Canada Fines Binance for Anti-Money Laundering Violations

In a decisive regulatory action, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) has levied a significant penalty on Binance, a leading global cryptocurrency exchange, for failing to adhere to the country’s stringent anti-money laundering norms.

This penalty, amounting to $6,002,000 CAD (approximately $4.4 million USD), marks a critical development in Canada’s efforts to tighten oversight in the digital asset trading sphere.

Binance’s Compliance Lapses and Regulatory Battles in Canada

Binance, which operates under various aliases such as Binance Holdings (IE) Ltd., and Binance.com, among others, was found to have breached regulatory standards by not registering as a foreign money services business in Canada. Moreover, the exchange neglected to report any virtual currency transactions exceeding $10,000. These findings emerged from a detailed compliance review conducted by FINTRAC in 2023, emphasizing the exchange’s non-compliance over a significant period from June 1, 2021, to July 19, 2023. During this period, Binance failed to report the receipt of virtual currency amounts of $10,000 or more on 5,902 occasions, a serious lapse uncovered through blockchain analytics employed by FINTRAC.

The repercussions of these violations extend beyond financial penalties. Previously, Binance faced scrutiny from a provincial regulator in Ontario for purported breaches of securities laws, prompting the company to withdraw from the region rather than confront further legal challenges. This pattern of withdrawal followed a broader trend with Binance ceasing operations across Canada, citing the impracticality of conforming to the new regulatory guidelines issued for cryptocurrency exchanges. These regulations encompass provisions related to stablecoins and investor limits, which the exchange deemed unsustainable for its operational model in Canada.

These incidents in Canada are part of a series of international challenges faced by Binance. In November 2023, the U.S. Department of Justice negotiated a plea deal with Binance, wherein the company agreed to pay up to $4 billion to settle various allegations, including those pertaining to money laundering, fraud, and violations of sanctions. As part of this settlement, Binance’s then CEO, Changpeng ‘CZ’ Zhao, not only relinquished his role but also incurred a $50 million fine. Zhao’s legal troubles culminated in April 2024 when he was sentenced to four months in prison after pleading guilty to charges related to the breach of anti-money laundering sanctions regulations. 

Binance was fined C$6 million ($4.4 million) by Canada’s financial watchdog for breaching money-laundering protections. https://t.co/xa2C09ECkf

— Bloomberg Crypto (@crypto) May 9, 2024

Binance Faces New Allegations: Wash Trading by DWF Labs

Amid ongoing scrutiny for non-compliance with anti-money laundering regulations in Canada, Binance now faces new challenges concerning allegations of market manipulation tied to activities of DWF Labs. These allegations have added another layer of complexity to the cryptocurrency exchange’s operational woes.

Reports from The Wall Street Journal on May 9 detailed claims by an anonymous source, reportedly a former Binance insider, who alleged that Binance’s investigative team discovered $300 million in wash trading by DWF Labs during 2023. Wash trading refers to the practice of buying and selling securities to feign activity in the market, thus manipulating market prices. According to the source, DWF Labs manipulated the price of the Yield Guild Game (YGG) token among at least six other cryptocurrencies.

However, Binance has robustly denied these allegations. In a statement, a Binance spokesperson emphasized the company’s stringent market surveillance system, which, according to them, prevents any form of market manipulation on their platform. The spokesperson asserted that Binance has a comprehensive framework to identify and address market abuse and has off-boarded nearly 355,000 users over the past three years for violations of its terms of use, involving transactions worth over $2.5 trillion.

Further bolstering their defense, Binance pointed to a recent independent report by Inca Digital which praised Binance’s market surveillance practices. This report found minimal signs of anomalous trading activities, which supports Binance’s claim about the robustness of their system against market manipulation. 

DWF Labs Denies Market Manipulation Claims

DWF Labs, a Web3 investment and market-making firm, faced initial allegations of market manipulation in September 2023 when unusual high-volume on-chain activity caught the attention of the cryptocurrency community. The claims were first publicized by Wintermute, another algorithmic trading firm and market maker. During an interview at the Token2049 event, Wintermute co-founder Yoann Turpin criticized DWF Labs’s practices, suggesting they misrepresented certain transactions as investments rather than what he considered to be more akin to over-the-counter trades.

Andrei Grachev, co-founder of DWF Labs, has vehemently denied these market manipulation claims, maintaining the firm’s innocence amid these controversies.