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Binance warned VIP customers about law enforcement investigations, Treasury says

Binance’s Co-founder and CEO Changpeng Zhao speaks during the 2022 Web Summit in Lisbon, Portugal, on November 1, 2022.

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Binance’s VIP users were granted a set of special privileges, including an early heads-up from the crypto exchange if they were under investigation by law enforcement, according to the U.S. Treasury’s Financial Crimes Enforcement Network.

Binance CEO Changpeng Zhao pleaded guilty to criminal charges in the U.S. and stepped down from his post on Tuesday as part of a $4.3 billion settlement. The plea deal resolves a multi-year investigation into the world’s largest crypto exchange.

Treasury alleged in a 92-page order that Binance had “developed a process to notify VIP users if they became the subject of a law enforcement inquiry,” in a setup where Binance was effectively serving as a lookout for its top-tier customers.

The process, as described by FinCEN, was relatively simple. Members of Binance’s VIP team were instructed to contact the user under investigation by “all available means” including sending texts and calling to inform customers, for example, that their account had been frozen or unfrozen.

According to the consent order, Binance’s VIP team staff were warned not to be too obvious in their tips.

“‘We cannot in any circumstances directly tell the user to run/withdraw, we can get sued or undertake personal liability. Giving a strong hint[,] such as your account is unlocked/your account has been investigated by XXX is usually a good enough hint of severity,'” the company told the VIP team, the order said.

Binance’s “VIP Program” caters to higher volume, commercially important users and offers incentives such as competitive trading fees and higher limits on order volume to try to keep these patrons happy — and loyal.

According to FinCEN, internal reports from Binance indicated that in 2019, VIP customers “consistently accounted for between two-thirds and three-quarters of both trading volume and trading revenue on Binance.com, adding that “Binance thus had significant commercial motivations to go to great lengths to support these VIP users.”

Despite rules forbidding people in the U.S. from trading on the platform, users in the U.S. “represented a crucial element of the VIP userbase,” at some points accounting for as much as 20% of all transaction fees on the exchange.

FinCEN found that Binance helped U.S. customers, including the most commercially lucrative U.S. Enterprise Users in Binance’s VIP program, to circumvent the ringfencing policies the exchange itself had put into place to comply with local laws.

One such approach included encouraging users to alter know-your-customer documentation to give the false impression they were not in the U.S., as well as using a virtual private network, or VPN, to cover a user’s geographic footprint, “even though Binance would know that the user was, in fact, located in the United States.”

“These users were so valuable to Binance that personnel were instructed not to off-board them,” read the FinCEN report.

In Dec. 2020, a member of Binance’s VIP team wrote, “We will not be restricting the top 100 [users] (even after sending them emails [about restrictions applicable to U.S. users who remained on Binance.com]). They will be managed by your [VIP] team. [The CEO’s] idea is that they should have enough time to create or find new non-US entities,” the consent order stated.

FinCEN said that Binance ultimately executed on this plan and took additional steps to conceal its retention of U.S. users.

CNBC’s Christina Wilkie contributed to this report.

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