Binance spends $200 million every year on compliance. Where does this money go?

"The total amount of illegal activities on the chain has dropped by nearly 20%", this is the conclusion given by Chainalysis, a well-known blockchain data company in August this year. The company believes that this shows that legal activities are growing faster than illegal activities.

The rapid growth of legal activities is related to the increasingly strict treatment of crypto-asset crimes by global regulators year by year, which forces companies engaged in crypto-asset businesses to continuously raise the compliance "red line" and actively isolate themselves from crimes such as fraud, money laundering, and extortion.

Especially after Binance, the world's largest crypto-asset trading platform, reached a settlement with the U.S. Department of Justice with a high fine in 2023, various crypto-asset companies have almost reached a consensus that they must be consistent with regulatory requirements.

The "world's largest" was "fined the hardest", and Binance, which has a demonstrative effect, is determined to increase its compliance investment. Previously, the company's annual expenditure on compliance has exceeded US$200 million. "Compliance" has almost become the company's keyword in 2024, and cooperation with law enforcement agencies is an important part of its implementation.

As of January 2024, Binance has helped relevant departments freeze and confiscate more than US$1 billion worth of crypto assets in public and private cooperation to prevent malicious behavior; by July 2024, Binance has processed nearly 174,000 cooperation requests in total, and responded to more than 63,000 law enforcement requests this year alone, up from 58,000 in 2023. In 2023, it also held 120 seminars and training courses with law enforcement agencies and completed more than 51,600 suspicious activity reports (SARs) involving sanctions, fraud, deception, hacking, etc.

Behind Binance's compliance program is a mature reporting procedure and a set of technical means to support it, as well as a "mysterious" executive team "FCC", which are both compliance experts who can conduct training and investigators who go to various parts of the world to assist law enforcement.

When law enforcement agencies, blockchain data platforms, and on-chain security companies become an inseparable association, Binance, which is full of compliance buffs, fills in the key puzzle that crypto financial companies can exert in the industry compliance chain.

FCC Investigation Team Assists Law Enforcement in Combating Crypto Crime

On April 29, ZKasino, a platform for gambling using encrypted assets, was destroyed by the Dutch police for being involved in a large-scale fraud case. A man was arrested on suspicion of fraud, embezzlement and money laundering, and millions of euros were frozen.

On May 2, the Indian Enforcement Agency cracked the E-Nugget online gambling company fraud case, involving 2,500 bank accounts and 190 million rubles. The main culprit Aamir Khan used part of the fraud proceeds for crypto asset investment.

On May 17, the law enforcement department of Taiwan, China, cracked a major "fake personal currency dealer" money laundering water room case, involving nearly 200 million New Taiwan dollars.

In the process of cracking these crypto crime cases that have attracted local attention, Binance actually participated in them. The department that assists local law enforcement agencies is called FCC within Binance, the full name of which is Financial Crime Compliance, which is dedicated to handling financial crime investigations and compliance matters for Binance.

On August 26, Binance’s blog revealed that they received a thank you letter from the Organized Crime and Triad Bureau (OCTB) of the Hong Kong Police Force, thanking them for assisting the police in identifying suspects of a criminal group through intelligence analysis in a recent major kidnapping case. It was FCC that made the contribution this time.

Hong Kong OCTB sent a letter of thanks to Binance

FCC is part of Binance's compliance program and is composed of experienced investigators. They not only have banks and compliance departments in the traditional financial field, but also former employees of law enforcement and intelligence departments of governments around the world. Some of the famous agencies include the US Federal Bureau of Investigation (FBI), the US Internal Revenue Service (IRS) and the Ministry of Finance, as well as the EU's Europol, the UK Home Office, the Singapore Ministry of Home Affairs (MHA), the Hong Kong Police Force (HKPF), etc.  

Before joining Binance, these world-class crime fighters had participated in or even led investigations into major cryptocurrency crime cases, such as the Silk Road dark web market, BTC-e exchange, and the Mt. Gox hack.

Interestingly, some FCC investigators have worked with Binance when they worked for their former employers, such as James, who is now on the FCC’s suspicious activity (SAR) team. “I received strong support from Binance during my law enforcement investigation, which strengthened my decision to join the company. I have no doubt that Binance is the career path I want.”

Binance attended the press conference and commendation ceremony of the Cyber ​​Crime Investigation Bureau of the Royal Thai Police

The FCC, like Binance’s own “FinCEN”, has different groups such as a dedicated case team, SAR (suspicious activity) team, special investigation team, and sanctions investigation team. The members are not only investigators but also compliance experts.

Internally, the FCC implements Binance's disclosure procedures, assists in handling incidents that require further investigation in specialized areas such as sanctions, legal currency and transaction monitoring, and proposes initiatives; when external requests or alarms sound, members provide important support to law enforcement agencies, armed with advanced blockchain analysis, intelligence collection, and data visualization software to help them track clues on the chain and understand Binance records that are beneficial to solving the case.

