators in U.S. and UK

A plan to "insulate" itself from the SEC. A backdated document. An exodus of compliance staff. The world’s biggest crypto exchange and its billionaire founder swerved scrutiny by regulators, Reuters found. Now there are signs the strategy is fraying.

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WASHINGTON, DC – As 2022 dawned, Changpeng Zhao was riding high. In less than five years, the founder and chief executive of Binance had turned his young company into the world's largest crypto exchange, accounting for more than half the trading in the trillion-dollar market.

True, global authorities were scrutinising crypto exchanges ever-more closely. But the Chinese-born billionaire, known to staff and fans by his initials, CZ, had that covered. He told customers in a blog post in January that Binance “embraces regulations” and “has always worked collaboratively with regulators all over the world.”

Behind the scenes, however, trouble loomed.

For at least a year before that post, the U.S. Justice Department had been pursuing a money laundering investigation into Binance, seeking extensive records on Binance’s policies and the conduct of Zhao and other top executives, Reuters reported on Sept. 1. Binance called such requests a “standard process” and said it works with agencies worldwide to address their questions.

Now, new reporting by Reuters reveals fresh details about Binance’s strategy for keeping regulators at arm’s length and continuing disarray in its compliance programme. The reporting includes interviews with around 30 former employees, advisers and business partners and a review of thousands of company messages, emails and documents dated between 2017 and early 2022.

It shows that in 2018, Zhao approved a plan by lieutenants to “insulate” Binance from scrutiny by U.S. authorities by setting up a new American exchange. The new exchange would draw regulators’ attention away from the main platform by serving as a “regulatory inquiry clearing house,” according to the proposal. Executives went on to set the plan in motion, company messages show.

In public, Zhao said the new U.S. exchange – called Binance.US – was a “fully independent entity.” In reality, Zhao controlled Binance.US, directing its management from abroad, according to regulatory filings from 2020, company messages and interviews with former team members. An adviser, in a message to Binance executives, described the U.S. exchange as a “de facto subsidiary.”

This year, Binance.US’s compliance operation has been in turmoil. Almost half the U.S. compliance team quit by mid-2022 after a new U.S. boss was appointed by Zhao, according to four people who worked at Binance.US. The staff left, these people said, because the new chief pushed them to register users so swiftly that they couldn’t conduct proper money laundering checks.

The new insights come as the Justice Department is investigating whether Binance violated the Bank Secrecy Act, which requires crypto exchanges to register with the Treasury Department and comply with anti-money laundering requirements if they conduct “substantial” business in the United States.

“The Binance structure in the U.S. raises questions about the degree to which the parent company is willing to comply with U.S. laws and regulations,” said Ross Delston, an independent lawyer, former banking regulator, and expert witness on anti-money laundering issues.

In Britain, too, Binance sought ways around regulatory scrutiny, company messages show. Zhao signed off on a plan in 2020 by a Binance executive to backdate a company document to avoid a review of a Binance UK unit under new illicit finance rules.

“I am fine with it,” he wrote in an exchange discussing the plan.

Reuters sought comment for this article from Zhao, Binance and Binance.US.

Binance Chief Communications Officer Patrick Hillmann said that over the past two years, Binance has “worked with global law enforcement to seize assets of some of the most prolific criminal organizations” in the world. He didn’t address Reuters’ detailed questions.

After this article was published, Zhao said in a blog post that he “personally rejected” the 2018 plan to insulate Binance from U.S. regulators. Binance.US was set up “based on advice from leading US law firms,” he said.

A spokesperson for Binance.US said Reuters’ questions presented a “biased narrative,” providing a “distorted depiction of Binance.US based on inaccuracies, misrepresentations, and outright falsehoods that simply do not square with reality.”

Binance.US was founded “with the express purpose of operating as a licensed and regulated entity in the United States,” the spokesperson said. “In the last year, under current management, we have invested in talent, technology and financial resources to maintain the highest standards for compliance,” substantially increasing headcount and budget. “All Binance.US users, no exceptions, go through the same rigorous screening and validation process.”

