US and China try to crush Binance, SBF’s $40M bribe claim: Asia Express

Our weekly roundup of news from East Asia curates the industry’s most important developments.

Binance’s secret U.S. users

On Mar. 27, the U.S. Commodity Futures Trading Commission (CFTC) charged Binance and its founder Changpeng Zhao with alleged willful evasion of federal law and operating an illegal digital assets exchange. In the 74 page complaint, the CFTC claimed that despite the exchange’s public position of banning U.S. users, internal documents suggest that at least 20% to 30% of the exchange’s traffic came from U.S. customers. That equates to almost three million alleged U.S. users by mid-2020.

Crypto exchanges are required to register with either the CFTC or the U.S. Securities and Exchange Commission before soliciting U.S. customers. However, the CFTC allege that Binance ignored such ruling as its executives claimed that the regulations were “not reasonable” in the context of Binance’s corporate structure and that it was more “profitable” to simply bypass them.

Since the allegations surfaced, Chicago quantitative trading firm Radix Trading has confirmed that it is one of the three high-volume trading firms onboarded by Binance and listed in the CFTC complaint. In an official statement, Binance called the CFTC lawsuit “unexpected and disappointing.”

Founded in China by CZ in 2017, Binance quickly became the world’s largest crypto exchange through its low-fee trading mechanisms and wide range of product offerings. However, the exchange also came under intense scrutiny by regulators over allegedly lax know-your-customer and anti-money-laundering measures. Among many items, the CFTC seeks disgorgement of revenue generated by U.S. users’ trading activities, civil monetary penalties and permanent injunctive relief.

USA’s unexpected ally in the fight against Binance

From heated diplomatic arguments on human rights issues to ruffling feathers in the South China Sea, the U.S. and China, two major superpower, often find little common ground in everyday global affairs. However, it appears the two have finally found an entity worthy of mutual disdain — Binance.

Around the same time the CFTC unveiled its investigation of millions of allegedly undisclosed U.S. users on Binance, a Mar. 23 report by CNBC found that Binance employees or volunteers allegedly shared techniques for Mainland Chinese users to evade the exchange’s KYC verification.

Techniques shared include the use of fake residential addresses, VPNs, non-Chinese affiliated email addresses to create an account and then backlink it to a Chinese national ID.

Cryptocurrency exchanges have been banned in China since 2017 with its websites blocked and major social platforms banning keyword searches containing “Binance.”

The same week, an investigation by The Financial Times alleged that Binance had significant ties to Mainland China despite its relocation in 2017. Speaking on the matter, a Binance spokesperson told Cointelegraph that Binance “does not operate in China nor do we have any technology, including servers or data, based in China,” and “we strongly reject assertions to the contrary.”

SBF alleged $40M bribe to Chinese officials

In a new series of indictments filed against Sam Bankman-Fried (SBF), founder of bankrupt cryptocurrency exchange FTX, by the U.S. District Court Southern District of New York, prosecutors alleged that SBF paid $40 million to one or more Chinese government officials to unfreeze accounts related to Alameda Research, which was based in Hong Kong.

In 2021, Chinese authorities alleged froze $1 billion in cryptocurrencies from Alameda Research’s trading accounts on Chinese exchanges as part of an ongoing investigation into a counterparty. Exchanges were banned in China in 2017 but actual enforcement and offboarding of users did not come until a later time.

After months of failed attempts to unlock the accounts, the self-proclaimed effective altruist apparently concluded the wheels of justice needed a little grease. Prosecutors say that under direct orders from SBF, an Alameda employee allegedly transferred $40 million from one of the firm’s accounts to a private wallet in Nov. 2021. Shortly thereafter all Alameda trading accounts were unfrozen and SBF quickly went back to his routine trading activities. The criminal trial for the disgraced crypto executive is scheduled for Oct, 2, 2023 and he faces up to 115 years in prison if convicted on all charges.

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Chinese blockchain executive’s rape charges

According to local media reports on Mar. 28, Jun Yu, founding partner of Web 3.0 fund A&T Capital and former investment director at cryptocurrency exchange OKX, is currently under criminal investigation by Chinese authorities over allegations of sexual misconduct.

Yu has reportedly left his role at A&T Capital following the accusations. According to the criminal complaint, the event started when Yu’s car slammed into a vehicle driven by the alleged victim, Ms. Wan, at an unspecified time during the year in Hangzhou, China. Captivated by her “beauty,” Yu then asked Ms. Wan for her WeChat contact to “discuss compensation”.

Afterwards, Yu repeatedly made requests to ask Ms. Wan out to dinner, to which she agreed. Authorites say that during the meetup, Yu allegedly pressured Ms. Wan into drinking excessive amounts of alcohol whilst bragging about his connections to senior Chinese Communist Party officials. Later Yu called a taxi and took the woman to a nearby hotel where she was allegedly raped.

Yu fled to Singapore shortly after the alleged incident, a country that, perhaps unbeknownst to Yu, has an active extradition agreement with Mainland China. Hangzhou police reportedly found evidence at the scene which resulted in his prompt arrest.

A&T Capital was founded in 2021 and closed $100 million in funding in 2022. The fund has invested in notable crypto projects such as Mysten Labs, or Sui Network, Scroll, and BitKeep.

The firm has since stated it had “zero tolerance” for illicit or immoral activities and will be launching its own independent investigation in addition to cooperating with law enforcement regarding the incident. Jun Yu previously worked at OKX as an investment director from Mar. 2018 to July 2019.

Zhiyuan Sun

Zhiyuan sun is a journalist at Cointelegraph focusing on technology-related news. He has several years of experience writing for major financial media outlets such as The Motley Fool, and Seeking Alpha.

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