Binance, the world’s biggest digital-currency exchange, found itself in a precarious situation in 2017. Operating largely from hubs in China and Japan, the exchange nevertheless had a significant customer base in the United States, where regulators were signaling a crackdown on unregulated offshore crypto players. Any lawsuit from U.S. regulators would have been a disaster for Binance.
Binance was worried about the threat of prosecution from U.S. authorities in 2018-2020. To avoid this, they set out on a plan to create a separate platform, Binance.US. This would license Binance’s technology and brand, but would otherwise be completely independent from Binance.com. This would shield Binance.com from U.S. regulators’ scrutiny, and allow them to continue operating without issue.
But Binance and Binance.US have been much more intertwined than the companies have disclosed, with staff and finances mixing and sharing an affiliated entity that bought and sold cryptocurrencies, according to the interviews and the messages and documents reviewed by the Journal.
This potentially gave Binance access to U.S. customer data. Binance developers in China maintained the software code supporting Binance.US users’ digital wallets.
If U.S. regulators conclude that these links mean Binance has control over a U.S. company, they could claim the power to police Binance’s entire business, which, to many investors, has been a black box since the start.
This would also put Binance’s billionaire founder and chief executive, Changpeng Zhao, and his finances under closer scrutiny. Recently, a Texas financial regulator said in a court filing that Binance.US didn’t get a license to operate in the state because it wouldn’t provide financial information about its parent company.