The U.S. Justice and Treasury departments and Britain’s regulator, the Financial Conduct Authority, declined to comment. The FCA warned consumers in June 2021 that Binance doesn’t hold “any form” of permission to offer services regulated by Britain.



Reuters earlier this year revealed how Binance drove its explosive growth while maintaining weak anti-money laundering controls and withholding information from regulators. The gaps in its compliance programme enabled hackers, drug traffickers and fraudsters to launder crypto worth at least $2.35 billion in funds through the exchange.

Binance disputed the reports, calling the illicit-fund calculations inaccurate and the descriptions of its controls “outdated.” The exchange said it is “driving higher industry standards” and seeking to “further improve our ability to detect illegal crypto activity on our platform.”

There are signs that gaps remain in Binance’s compliance, however. Since August 2021, when Binance tightened customer checks, two Iranian crypto exchanges called Wallex and Sarmayex have used Binance to move crypto worth at least $29 million despite U.S. sanctions on Iran, according to data compiled by two major blockchain analysis firms. Such activity puts Binance at risk of being hit with so-called secondary sanctions, which aim to prevent foreign firms from doing business with sanctioned entities or helping Iranians evade the U.S. trade embargo.

Wallex and Sarmayex did not respond to requests for comment.

The crypto sector is at a critical juncture. Prices have crashed, falling even harder than stocks as central banks tighten credit to fight inflation. Governments are seeking to tame an industry constrained by few guardrails during its evolution from internet niche to mainstream investment. Their actions will likely shape the fate of the empires built by moguls such as Zhao.

So far, Binance appears to be weathering what traders term a “crypto winter.” Zhao pledged $500 million in May to join Elon Musk’s bid to buy Twitter and has expressed an interest in investing across the media, retail and gaming sectors.

In an open letter to customers in July, Zhao wrote, “Like any young company we have made mistakes in our past.” Binance, he said, now operates “at the same level as a financial institution that has been around for 200 years.”

“Larger than Google”

At the heart of Binance’s troubled history with compliance stands its charismatic founder, Zhao. The 45-year-old entrepreneur built the company around himself, the interviews and documents show – a powerful leader committed to secrecy, focused on market domination, and attentive to minute operational details, although in public Zhao has said he doesn’t micromanage employees.

“We want to take over the entire market!” Zhao told staff in a company chat group in late 2017, the year he launched the business in his native China.

Described on its website as an “ecosystem” with over 120 million users, Binance has set up at least 73 companies across the world, according to corporate filings and company organisation charts. Zhao owns or partly controls at least 59. He declines to give details of the location or entity behind the main exchange, which makes money by charging fees on crypto trades.

After Binance’s launch, Zhao assigned top jobs to an inner circle of associates, many of whom had worked or studied in China. Among them was co-founder Yi He, a former host of a Chinese TV travel show. For several years, Zhao and Yi He were in a romantic relationship, according to four people who knew the couple. They have a son who was born in the United States, the people said. Companies commonly have policies in place regarding such relationships, with some requiring one of the people concerned to leave the organisation.

Yi He, who didn’t comment for this article, now is one of Zhao’s most powerful deputies and is seen by some former senior employees as a potential successor. This August, Zhao named her head of Binance’s $7.5 billion venture capital arm, adding to her key roles that include marketing chief. Two weeks earlier, Zhao told an interviewer that Yi He had been “integral to Binance’s success” and would be an “integral part of our continued growth.”

Binance spokesman Hillmann said that “two consenting adults starting a family together is not news. Media have known about their relationship (which pre-dates Binance) for years.”

As Zhao grew Binance, he told employees in messages the company would be “larger than Google.” He encouraged them to read “Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies,” a book about fostering breakneck growth at start-ups, noting it was “very applicable to us.”

