Binance Could Face Criminal Charges From U.S. Department of Justice

FTX’s implosion has ratcheted up the pressure on all centralized exchanges in crypto.

The U.S. Department of Justice is reportedly considering criminal charges against Binance, the world’s largest crypto exchange.

Reuters reports that, while yet to be filed, charges under investigation are unlicensed money transmission, money laundering conspiracy, and criminal sanctions violations.

Binance responded on Twitter — “Reuters has it wrong again,” the firm tweeted, while also linking to a statement from Tigram Gambaryan, a former IRS agent whom Binance hired in September 2021.

In the statement, Gambaryan emphasized Binance’s security and investigations team’s high level of competence — the company echoed the same sentiment.

Binance has moved to beef up its legal department by hiring former law enforcement officials including five Internal Revenue Service (IRS) alumni, starting in 2021.

In an earlier article, Reuters outlined what the news outlet claimed were efforts by Binance founder Changpeng Zhao to dodge regulation.

Binance’s BNB token, which secures the BNB Chain, is down 3.3% in the past day on the news, according to The Defiant Terminal.

Outflows from Binance

The news coincides with significant withdrawals from the exchange — Nansen, the crypto data provider, shows a net outflow of $1.29B in the past 24 hours.

Wintermute, a well-known market maker, is responsible for the largest single withdrawal from Binance in the past day with $8.6M in WBTC taken off the exchange. The firm doesn’t appear concerned with the doubts swirling around Binance — it deposited $124M deposit of USDC into Binance while withdrawing $127M from Coinbase.

Jump Trading, another large trading firm, has also withdrawn $146M from Binance over the past week with no deposits, according to Andrew Thurman, a researcher at Nansen.

Wintermute and Jump did not respond to requests for comment from The Defiant regarding the withdrawals.

News of an ongoing investigation of Binance comes at a time when the Department of Justice just filed criminal charges against Sam Bankman-Fried, the former CEO of the now-bankrupt FTX.

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The Defiant

Proof of Reserves

Binance has had a tumultuous week — it contracted Mazars, an audit, tax and advisory firm, to produce a report on Binance’s reserves. The report, released on Dec. 7, found the exchange to be solvent but included multiple caveats.

For one, it only addressed accounts with Bitcoin and wrapped forms of Bitcoin rather than all digital assets.

John Reed Stark, who spent more than a decade at the SEC, saw multiple problems with Mazars’ report. “Binance’s ‘proof of reserve’ report doesn’t address [the] effectiveness of internal financial controls, doesn’t express an opinion or assurance conclusion and doesn’t vouch for the numbers…This is how I define ‘red flag’,” Stark tweeted on Dec. 10.

Mazars has produced a slew of reports in the weeks since FTX’s collapse put the onus oncentralized exchanges to prove that customers’ assets are secure — those for KuCoin, Crypto.com, and BingX found those exchanges to be solvent.

Binance’s assets have a net value of $64.5B, according to Nansen. The difficulty in establishing true solvency lies in ascertaining the value of an exchange’s liabilities, some of which may exist off the blockchain.