Binance loses another payment processor as Checkout.com fears regulatory blowback

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Binance has lost yet another payment processing partner, and the world’s largest digital asset exchange doesn’t seem to know if it still offers Euro-based withdrawals.

Late last week, Forbes reported that U.K.-based credit card processor Checkout.com had cut ties with Binance as of August 17. Checkout.com CEO Guillaume Pousaz cited “reports of regulators’ actions and orders in relevant jurisdictions” and “inquiries from partners,” along with additional concerns over Binance’s anti-money laundering (AML), sanctions 
and compliance controls.

Checkout.com began working with Binance in March 2020 and a year later reportedly handled $2 billion worth of payments in a single month on behalf of the exchange. That monthly volume reportedly decreased to about $300-400 million in recent months, although a Checkout.com spokesperson called these figures “inflated and inaccurate.”

Checkout.com offers a security feature called 3D-Secure that ensures compliance with the European Union’s Payment Services Directive. The Directive imposes strong customer authentication requirements (not Binance’s strong suit), and Binance reportedly insisted on disabling this feature in order to boost trading volumes. A Checkout.com spokesperson said 3D-Secure was “not a requirement in any country globally” at the time the feature was disabled.

Predictably, this led to Visa (NASDAQ: V) almost immediately flagging $10 million worth of fraudulent transactions flowing through Binance. The exchange was subsequently compelled to implement 3D-Secure and compensate credit card users victimized by the organized crime-led fraud.

Checkout.com’s divorce notice came just days after Binance announced it was shutting down its own Binance Connect (aka Bifinity) merchant-focused fiat-to-crypto payment gateway on August 16. Binance Connect was operated via a partnership with Checkout.com.

Binance cited “strategic reasons” for shutting down Binance Connect, including an alleged desire to “streamline” its operations. However, one of its partners reported that the shutdown was due to Binance’s “provider closing the supporting card payments service.”

Bifinity launched in March 2022 as a rebranded version of the Lithuania-based Binance UAB, which in 2021 was warned by the Bank of Lithuania that it was operating without the necessary permits. (Sense a thread yet?)

Euro confusion reigns

A Binance spokesperson told TechCrunch that the company was “considering our options for legal action” based on the early termination of its Checkout.com contract. This is almost certainly a PR bluff, as Binance is currently bending over backwards to avoid the discovery revelations that such civil suits allow.

The spokesperson also insisted that despite the loss of this significant payment rail—the latest in a growing conga line of fiat processors that have left Binance in a lurch—there was “no impact on our services and users can continue to use on- and off-ramps as usual.”

That’s not the experience of at least one user, who received a notice from Binance customer support on X (Twitter) that the exchange had “temporarily suspended EUR withdrawals and deposits via SEPA [Single Euro Payments Area]. Unfortunately, our provider can no longer support these transactions.” The message added that “we don’t have a specific time frame for the restoration of SEPA transfers” and recommended “alternative methods for buying and selling crypto.”

This message was later deleted, and a subsequent tweet claimed that the earlier communication had been “sent in error.” The new message insisted that SEPA payments “will continue until 25 September as originally communicated.”

In June, U.K.-based Paysafe Payment Solutions announced that it was cutting ties with Binance, citing that September 25 date for the official halt of EUR deposits and withdrawals.

I bought a large amount of EUR on Binance a few days ago. Now, I can't withdraw it to my bank account nor sell it again on Binance, because "my Paysafe account has been closed early". What is this scam? Don't hold my EUR hostage, wtf@cz_binance @binance @BinanceHelpDesk #Binance pic.twitter.com/DoXnTU4MZR

— Nesh (@Nesh61401966) August 20, 2023

On August 20, a Binance customer claimed to have “bought a large amount of EUR on Binance a few days ago,” only to have his account flagged by Binance as a “high frequency Paysafe service user.” The exchange told this customer that it had “closed your Paysafe account early to speed up the refunding process and to make sure that everything is in order.” Okay…

No playing with the play money!

Meanwhile, Binance is coming under fire for its alleged efforts to prop up the fiat value of its in-house BNB token during last week’s ‘flash crash’ that saw the value of most high-profile tokens fall by double-digits.

Binance has been aggressively defending BNB’s fiat price ever since its BNB Smart Chain was hacked last October—allegedly by North Korea’s infamous Lazarus Group—resulting in the unauthorized minting of two million BNB. The hackers deposited some of the stolen BNB into the Binance-owned Venus decentralized finance protocol, using it as collateral to borrow around $150 million worth of assorted stablecoins (USDT, USDC, BUSD).

Before these ill-gotten stablecoins could be frozen by their respective chains, the hackers had already swapped them for ETH. Worse, this left the individuals/entities on the other side of these Venus loans holding the bag, as the hackers clearly didn’t intend to honor their end of the smart contracts following a margin call.

Venus itself looked shaky as a result, with around one-fifth of the total value locked up on the protocol now in jeopardy. To prevent the BNB ecosystem from unraveling entirely, Binance elected to serve as sole liquidator for these positions should BNB drop below US$220. Initially, Binance put up $30 million worth of BUSD, later adding $30 million worth of USDT when the downward pressure on BNB increased.

There is a reason $BNB has not dropped below $212.

Binance has a $BNB backed loan liquidating at $212 down from $220 after margin was added in June.

Rationale:

– @cz_binance is in self preservation mode selling BTC from the bc1qm34lsc65zpw79lxes69zkqmk6ee3ewf0j77s3h wallet… pic.twitter.com/bVD5qzpiX4

— MartyParty (@martypartymusic) August 18, 2023

Up until last week, Binance managed to keep BNB from sinking below that liquidation level, although the mechanics of this effort remain unclear. Some online sleuths accused Binance founder Changpeng ‘CZ’ Zhao of selling some of his exchange customers’ BTC tokens to buy BNB whenever BNB’s price threatened to dip below the line.

But the flash crash proved too hot to handle, resulting in liquidations totaling $63 million when BNB slid under $220. That was followed by another $30 million liquidation on Monday morning as BNB continued to fall. With the token currently sitting around $210, the remaining $94 million or so pilfered BNB still locked up on Venus faces further liquidation should it dip below $198.

CZ dismissed concerns regarding the impact of these liquidations on BNB. However, given that Binance pays many of its employees in this backed-by-nothing token—effectively company scrip—and senior Binance staff have joked that recipients who don’t immediately ditch it for something of tangible value were “being fking retarded,” there’s likely more at stake here than CZ is letting on.

Tick tock

Binance’s ever-shrinking list of payment partners—particularly for major fiat currencies such as USD and EUR—is becoming a real concern. It will force CZ to seek out sketchier processors like Russia’s Advcash, with which Binance has longstanding ties. Those ties are believed to be under scrutiny for helping Russian individuals/entities evade U.S. economic sanctions.

Sanction-dodging is understood to form one plank of the criminal charges that are expected to be filed imminently by the U.S. Department of Justice (DOJ) against CZ and Binance. That’s on top of the civil suits filed by two U.S. regulatory agencies, with information undoubtedly being shared with their European counterparts on both the civil and criminal fronts.

A growing number of European markets have escorted Binance to their borders, with similar pressures mounting everywhere from Africa to Australia. This sense of impending doom has contributed to the exits of multiple senior Binance staff who fear ending up like the former FTX/Alameda execs who are now dropping dimes on Sam Bankman-Fried to avoid serious jail time.

Seriously, we can’t wait until CZ tries to post bond with BNB.

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Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.