Corporate filings by the co-owner of one of Binance’s U.K. subsidiaries have accused Binance of filing a “grossly inaccurate” annual report with respect to over £97 million (US$107.5 million) worth of funds apparently sourced from Binance customers.
The subsidiary is Binance Digital, which was incorporated in the U.K. in 2019 as a self-described joint venture between Binance and a company called Dimplx. Public records show that the company is majority owned by Binance’s founder and CEO Changpeng Zhao, with Dimplx owning 20%. According to Dimplx, the Binance terms of use during Q12020 designate Binance Digital as “the appointed operating entity legally responsible for transactions conducted at https://www.binance.com/en/buy-sell-crypto.”
The accusations came to light in Dimplx’s own corporate filings from late September concerning the period ending February 2021. The report says that Dimplx’s interest in Binance Digital represents its entire business operation and as such, the directors of Dimplx sought to assess the fair value of its shareholding.
It is here that Dimplx’s directors noticed the problem, according to the filing. Dimplx’s directors say that the director’s report and audited financial statements of Binance Digital for the period ending 30 December 2020 are “grossly inaccurate and lacking in several material respects.”
In particular, they say that Binance Digital’s statements recorded a cash balance of £97,600,358 at the end of the period, while also recording the exact same amount as owed to non-affiliated entities. This figure, according to the Dimplx directors, represents the total amount of GBP balances held by Binance Digital on behalf of those customers who had visited cryptocurrency exchange Binance.com.
But despite, that, the accounts filed by Binance for Binance Digital report zero turnover or fees in relation to any customers in the relevant financial year. In addition, Dimplx accuses Binance of transferring all of Binance Digital’s operations to another of its entities without notifying Dimplx.
The net result of this is that the Binance Digital annual reports filed by Binance “do not accurately report and/or sufficiently describe or disclose Binance Digital’s turnover, assets, liabilities, including potential tax liabilities, net profits, nature of operations and/or related party transactions.”
The accusations were quietly made public via Dimplx’s own attempt to value its shareholding in Binance Digital, but if true they could spell big trouble for Binance in the United Kingdom. Providing false information to Companies House, the U.K.’s corporate register, is a criminal offense in the U.K. since 2009 and attaches a potential two-year prison term. The U.K.’s Financial Conduct Authority (FCA), the regulator in charge of financial services firms and financial markets in the country, also has authority to punish companies and individuals in breach of its regulations. Punishments can include a public censure, financial penalties and an order that an infringing entity is no longer permitted to undertake regulated activities.
Binance has already had their knuckles rapped by the FCA for failing to provide basic information about the structure of its global operations. This caused the FCA to issue a warning to consumers last year regarding another of Binance’s U.K. subsidiaries, banned the company from any regulated activities.
Beyond the U.K., Binance has been fighting to escape regulatory spotlights increasingly trained on the company. Binance was forced to abandon its licensing efforts in Singapore in 2021, while the U.S. Department of Justice (DoJ) is reportedly in the middle of a probe into whether Binance violated the Bank Secrecy Act in flouting anti-money laundering rules. Binance was also targeted by a Commodity Futures Trading Commission (CFTC) investigation in 2021 and a Securities and Exchange Commission probe in 2022. The Securities and Exchange Commission in the Philippines also warned its citizens not to invest with Binance back in August, stating that Binance does not have the necessary authority to operate in the country.
Certainly, obscuring the nature of its operations has been part of the Binance gameplan for years, so Dimplx’s accusations wouldn’t be out of character. The next move of Dimplx’s directors is yet to be seen, but litigation against Binance and a complaint to U.K. regulators seem to be likely courses of action.
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