This article contains a copy of the letter sent to U.S. Senators Warren, Van Hollen and Marshall. It is transcribed here in its entirety in an effort to be transparent about our interactions with regulatory authorities and to provide insight into some of the obstacles that sacrosanct government institutions pose to crypto businesses.

Dear Senator Warren, dear Senators Van Hollen and Marshall:

We are writing to you in response to your letter dated March 1, 2023 regarding public reporting relating to Binance (the “Letter”). Your Letter mentions several articles relating to Binance.com (hereinafter referred to as “Binance” in opposition to Binance.US), which are either incorrect or incomplete. We are grateful for this opportunity to dispel the untruths created by some media reports about Binance and to open a dialogue with you to talk about the important topics you have raised.

The Letter focuses on regulation, compliance and transparency; We will therefore begin by addressing these fundamental themes by presenting three arguments, and we will continue by discussing in more detail the issues raised in the Letter. Here are our three arguments:

Binance argued that regulation was the best protection to offer users. Appropriate laws will protect customers and markets while enabling innovation and preserving crypto’s core value propositions: independence and financial empowerment.

Binance welcomes efforts by the United States to view regulations holistically and take a whole-of-government approach, different from the patchwork set of laws currently enforced. As a global company, Binance has prioritized compliance with local regulations throughout its development, including obtaining regulatory approvals or operating licenses from numerous countries and regions around the world. In keeping with this desire for compliance with regulations, and contrary to public reports based on outdated and incomplete information, Binance decided in 2019 to launch a separate American entity, Binance.US, to offer American users a compliant platform. Binance.US has grown to become one of the largest US-based digital asset trading platforms, licensed and operating in virtually every US state and territory;

  • Binance takes the issue of compliance very seriously and regularly communicates with US law enforcement. Today, the several hundred compliance and security experts who make up the Binance team work closely with law enforcement and government regulators around the world. Binance is also continually strengthening its compliance controls, including hiring experts as Compliance Team Leads, working with world-renowned third-party vendors to implement knowledge process monitoring. (“KYC”) and transactions, and consulting with industry experts to review and strengthen its controls; And

  • public blockchain records (blockchain analytics) of crypto exchanges mean that the platform is more transparent than traditional financial institutions, a transparency that makes it easier to track and trace the flow of crypto assets. By publishing its proof of reserves, its online and offline wallet information, and committing to six points for a healthy exchange, Binance sets an important standard, which we believe every exchange and platform should respect.

I. The origins of Binance

Binance was launched in 2017 by Canadian entrepreneur Changpeng Zhao (“CZ”) and several other co-founders. CZ's family emigrated to Canada in 1989 when he was 12 years old. After studying computer science at McGill University in Montreal, CZ held several software-related positions in Western financial institutions. He quickly understood the potential of cryptocurrency as a transformative technology, which will facilitate access to the financial system for communities that historically have few or no bank accounts. In 2013, CZ turned his attention to the cryptocurrency sector in Asia and notably founded BijieTech, a technology company that offered software-as-a-service solutions to other crypto exchanges.

CZ and several of his colleagues at BijieTech then set out to design a secure, user-focused platform that would provide superior services to improve financial independence around the world and thereby, financial and social inclusion. This idea is at the origin of Binance. In July 2017, the Binance founding team decided to launch the company while CZ was living in Shanghai, China. Binance started out as a small company solely offering crypto-to-crypto spot trading services with a team of around 30 people, most of them former software developers. Binance, however, experienced remarkable growth, and less than six months after its launch, was described as the world's leading crypto exchange with "two or three million" new registrations every week.

A few months after its launch in 2017, and even before Binance was officially declared, the Chinese government changed its position on the issue of digital asset platforms operating in the territories of mainland China and Hong Kong; the company then decided to relocate to Tokyo in order to protect the rights of its users. Soon after, Binance, which was still in its infancy, chose not to establish itself in one location, but would expand its operations worldwide with staff operating in every corner of the world. the planet, in accordance with the principles of decentralized finance which promote the international.

In accordance with this philosophy, Binance, then a young company operating in an innovative and rapidly changing sector, set out to attract and retain customers from around the world. Binance initially viewed the US market as dominated by older companies, and furthermore had doubts about the complex and uncertain regulatory environment.