A company guide explained Binance’s mission for new employees. Rapid results were essential. Instead of conducting in-depth research or data analysis, employees should make decisions by trusting their “good-feel,” it said. If they weren’t encountering problems, it meant “we are not advancing fast enough,” an emphasis on speed that raises questions about Binance’s focus on compliance.

Zhao’s preference for secrecy pervaded the company.

In Binance’s early days, Zhao was driving its growth from two countries – first in China, and later Japan – in which it held no operating licence. Zhao told employees in messages not to publicly disclose who they worked for or where their offices were. On one occasion in 2018, a San Francisco-based cybersecurity firm called Bugcrowd asked Binance for its headquarters’ address. After Binance executives warned in the chat group against disclosing this, Zhao instructed staff to provide an address for the Cayman Islands, where he had set up a holding company, even though Binance’s employees were mostly in Asia. Bugcrowd declined to comment.

Binance founder Changpeng Zhao makes it onto the cover of Forbes magazine. Picture from Instagram

Binance later expanded the secrecy rules to prevent employees from revealing their location on social media, discussing their work in public, or wearing anything with Binance branding. Zhao told them to communicate using encrypted messaging services and to avoid email as much as possible. Zhao’s personal assistant issued a guide on how to use one messaging service, called Keybase, instructing employees not to use their Binance email address to register, and listing Keybase’s “automatic self-erasing messages” as a benefit.

The secrecy made at least four staff members uncomfortable. “It felt like you were doing something wrong,” one ex-manager said in an interview.

Former employees said Zhao often drove people hard. In one message in 2020, he scolded an employee for failing to grow Binance in new markets and said he was “frustrated that we are not pushing faster.” But Zhao also offered perks. He took staff on ski trips to Japan and a beach vacation in Thailand. Many received salaries in Binance’s own virtual token, BNB, whose value soared over 15-fold early last year as the crypto market boomed.

Zhao himself seldom publicly indulged in luxuries. “When you are the biggest, gotta be especially humble,” he messaged employees in late 2018. In a tweet this September he said that a Forbes estimate of his wealth at $17.4 billion was a “subjective opinion.”

“Paper trail”

Zhao kept a close eye on operations, carrying out spot checks on employees’ time sheets, according to chat messages and interviews with former employees.

One example of his oversight came in early 2020. A London-based payments partner called Checkout.com asked Binance to state on its website that one of Binance’s British units “shall be responsible for transactions” conducted using traditional money. A Checkout.com spokesperson said the request was “completely standard across the payments and commerce worlds.”

A Binance employee raised a warning about the requested statement in a message exchange that included Zhao and other executives. The employee cautioned that the statement would leave a “paper trail” linking the British unit to the main exchange, which Binance has shielded from global regulators by not providing details of its location.

“A lot of room to play with compliance.”

Zoe Wei, a Binance strategy executive

Zoe Wei, a Binance strategy executive, responded that the statement could be made without publicly disclosing details of the UK unit’s relationship with the main exchange. “Will not be (in) conflict with our unregulated policy,” she wrote. That was an apparent reference to Binance’s goal, set out in a company compliance document that month, to “protect the business from unnecessary regulatory scrutiny.”

Wei later added that Binance could “secretly delete” the addition afterwards. “A lot of room to play with compliance,” she noted.

“It looks fine. Go ahead,” Zhao responded. In the following weeks, Binance added and then deleted the change to its terms of use.

Asked about the messages, an FCA spokesperson said: “Binance is not currently permitted to undertake any regulated activities without the written consent of the FCA.” The regulator put the curbs in place last year after it concluded that another Binance UK firm was “not capable of being effectively supervised” because it refused to provide information about Binance’s business and the legal entity behind the main exchange.

In another message, on March 11, 2020, Wei proposed backdating by three months a service agreement relating to various operations between the UK unit and Binance’s Cayman Islands holding company. The aim: to buy time with the UK regulator. The FCA had recently applied strict anti-money laundering and counter-terrorism rules to the crypto industry. But any firm that could show it had been operating before Jan. 10, 2020, would be exempt from registering for another year.

