Binance clamps down on suspicious UAE crypto trades

Reuters/Abdel Hadi Ramahi

• ‘Hundreds of thousands’ blocked
• Regulatory scrutiny of crypto increases
• Founder Changpeng Zhao jailed in US

Binance has blocked hundreds of thousands of suspicious cryptocurrency transactions in the UAE as it ramps up compliance efforts, senior executives have told AGBI.

The business, which is the world’s largest crypto exchange, received nearly 60,000 law enforcement requests from governments around the world in 2023 after heightened regulatory scrutiny.

Meera Judge, the Dubai-based director of regulatory licensing and policy at Binance, said inadequate monitoring of the crypto sector in its early days had led to concerns about money laundering and other financial crimes.

“Originally, there were no controls,” Judge said. Since then, she added, specialised tracing tools and evolved controls have been introduced, significantly changing the landscape.

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Judge said each Binance client now undergoes know-your-customer checks, as required by the global watchdog the Financial Action Task Force (FATF). These include ensuring that clients aren’t on any sanctions lists and monitoring of every transaction.

“We want to ensure that whatever happened in the past never ever happens again,” she said.

On April 30 Binance’s billionaire founder Changpeng Zhao was sentenced to four months in prison in the US, after pleading guilty to charges of enabling money laundering at the exchange.

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The US Department of the Treasury said Binance, which is responsible for an estimated 60 percent of centralised virtual currency spot trading, had failed to report more than 100,000 suspicious transactions to law enforcement.

Some of the trades were financing organisations that are designated as terror groups by the US government; others involved the proceeds of ransomware scams and other cyberfrauds. 

Binance also processed Iranian transactions with a value of $8 billion between 2018 and 2022, despite US sanctions intended to cut Tehran off from the global financial system.

As part of his plea deal, Zhao has stepped down as Binance’s CEO and will pay personal fines totalling $100 million. Binance will pay a penalty of more than $4 billion – the largest settlement in US Treasury history.

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Richard Teng, a former regulator who replaced Zhao as CEO last November, told AGBI that Binance had “heavily” increased its spending on compliance measures, from $158 million in 2022 to $213 million last year. The investment includes new software systems to detect and block suspicious transactions.

“That spend will continue to increase,” he said. 

Binance, founded in China in 2017, has about 120 million users. Last month Dubai’s Virtual Assets Regulatory Authority granted its UAE operation a licence to expand its services.

We want to ensure that whatever happened in the past never ever happens again

Meera Judge, director of regulatory licensing and policy, Binance

Judge said the compliance and risk processes now in place for the crypto industry are far more stringent than those found in traditional finance.

She said the exchange can stop suspicious transactions going through “immediately”.

“We stop millions globally and hundreds of thousands just in the UAE.”

Transactions are stopped automatically based on system rules, which could include false positives, according to Judge. They are then investigated by Binance’s team of 500 compliance officials worldwide. About 100 members of the team are dedicated to transaction monitoring.

Binance’s operational stability is critical to the stability of the broader market, she added.

“We are the largest exchange in the world and are considered a systemically important financial infrastructure,” she said.

“Our liquidity pool is so deep that all other broker dealers and exchanges use us, which is why we face so much additional scrutiny. Because if we go down, it would be like a domino effect on the entire ecosystem.”

In February the FATF removed the UAE from its so-called grey list, in recognition of the Gulf state’s efforts to curb illicit financial flows. The decision should also ease constraints on outside investment into the country and spur economic growth, experts have told AGBI.

Teng added that Binance has been working closely with global agencies to fight financial crime. “Last year we handled 58,000 law enforcement requests throughout the world,” he said.