At the end of 2018, Binance consulted several legal advisors to learn about its possibilities for establishing itself in the American market. One of the many proposals presented to Binance came from Harry Zhou, an American lawyer who had previously served as an associate at a large international law firm and later became director of compliance at HBUS (Huobi's US partner). Contrary to public reports based on outdated and incomplete information, Binance quickly and unequivocally rejected Mr. Zhou's proposal in favor of other solutions. Ultimately, Binance executives decided that the best solution was to (1) launch a separate entity reserved for American users, which would be registered in the United States and would only offer compliant products. to US law, and (2) exclude US users from Binance.

As part of this approach, the founding of Binance.US was announced on June 13, 2019, and the platform launched on September 24, 2019 as a compliant platform for US users. Even though Binance.com and Binance.US are both owned by CZ, and even though CZ is on the board of directors of Binance.US, Binance.com and Binance.US are separate entities, contrary to what is suggested public reports. Binance.US is not a subsidiary of Binance. Today Binance.US has grown to become one of the five largest US-based digital asset trading platforms, operating in virtually every US state and territory.

Following the launch of Binance.US, Binance amended its Terms of Service to ban US users and began informing US users that they were no longer welcome ( e)s on the Binance platform. Binance has also strengthened its Know Your Customer (KYC) protocols to flag attempts to use US documents such as US passports as proof of identity to register on the Binance.com platform. Over time, Binance has continued to tighten its restrictions on US citizens, including implementing blocking by IP address and mobile operator and working with experts. s externally to assess its geofencing capabilities. Binance's efforts to exclude and limit access to US users have been gradual, and were not optimal at the time.

Throughout its development, Binance has prioritized regulatory compliance: as the company announced in its 2022 Year-End Report, “Binance's primary objectives are to comply with existing regulations and take part in the creation of new regulatory frameworks that promote financial innovation while protecting users. » Today, Binance is a global exchange with a portion of its user base located in the United States, which is regulated by and complies with the laws of applicable jurisdictions in various countries. Binance has obtained regulatory approvals or operating licenses in a large number of countries and regions around the world, including but not limited to France, Italy, Spain, Poland, Lithuania, Australia, New Zealand, Dubai, Bahrain, Abu Dhabi, Mexico and Kazakhstan. Consistent with its status as an international company, Binance also employs more than 8,000 full-time people worldwide, has established two major regional centers in Paris and Dubai, and has offices in many other jurisdictions where it holds a license or approval, including but not limited to France, Italy, Spain, Japan and Australia.

What started as a crypto-to-crypto exchange has grown into a global blockchain ecosystem that encompasses trading services, infrastructure solutions, educational resources, research departments, charitable programs, incubation initiatives, and more. investments, and much more. Binance, however, remains true to its core mission: financial inclusion and improving financial freedom around the world through a compliant, user-centered and secure platform and products.

II. Binance’s Commitment to Compliance

A. Binance Compliance Program

Binance has invested significant resources in compliance, including beginning the creation of its compliance program within a year of its launch. Binance is not a perfect company, but it has worked to protect users in this rapidly evolving industry. In July 2018, Binance adopted its core compliance policies: the Global Compliance Policy, its AML Verification Policy, its Global Verification Policy, and its Global Transaction Monitoring Procedures. During 2018 and 2019, Binance used the services of numerous third-party providers to help detect and respond to suspicious transactions.

In 2021, Binance became the first non-American exchange to make the KYC procedure mandatory for all of its users. Today, anyone who wants to register on Binance must complete the KYC process. Users (again, who cannot be US citizens) must provide a valid ID as well as a "selfie", which Binance compares to their ID with the help from world-renowned providers (e.g. Jumio, Onfido, and more). Binance also conducts searches from World-Check to, for example, identify criminal backgrounds, ties to terrorist organizations, presence on a politically exposed persons (PEP) list, and sanctions watch lists for potential users. (THE. The user then receives a risk score which may lead to further verification of this customer. Binance also employs transaction monitoring tools to detect and prevent high-risk or suspicious transactions. The company uses both internal tools and tools created by reputable third-party providers to analyze transactions and user profiles in real time. For reference, Binance effectively prevented over 54,000 transactions from being validated between August 2021 and November 2022 thanks to alerts issued by transaction monitoring systems.