Wei said Binance needed to persuade the FCA that “our UK entity have started operation before 10 January, 2020.”

“Companies with existing crypto activities" in the UK prior to that date “can continue their operations without registering with the FCA until 10 Jan. 2021,” she wrote.

Another executive wrote the backdating manoeuvre could be a “source of suspicion.”

Zhao waved the plan through. “I am fine with it,” he wrote. He later signed the document, which was seen by Reuters. The FCA declined to comment on the episode.

“Insulate Binance”

As Binance raced to expand, one market was in focus: the United States.

Within five months of Binance’s launch in 2017, a third of its users – one million at the time – were U.S.-based, a company blog post said. But Binance had not registered with the Treasury Department, as the Bank Secrecy Act required of financial companies with “substantial” business in the United States.

In September 2018, the New York attorney general’s office announced it had referred Binance to the state regulator for potentially violating crypto laws, after investigating whether the company accepted local residents as clients. The state regulator and attorney general’s office declined to comment.

Soon after, Zhao tasked executives with finding a way to ensure Binance kept access to the U.S. market, two people working with him said. In October, dozens of messages show, a group of top executives, including co-founder Yi He, sought the expertise of an entrepreneur called Harry Zhou.

Harry Zhou ran a U.S. crypto trading firm that Binance had invested in. He sent a proposal to a Binance executives’ message group to address “Binance-specific risks in the US.” Zhou suggested what he described as a “Tai-Chi entity,” a reference to a martial art with defensive virtues. He didn’t respond to requests for comment for this article.

Some details of Zhou’s proposal, seen by Reuters, were reported by Forbes in 2020. Binance sued Forbes for defamation over the article that year, claiming the proposal was never implemented and that Zhou was a “third party,” not acting on Binance’s behalf. Binance later dropped the lawsuit. Forbes declined to comment.

Reuters has reviewed unreported messages that further detail the plan, show that Binance executives moved ahead with it and indicate that Zhou was working closely with Binance.

Zhou’s proposal called for Binance to register with the Treasury a separate U.S. entity that would comply with the Bank Secrecy Act. The plan is set out in a presentation, titled “Binance US Entry,” that he shared with the executive group. This entity would offer traders a far slimmer selection of tokens than the main exchange, and no derivative products, to “reduce attractiveness of enforcement” by the U.S. Securities and Exchange Commission (SEC).

The SEC declined to comment.

Binance would restrict U.S. customers’ access to the main platform, the presentation said. But Binance would enable “strategic” use of virtual private networks, which obscure the location of internet users, to “minimize economic impact” of the changes. This would leave a loophole: U.S.-based traders would still be able to access the main exchange, with its greater liquidity and broader range of products, by using a VPN connection.

Zhou’s presentation explained the burdens of the main exchange being regulated: “active outreach to regulators can result in lengthy inquiries and requests for excessive disclosures; settlement costs can be substantial.” But the Tai Chi structure would “insulate Binance from legacy and future liabilities” and “retard and resolve built-up enforcement tensions.” The Tai Chi entity – and not Binance itself – would become “the target” of U.S. authorities.

Binance CEO Zhao’s personal assistant arranged a video call with Harry Zhou and the group of Binance executives in early November 2018. During the call, Zhou presented the proposal to the CEO, who okayed it because he did not want to lose Binance’s U.S. customer base, two people present said.

Around a week later, Binance’s chief financial officer at the time, Wei Zhou, messaged executives to say “we have started planning” on setting up the Tai Chi entity in the coming weeks. He told the executives it was important to win “hearts and minds” in the United States with a public relations strategy focused on a “compliant message.”

As they moved forward with the plan, Harry Zhou said in a mid-November message that the future U.S. operation would have to “carefully preserve technical separation from Binance to avoid admitting it is a de facto subsidiary.” Earnings from the U.S. business could be sent to the main exchange in the form of licence and service fees without threatening the legal separation of the two entities, he wrote.