Given the 24-hour and fast-flowing nature of crypto asset transactions, Binance FCC investigators are on standby almost 24 hours a day, because they must quickly track the flow of illegal funds to prevent victims from losing more money.

Charlotte from the SAR (suspicious activity) team experienced an emergency. It was a weekend when a payment service channel was hacked and funds were stolen. When the emergency request was sent to Charlotte, most of her team members were on vacation. Although Binance is a decentralized workplace, Charlotte immediately formed a working group and quickly checked more than 90 suspicious accounts that may have received the stolen funds. Charlotte's sharp response played a key role in the subsequent recovery of funds by victims.

Sometimes, it takes a long time to assist law enforcement officers in cracking a case.

The law enforcement assistance for the E-Nugget scam of the gambling application began in 2022, and the cooperation between the Indian Enforcement Directorate (ED) and Binance FCC has therefore lasted for two years.

During this period, the FCC trained law enforcement officers to understand technical expertise while assisting them in analyzing on-chain data, analyzing transactions and tracking on-chain fund flows and wallet relationships. Finally, this year, the criminal team members led by the main culprit Aamir Khan were locked in, and 42 crypto asset wallets related to the scam were successfully frozen, involving $6 million in illegal proceeds.

Going around the world to cooperate with law enforcement agencies

Another difficulty faced by law enforcement officers is precisely one of the most significant advantages of crypto assets - borderlessness, which is used for cross-border cybercrime. Not only that, the anonymous flow of crypto assets on the chain also greatly increases the difficulty of identifying criminals.

The characteristics of crypto crimes are very different from the work of traditional law enforcement agencies that usually enforce the law within their jurisdiction. It requires not only the knowledge of blockchain and crypto assets, but also effective international cooperation and coordination, which often puts law enforcement agencies in a passive position when facing this type of new crime.

For Binance, which has been deployed globally for many years, the needs of law enforcement agencies in combating crypto crimes coincide with the help that Binance can provide.

Akbar of the FCC Special Investigations Group participated in a successful international cooperation to combat crime. At the time, the holder of an account had been the focus of multiple law enforcement requests around the world, but the evidence had been insufficient. After analyzing the account holder's activities, transactions, and law enforcement request history, the FCC questioned the person, and the other party's vague answers were very suspicious. Binance Law Enforcement Seminar with Brazilian Law Enforcement Officers Based on these clues, Akbar contacted the Cyber ​​Crime Investigation Bureau of the Royal Thai Police, and after cross-checking the team's findings with the police database, it was found that this case was related to another pig-killing scam being investigated by US law enforcement. Ultimately, this breakthrough by Binance FCC assisted the law enforcement agencies of the two countries in cracking a gang crime case.

Binance was able to quickly get in touch with law enforcement agencies in many countries, thanks to its active cooperation with law enforcement agencies in exploring compliance over the years. In addition to assisting law enforcement agencies in combating crime with the help of insider technology and platform advantages, on more ordinary days, the FCC's work is to use training to let law enforcement personnel understand the neutrality of blockchain/encryption technology, as well as how to solve and prevent technology from being used for evil.

In 2023, Binance held 120 seminars and training courses with law enforcement agencies, covering a wide range of content, from the basics of crypto assets, user experience of wallets and crypto asset trading platforms, to advanced topics such as mixers and cross-chain transactions.

Binance holds anti-crime training for officials of the Macau Judiciary Police

During the on-site training, the FCC's law enforcement training expert group will conduct practical exercises focusing on real crimes encountered over the years. A popular topic is "What specific assistance can Binance provide to law enforcement agencies" and "How to interpret the complex data provided by Binance to support investigations."

In addition, the law enforcement training expert group will also provide insights on recent crypto asset crime trends, types and modus operandi analysis, and showcase case studies using commercial blockchain analysis tools and open source cryptocurrency intelligence tools. FCC expert Carlos Mak emphasized the value of the Binance platform in this type of assistance. "Many Binance employees have served as law enforcement officers and are very familiar with the various needs of the agency. Based on their experience, Binance has taken a proactive approach to efficiently solve problems. We attach great importance to the trust of our law enforcement partners and always work closely with them during the case handling process." Carlos said that the ultimate goal of providing training to law enforcement personnel is to enable law enforcement agencies to conduct such investigations on their own. It is crucial to have the ability to investigate new types of crimes. With the help of coercive force, the illegal personnel in the crypto asset ecosystem can be effectively removed, and the entire industry and its participants can benefit from it. "In addition, experienced investigators are less likely to make mistakes when identifying suspects, which also helps protect the safety of users. It is a good thing for Binance and other crypto financial companies." Erin, deputy district attorney for Santa Clara County, California West once commented, “Binance and other platforms are very happy to help, as they often say, ‘We don’t want dirty money on our platform, and we don’t want bad guys to transfer funds on our platform.’” Peter, a member of the FCC Special Investigation Team, explained that Binance has invested heavily in compliance. “The law enforcement agencies that have worked with us have seen how we create a safer ecosystem. These regulatory and law enforcement agencies actually bear major responsibilities and review obligations. The way we demonstrate compliance, we also hope that regulators can enforce it as an industry standard for all other exchanges.” Permeate compliance culture into all levels of the internal structure An unavoidable topic is that cooperation with law enforcement agencies seems to be inconsistent with the liberal spirit advocated in the crypto community. However, the reality that the crypto community has to face is that the use of crypto assets to commit crimes has been infringing on the interests of ordinary people.