Binance has continued to invest significant resources to strengthen its compliance program, and the team now consists of approximately 750 senior and support compliance officers, including nearly 80 individuals with previous experience in the force. of the order or within a regulatory body and nearly 260 individuals holding professional certificates in the field of compliance, including the Certified AML Specialist (CAMS), the International Advanced Certificate in ICA AML (Advanced International AML Certificate), the Cryptocurrency Fundamentals Certification and the Chainalysis Reactor Certification (CRC). In addition to its core compliance team, Binance has several hundred operations, product and technology employees to support the development and execution of compliance programs. Binance Compliance Officers are subject matter experts. Among them, we can name:

  • Noah Perlman, Chief Compliance Officer with over 20 years of experience at various major financial institutions and regulators, including as DC and COO of Gemini, Global Head of Financial Crime Services and Global Head special investigations for Morgan Stanley, legal counsel to the Drug Enforcement Administration, and Assistant United States Attorney for the Eastern District of New York, where he held several senior positions;

  • Steve Christie, Deputy Director of Compliance, who was notably Kraken's Director of Compliance for more than four years and has more than 20 years of experience including in the areas of AML policy, investigations and operations;

  • Amjad Qaqish, Global Compliance Officer and Anti-Money Laundering Reporting Manager, who served for 23 years as a Special Agent with the Internal Revenue Service Criminal Investigative Branch (“IRS-CI”) and has notably worked with the Special Investigative Techniques Unit, the Search and Rescue Group and the Cybercrime Unit;

  • Tigran Gambaryan, Financial Crimes Enforcement Officer, who served for 10 years as Special Agent of the IRS-CI Cybercrime Units and Special Agent of the United States Department of Treasury , where he developed the methodology for investigating cybercrimes using cryptocurrencies and managed to find traces of bitcoins for the first time during the Silk Road investigation;

  • Chagri Poyraz, Global Head of Sanctions, who has 8 years of experience as a Chief Compliance Officer, including Head of AML and Sanctions Compliance at Coupang and Regional Head of Sanctions at HSBC, and worked for more than 10 years for the United Nations;

  • Kristen Hecht, global corporate compliance officer, who worked for 17 years in the public sector and international financial institutions, including as senior policy advisor for the department's Terrorist Financing and Financial Crimes Bureau of the US Treasury, Financial Crime Compliance Officer of HSBC China, and Chief Compliance Officer/Bank Secrecy Act Enforcement Officer of Novi, the digital asset project and Meta’s crypto wallet;

  • Matthew Price, Global Head of Investigations, with 15 years of law enforcement experience, including as a Special Agent in the IRS-CI Cybercrime Unit and as Head of targeting within the Central Intelligence Agency; And

  • Jarek Jakubcek, global head of law enforcement training, who spent 12 years in law enforcement combatting cybercrime and other illicit activities as part of the Center's Dark Web team European Commission for Combating Cybercrime and within An Garda Siochan, Ireland's national police and security service. As one of Europe's premier crypto investigators, Mr. Jakubcek participated in several high-profile investigations, authored the first comprehensive guide to crypto investigations, and led a community of over 2,500 crypto investigators.

In addition to developing its in-house expertise, Binance has recruited and collaborates with leading compliance experts, some of whom are American nationals, to ensure compliance with the Group's standards. (FATF) and to review its compliance protocols. Binance's leadership also relies on its Global Advisory Board comprised of industry leaders and former senior government officials from around the world, such as Max Baucus (former US senator from Montana) and David Plouffe (former senior advisor to President Obama).

B. Compliance with sanctions

For Binance, sanctions compliance is a very serious matter, and the company has voluntarily implemented measures to avoid becoming involved in transactions prohibited by trade restrictions and sanctions laws. economics of several countries and organizations, including the United States, when these apply to Binance. In May 2018, Binance updated its Terms of Service to prevent sanctioned users from accessing the platform. In 2018 and 2019, Binance began blocking the IP addresses of users living in OFAC-sanctioned countries, and imposed restrictions on current users who held KYCs from those countries. In 2020, Binance published its own sanctions policy.

Binance has devoted gigantic resources and exerted considerable efforts towards sanctions compliance. Today, in addition to IP address blocking, the company uses industry-leading third-party tools (including World-Check, Kharon, Jumio, Trulioo, Onfido and IDnow) to voluntarily implement controls and restrictions on IP addresses. U.S. sanctions laws, including monitoring and verifying sanctions-related transactions. Binance's sanctions enforcement measures are led by Chagri Poyraz, who has extensive experience in senior leadership roles with sanctions compliance as his primary concern (as described above). Binance's sanctions team is supported by over 600 employees from other Binance teams, such as transaction monitoring and KYC.

