Binance faces French laundering probe; KuCoin pays DOJ $300M

Getting your Trinity Audio player ready...

The Binance digital asset exchange is under investigation (again) in France, while rival KuCoin paid $300 million to get out of American prosecutors’ bad books.

On January 28, Reuters broke the story that French investigators had “opened a judicial probe into money laundering, tax fraud and other charges at Binance.” The organized crime division (JUNALCO) of the Judicial Tribunal of Paris is leading the probe.

The Paris Public Prosecutor’s Office claimed Binance is “likely to have assisted in habitual money laundering” for criminal groups involved in “drug trafficking and tax fraud.” The crimes in question occurred not only in France but “in all countries of the European Union.”

Le Monde reported that the latest probe involves Binance’s failure to observe proper customer due diligence obligations, thereby allowing crooks to launder the proceeds of their crimes. The alleged offenses occurred “over a period of several years” due to Binance’s “generalized failures to comply with anti-money laundering [AML] obligations.”

Joining in the probe are the National Anti-Fraud Office (ONAF), the General Directorate for Competition, Consumer Affairs and Fraud Control, and a Parisian investigating judge from a financial crime and cybercrime unit.

The news comes 18 months after the Paris Public Prosecutor’s Office revealed that it was probing Binance for “aggravated money laundering, through participation in investment operations, concealment, conversion, the latter being carried out by perpetrators of offenses having generated profits.”

Binance obtained a digital asset service provider (PSAN) permit from L’Autorité des Marchés Financiers (AMF) in 2022 but was active in the country for years prior to filing its PSAN application. The latest probe is reportedly looking into Binance’s French activities as far back as 2019, including promoting itself to French customers “via influencers and advertising campaigns on social networks.”

Binance issued a statement expressing how “deeply disappointed” it was that the “several years old” matter had been referred to the French judiciary for further investigation. Binance “fully denies the allegations and will vigorously fight any charges made against it.”

Binance went on to cite improvements it has made to its AML and combating the financing of terrorism (CFT) practices, omitting the fact that these largely came about as a result of a similar American probe into the exchange’s ‘know your customer’ (KYC) shortcomings. That probe culminated in the $4.3 billion criminal settlement with U.S. authorities in November 2023 and the subsequent jailing of founder Changpeng ‘CZ’ Zhao for his role in these crimes.

Europe busts transnational crypto money launderers

In a potentially related development, news of France’s renewed investigation into Binance’s AML shortcomings came one day after the European Union Agency for Criminal Justice Cooperation (EUROJUST) announced the arrest of 23 individuals for running “a sophisticated money laundering service for other criminal organizations.” The investigation led to the seizure of €8 million ($8.3 million) in cash, €2 million ($2.1 million) in bank accounts, and the freezing of €27 million ($28 million) in digital assets.

The probe, which began in 2023, found that there were at least 52 members of the laundering ring, operating mostly from Spain and Cyprus. Individuals traveled on commercial flights to Cyprus with large sums of cash, while also traveling by rail from Spain to neighboring countries. Up to six money laundering transactions were conducted each week, with the total sum laundered estimated at €100 million ($104.3 million).

EUROJUST noted that the launderers “worked with contacts outside of their organization” and that these contacts are “linked to commercial companies.” Among the groups participating in the arrests was ONAJ, the same anti-fraud group now probing Binance in France.

CZ tries to turn the page but…

Binance’s French fracas will complicate CZ’s redemption narrative, given that he was still very much CEO during all but a few months of the period cited in the French probe.

CZ’s brief stay in a U.S. prison last year allegedly helped him see the errors of his previous existence and set him on the straight and narrow. It was only last week that Bloomberg reported that CZ was taking an “active role” in YZi Labs (pronounced ‘easy labs’), formerly known as Binance Labs, the exchange’s venture capital division.

The company said the rebranding was “fitting” due to the expansion of its investment focus beyond crypto/blockchain to include artificial intelligence (AI) and biotech “while remaining steadfastly dedicated to advancing Web3 innovation.” The report quoted CZ saying YZi Labs was now “purely a family office investment vehicle” via which he will offer investment advice and guidance to startups during 12-week residency programs.