The following month, CEO Zhao asked a lobbyist in Washington to meet CFO Wei Zhou to discuss the plans. Todd White, managing partner of Rulon & White Governance Strategies, told Wei Zhou that a U.S.-based exchange would have to comply with anti-money laundering requirements. But the finance chief only wanted to talk about how fast Binance could grow in the United States, White recalled in an interview with Reuters.

After the meeting, White sent a letter to Zhao to caution him about Binance’s apparent lack of concern for U.S. financial crime laws. “Listen to both sides and you will be enlightened, heed only one side and you will be benighted,” White wrote, citing an ancient Chinese proverb.

Wei Zhou, who left Binance last year, did not respond to requests for comment.

“On a silver plate”

In early 2019, the Tai Chi plan began falling into place.

In February, a company called BAM Trading Services was incorporated in Delaware, using the same San Francisco address as Harry Zhou’s crypto trading company. BAM registered with the Treasury as a money-service business in June 2019, just as Binance said it was banning U.S.-based users from its main exchange.

Days later, Binance unveiled a “partnership” with BAM Trading, saying BAM would license Binance’s name and trading technology to launch the Binance.US exchange. Zhao said Binance.US, led by BAM, would “serve the U.S. market in full regulatory compliance” and be a “fully independent entity.”

BAM was ultimately owned by Zhao, however, regulatory filings show. Its first chief executive, Catherine Coley, reported to the Binance.US board, chaired by Zhao. Binance’s Cayman Islands holding company kept custody of Binance.US customers’ digital wallets, according to a 2019 company financial report. And a company organogram showed Binance.US as part of the Binance group.

In a July 2019 message to employees announcing Coley’s hiring, Binance’s strategy chief, Gin Chao, told them to avoid publicising the true extent of the new CEO’s connections to Binance. “A reminder to everyone that Coley is a Partner to Binance as far as external partners are concerned,” he wrote. “Internally, of course, she is a valued team member.”

Former Binance.US boss Catherine Coley and Changpeng Zhao in Singapore, 2019. Picture from Twitter

Neither Chao, who now sits on Binance.US’s board, nor Coley responded to requests for comment.

Despite the ban on U.S. users, Binance was aware that traders there continued to use the main platform, messages show. That August, a senior employee told a colleague in a message that the compliance department had privately told them that the exchange was, in practice, not banning U.S. users. In forum posts and online guides, Binance users said they could get around the ban by accessing the exchange via virtual private networks.

CEO Zhao, meanwhile, had been concerned about U.S. authorities gaining access to the main exchange’s internal records. When an employee in May asked in the company chat group if they could use Slack to communicate, Zhao said the California-based messenger app “will give our data to any US agency on a silver plate.” A Slack spokesperson said it only complies with valid legal requests.

Under Coley, Binance.US wooed Americans with the promise of low trading fees. But unlike with the main Binance exchange, all U.S. customers had to submit identifying documentation to open accounts, lengthening the sign-up process. Until August 2021 the main Binance exchange let users open accounts and trade crypto anonymously by merely providing an email address. Users must now submit ID documents.

During Binance.US’s first year, Zhao grew frustrated with the slow pace of its growth and pushed Coley to onboard clients faster, according to three people who worked with her. Zhao, they said, was eager to gain market share from rival exchange Coinbase, the dominant player in the U.S. market.

Coley wouldn’t lower her compliance standards to meet Zhao’s demands, the people said. In an April 2020 interview with Forbes, she said she would never “compromise our policies on that front to allow more people in.”

In December 2020, the Justice Department’s money laundering section sent its letter to Binance. As Reuters reported last month, the department requested any communications involving 12 executives including Zhao and Coley, as well as adviser Harry Zhou, related to the establishment of Binance.US and the recruitment of U.S.-based customers. The department sought any company records on the Tai Chi entity, along with instructions employees communicate via encrypted messaging services. That month, the SEC also issued a subpoena to BAM, addressed to Coley, requiring it to hand over documents showing what services Binance was providing the U.S. company.