C. Binance’s cooperation and collaboration with law enforcement

Binance also proactively collaborates and works with local law enforcement. The company has created two teams dedicated to cooperation with police authorities, which between them have nearly 100 members. As of February 2023, these teams have responded to more than 55,000 requests for assistance from law enforcement agencies with an average response time of just three days.

Binance has also proactively identified and assisted law enforcement in responding to national security concerns in several countries around the world, including the United States. As of February 2023, Binance has collaborated, and sometimes even been proactively involved, in 96 highly sensitive cases handled by law enforcement, including cases of terrorist financing, sexual abuse of minors, hacking of nation-state, intellectual property, drug smuggling, investment scams and romance scams. For example, in 2021, Binance voluntarily notified the FBI and the Secret Service when it discovered that Suex was being used by Russian cybercriminals. Binance has also collaborated with law enforcement agencies around the world as part of the Bulletproof Exchanger Research project, including the FBI, Ukrainian Cyber ​​Police, Korean National Police Agency, Swiss Police and Guard civil, to destroy in 2021 FANCYCAT, a criminal organization responsible for damage of more than $500 million caused by ransomware and millions of dollars in damage caused by other cyber-crimes. Recently, Binance joined law enforcement authorities around the world to combat Lazarus, a cybercriminal group run by the North Korean government, including working with law enforcement to freeze cryptocurrencies worth estimated $5.8 million from the Ronin/Axie Infinity heist orchestrated by Lazarus in 2022.

Finally, Binance proactively transmits its information to law enforcement authorities. In 2022 alone, the company organized and participated in more than 70 training workshops for law enforcement officers on combating cyber and financial crimes around the world. Building on its success, Binance announced in September 2022 the launch of an official global law enforcement training program designed to help law enforcement detect and combat cyber and financial crimes.

Binance has demonstrated its commitment to maintaining its role as an industry leader in regulatory compliance and cooperation with law enforcement agencies.

III. Binance’s Commitment to Security and Transparency

In line with its goal of providing a secure and user-centric digital platform, Binance carefully protects its customers' assets, including by holding a reserve of one-to-one value with that of user assets. users. They can therefore withdraw all of their assets from the platform at any time.

As part of its commitment to optimal transparency, Binance has published its online and offline wallet addresses as well as proof of reserves in the form of a Merkle tree, proof of collateral for B-Tokens and six commitments for a healthy exchange. The company also publishes information on the burn processes of its native token, BNB.

Binance has also implemented user security measures, including the Margin Insurance Fund which protects users from losses when their cross/isolated margin equity is less than zero or when they are unable to repay their debts. Binance is also one of the first crypto exchanges to have a secure fund, known as the Secure Asset Fund for Users (“SAFU”), which protects users in extreme situations. The value of SAFU was valued at $1 billion in November 2022, and Binance made its wallet addresses public.

In addition to these security measures for users, there are educational initiatives for them, which allow them to better protect themselves and understand the cryptocurrency ecosystem. To further its commitment to better inform the world about cryptocurrencies, Binance has made nearly 1,000 articles and glossary entries available to the public on Binance Academy, as well as in-depth cryptocurrency courses in over 10 languages. The company also collaborated with more than 70 universities in 20 countries to educate individuals about cryptocurrencies and Web3, and worked with local partners to launch an anti-scam campaign to help users spot and avoid scams.

More generally, Binance is committed to ensuring the security and stability of the crypto ecosystem as a whole. In November 2022, the company introduced the Industry Recovery Initiative, which evaluates investment opportunities in blockchain projects and companies experiencing significant near-term challenges. Binance contributed an initial $2 billion to fund the initiative's recovery pool, and has committed to increasing its contribution up to $2 billion if necessary.

Thank you for allowing us to explain why previous incorrect or incomplete reports have led to misconceptions about Binance. We are committed to ensuring the development, stability and security of the cryptocurrency sector, and that of our users as the ecosystem grows.

We hope this letter has provided you with more information about the work Binance is doing to protect users and comply with its legal obligations. We will happily answer any questions posed by you or your teams regarding this response.

Sincerely,

Patrick Hillmann Director of Binance Strategy

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