On January 28, YZi Labs announced a $16 million investment in Sign, “an on-chain infrastructure for token distribution and credential verification.” YZi Labs investment director Nicola Wang said Sign is “building transformative infrastructure for transparency and trust,” while Sign CEO/co-founder Xin Yan said his company had already “nailed how to distribute tokens. Now, we’re focusing on who to distribute tokens to.”

Binance.US hopes for second life under Trump

CZ recently gave an extended interview to blockchain analyst Colin Wu in which he offered views on digital assets’ past, present, and future. Referencing the imminent regulatory sea change under U.S. President Donald Trump, CZ expressed hope that the moribund Binance.US exchange “can continue to grow, benefiting from the positive regulatory environment in the U.S. right now.”

Predictably, CZ is still clinging to the fiction that Binance.US is “a separate entity” from Binance.com, despite reams of evidence that the U.S. exchange was entirely controlled by CZ and other senior Binance managers, who improperly redirected U.S. customer cash to CZ-controlled entities beyond U.S. borders.

Norman Reed, the interim ‘CEO’ of Binance.US, issued a notice before Christmas saying his primary goal for 2025 was “restoring USD services, so that users easily move money into and out of Binance.US.” The exchange suspended U.S. dollar deposits in June 2023 amid congressional calls for a probe into the exchange’s financial follies. In October 2023, Binance.US eliminated USD withdrawals as the legal noose grew tighter.

Binance.US is still the subject of a Securities and Exchange Commission (SEC) civil action that wasn’t part of the company’s November 2023 settlement. Both Binance and CZ recently filed notices of supplemental authority asking the U.S. District Court for the District of Columbia to consider the favorable rulings the rival Coinbase (NASDAQ: COIN) exchange recently received from two federal appeals courts in its own fight with the SEC over selling unregistered securities.

KuCoin digs deep to avoid Uncle Sam’s wrath

Following a federal court hearing in Manhattan on January 27, the KuCoin exchange agreed to pay nearly $300 million in penalties and forfeitures for operating an unlicensed money-transmitting business catering to the U.S. market. The settlement came 10 months after the Department of Justice (DOJ) indicted the exchange and co-founders Chun ‘Michael’ Gan and Ke ‘Eric’ Tang.

The DOJ said that between the Seychelles-registered KuCoin’s founding in September 2017 and the unsealing of the indictment last March, KuCoin served 1.5 million U.S. customers, from whom the exchange earned $184.5 million in fees.

But KuCoin failed to impose adequate AML/KYC practices, even promoting its lack of KYC to U.S. customers via social media messages like this one from April 2022: “KYC is not supported to USA users, however, it is not mandatory on KuCoin to do KYC. Usual transactions can be done using an unverified account.”

In August 2023, KuCoin belatedly introduced mandatory KYC for new customers but still allowed existing customers to withdraw funds without further identification. KuCoin’s trading volume plummeted following its KYC about-face, leading the company to turf nearly one-third of its workforce.

At no point did KuCoin register as a money-transmitting business or submit suspicious transaction reports to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). The DOJ estimates that KuCoin helped facilitate “billions in suspicious transactions and potentially criminal proceeds, including proceeds from darknet markets and malware, ransomware, and fraud schemes.”

As punishment, KuCoin agreed to pay a criminal penalty of $112.9 million and forfeit the $184.5 million in fees the exchange earned from U.S. customers. Gan and Tang each agreed to personally forfeit an additional $2.7 million.

In exchange, the DOJ agreed to defer prosecution against Gan and Tang for two years. KuCoin has agreed to “exit the U.S. market for at least the next two years.”

Gan issued a farewell blog post saying he was “pleased” that the legal matter “has been resolved with a favorable outcome.” Gan said the settlement “provides much-needed clarity and paves a clean path forward” for KuCoin to focus on international markets.

And yet Gan had the stones to claim that the settlement reflected “my lack of any intent to violate U.S. law or involvement in money laundering, fraud, or similar criminal actions.” (Yeah, like, how’d that happen?)

KuCoin’s U.S. legal woes might not be over, as the exchange is allegedly refusing to turn over nearly $30 million in digital assets belonging to customers of the defunct FTX exchange. The FTX Debtors group sued KuCoin last October, saying the exchange had not only refused to hand over the assets but failed to “meaningfully engage with the Debtors” on the subject. Watch this space.

Watch: Chronicle Upgrade, Teranode, and Bitcoin Stewardship