Reuters could not establish how Binance or BAM responded.

Coley left suddenly four months later. Three people familiar with her exit said it followed regular clashes with Zhao. She has not made any public statements since leaving.

Her replacement, Brian Brooks, a former top U.S. banking regulator, lasted only three months. He wanted to distance Zhao from Binance.US, telling an interviewer he planned to add new U.S. board members and take charge of its software development. He also sought to beef up the compliance team by hiring experienced staff. After Zhao rejected his proposals, he quit, four people familiar with his exit said.

In an August 2021 tweet, Brooks blamed “differences over strategic direction.”

Just the beginning

Next, last October, Binance.US appointed a new chief executive, Brian Shroder, whose brother, Matt, already worked for the main exchange as head of its global expansion operations team.

Both Shroders previously worked at Uber Technologies, where they helped drive the ride-hailing company’s dramatic rise. Some six of Brian Shroder’s former Uber colleagues joined to fill senior Binance.US positions.

Binance.US CEO Brian Shroder. Shroder previously helped drive Uber Technologies’ dramatic rise. Picture from Twitter

One target of the new boss was the compliance department, which early this year numbered some 20 people. Shroder and his deputies ordered the department to sign up users as quickly and seamlessly as possible, four people who worked there said. The executives also told the department to apply more lenient checks when opening accounts for “VIP customers” – non-American traders who had been referred to Binance.US by the main exchange to boost liquidity there.

The new set-up compromised the Binance.US compliance officers’ duty to assess users for possible criminal activity, the four people said, as they were under pressure to not turn customers away. The compliance team also struggled to obtain customer data and documentation on Binance.US’s anti-money laundering policies. They often had to request the information from the main exchange, whose developers in Shanghai still managed the U.S. site.

On one occasion, a senior compliance officer told Shroder the team was lacking the resources to properly verify customers, the person recalled. In response, the person said that Shroder cursed and yelled at them, dismissing their concerns. As tensions with Shroder mounted in his first six months as boss, the employee quit, as did some 10 other compliance team members.

In response to Reuters, the Binance.US spokesperson said, “Over the past year, Binance.US has only accelerated its investments in its compliance program, substantially increasing both headcount and budget.” Shroder “strengthened our compliance program by upgrading the talent on our teams.” The exchange has robust know your customer and anti-money laundering controls on a “par with the nation’s leading financial institutions,” the spokesperson added.

This spring, the crypto market collapsed. Zhao projected confidence that the slump would help Binance consolidate its dominance of the crypto industry. “Everyone who lasts, who survives, will be stronger,” he told an interviewer in June. By mid-year, Binance controlled about 60% of global crypto markets, data from researcher CryptoCompare shows.

The Justice Department investigation rolled on. Agents interviewed former Binance employees about their work there on topics including its compliance checks, according to a person with direct knowledge of the probe. Then, in June, Reuters reported that criminals used Binance to launder illicit funds.

Zhao went on social media the next day, decrying “frivolous external attacks.” On Twitter, where Zhao has seven million followers, he “liked” mocked-up images created by supporters depicting him alternatively as Superman and a Spartan warrior.

In July, Binance celebrated its fifth anniversary with a party in a Parisian botanical garden. Zhao took the stage to rapturous cheers from fans who jostled to take photos of him. “People love you,” a Binance host told the CEO.

Deflecting an audience question about when crypto will be fully regulated, Zhao prepared to cut a birthday cake iced in Binance’s black and yellow colours. His strategy, he told the crowd, was to “keep our head down” and build for the market’s next boom cycle.

“We are just at the very, very beginning,” he said.

Additional reporting by Echo Wang in New York

Shadow Dance

By Tom Wilson and Angus Berwick

Graphics: Aditi Bhandari

Photo editing: Simon Newman

Art direction: Catherine Tai

Edited by Janet McBride