Although Chainalysis reported a 50% decrease in illegal activities involving crypto assets in the middle of the year, the report also showed that in 2024, the illegal capital inflows from two types of illegal activities, theft from exchanges and ransomware, almost doubled from $857 million to $1.58 billion, while ransomware inflows increased by about 2%, from $449.1 million to $459.8 million.

In addition, pig-killing plates are the most profitable type of fraud so far this year. A Myanmar fraud gang first discovered on the chain in 2022 has made at least $101.22 million so far this year.

The value of losses in various types of crypto crime victims counted by Chainalysis

The illegal activities using crypto assets have lured unspecified groups of people and their property into fraud traps or money laundering chains.

Binance's global chief compliance officer Noah Perlman said in a recent podcast, "I understand the importance of protecting privacy and the nature of liberalism, but no one wants to be fooled. Most people do not want to unknowingly fund illegal activities and similar events. So there must be a balance. But I want to reiterate that it is important to protect privacy by cooperating with law enforcement agencies under appropriate legal procedures."

Noah is an executive who advocates implanting "compliance" as a corporate culture into all levels of Binance operations. He joined Binance in January 2023. Prior to that, he served as chief compliance officer and later chief operating officer at the cryptocurrency trading platform Gemini. Prior to joining the crypto industry, Noah held leadership positions at major law firms such as the U.S. Drug Enforcement Administration (DEA) and banking giant Morgan Stanley, and has decades of experience in compliance.

Noah joined Binance just as the company was in its most turbulent period - Binance reached a settlement with the U.S. Department of Justice for a fine of more than $4 billion, and its founder Changpeng Zhao stepped down from leadership.

"This settlement marks a 'new chapter' within Binance: achieving full compliance across the organization, not only in accordance with the actual letter of the law, but also in the spirit of law enforcement." Noah believes that this is a challenge and an opportunity for him - he wants to create a compliance culture at the world's largest cryptocurrency trading platform, and thus set a benchmark for the entire cryptocurrency field.

Noah proposed that the key elements of building a strong compliance program can be divided into two categories: one is technology and resources, and the other is culture. He believes that Binance needs to have strong technical defenses, including in-depth transaction monitoring, security infrastructure, risk management mechanisms, and a robust operational framework.

"We need to ask the following questions: Is the transaction monitoring program in line with our purpose? Is it properly adjusted? Is its signal-to-noise ratio reasonable? How is our model validation? And other details. It is becoming increasingly difficult to implement compliance programs on a large scale under different jurisdictions and different regulatory regimes. From knowing your customer (KYC) to screening, it is extremely difficult to achieve this, whether on-chain or off-chain."

Even though Binance already has a first-class compliance program with strict disclosure requirements and reporting procedures, in Noah's eyes, the plan is far from perfect.

"Given our past, the outside world may not easily believe our promises, so we must focus on achieving our goals without distraction and spare no effort." Noah added, "We can't eradicate fraud, we can only reduce it, and all we can do is keep improving."

Building Binance's compliance culture may be a bigger challenge for Noah, which means that every link within the company must resolutely put compliance first, "How do we measure compliance culture? How do we ensure that the company follows compliance principles at all levels of operation?"

Today, compliance has become an important consideration for Binance. In order to highlight Noah's importance in the company's operations, he reports directly to the CEO and speaks at every general meeting of the company.

In addition, Noah also leads Binance to strike a balance between the libertarian spirit of the crypto industry and the need to cooperate with regulators. He said that Binance will always act in accordance with the law within its capabilities and common sense, while protecting the freedom and privacy of users.

To date, Binance has handled nearly 174,000 requests for law enforcement cooperation, and hundreds of law enforcement training courses are also achieving twice the result with half the effort. Through seminars, training, and assistance, Binance is establishing connections with law enforcement agencies in many countries and regions around the world, assisting in combating financial crimes while also fulfilling its own compliance commitments.