One of China’s richest men is being investigated by the U.S. Department of Justice for money laundering. Changpeng Zhao, founder and owner of Binance, one of the largest cryptocurrency exchanges in the world, must submit financial information about some transactions involved in money laundering.

With the rapid growth of new blockchain technologies and the emergence of web 3.0, internet users have more options to conduct financial and commercial transactions without the need to disclose their identity to centralized or government agencies. Cryptocurrency transactions can be tracked, however it is difficult to know who is conducting business, as transactions are conducted through wallets built on blockchain or cold wallets.

An exception to the almost absolute anonymity behind cryptocurrency transactions are centralized exchanges, such as Binance. These exchange platforms record all transactions as well as the identity of the traders. In this regard, Binance, like any other centralized exchange, also has the power to hide sensitive information of its users at its discretion.

Because of this, in 2020, the U.S. Department of Justice asked Zhao and 12 other company executives and partners for information about illegal transactions and solicitation of U.S. customers. It was also tracing any company records and issued orders that “documents must be destroyed, altered, or removed from Binance’s files” or “transferred to the United States,” according to Reuters reports.

The December 2020 request, which had not been made public, was part of a Justice Department investigation into Binance’s compliance with U.S. financial crime laws that is still ongoing, four people close to the investigation disclosed.

The U.S. government is investigating whether the company violated the country’s Bank Secrecy Act. This requires cryptocurrency transactions to be reported to the Treasury Department and to comply with anti-money laundering rules if the transactions are “substantial.” Failure to comply could mean up to 10 years in prison.

Reuters was unable to verify whether Binance or Zhao responded to the Justice Department’s request for information.

Binance chief Communications Officer Patrick Hillmann did respond to Reuters, and said, “Regulators around the world are reaching out to each of the major exchanges to better understand our industry. This is a standard process for any regulated organization and we work with the agencies regularly to address any questions they may have.” Binance has “an industry-leading global security and compliance team” with more than 500 employees, including former regulators and law enforcement, Hillmann added.

However, Hillmann would not comment on how the company responded to the DOJ, nor was there any public statement from the DOJ.

A series of newspaper reports by Reuters in 2020 reveal that the company brokered illicit operations for criminal groups, and that it also lacked strict control over the personal information of new clients. Until mid-2021, new customers could register to trade on Binance only with an email address. This caused compliance gaps in Binance’s customer identification program and allowed cybercriminals to launder at least $2.35 billion in illicit funds through the platform’s cryptocurrency exchange marketplace.

Between 2017 and 2022, buyers and sellers of illicit drugs on one of the darknet’s largest drug marketplaces, a Russian-language website, used Binance to make cryptocurrency payments of more than $780 million.

The Reuters investigation also shows for the first time how North Korea’s Lazarus, a hacker group, used Binance to launder part of the cryptocurrencies stolen from Eterbase. A smaller portion of the funds was laundered at the same time through another major exchange, Seychelles-based Huobi, which did not provide comment.

The Lazarus group again committed another theft of more than $600 million from a cryptocurrency-related online game in March. Zhao said the North Korean hackers transferred a portion of those stolen funds to Binance. Hillmann told Reuters that the company had identified and frozen more than $5 million of those funds and was assisting with investigations. He did not provide further details.

Against this backdrop, cryptocurrency investigator Chainalysis, hired by U.S. government agencies to track illegal money movement, conducted an investigation into Binance in 2020 and determined that the company brokered transactions involving criminal funds totaling $770 million in 2019 alone, more than any other cryptoexchange. Zhao accused Chainalysis of defemation on Twitter.

“We’re not perfect. We’ve made mistakes in the past, just as you’d expect from a young company operating in a disruptive new industry. But that doesn’t give them the right to ignore their obligations to tell an objective story. It doesn’t even have to be balanced. Just fair,” said Zhao on Twitter.

Hillmann said Binance was building “the most advanced cyber forensics team on the planet” and that the company intended to “further enhance our ability to detect illegal activity on the platform.”

Binance was founded in Shanghai in 2017 by Zhao, originally from China. In the 1980s he moved with his family from China to Canada, where he studied computer science.

Zhao’s company, or CZ as it is known in the bitcoin world, saw accelerated growth in 2018, when it went from 1 million users to more than 10 million. However, that growth was surpassed in the last two years and now Binance has 120 million users worldwide, with a daily traded volume greater than $13 billion.

At the beginning of 2022, several media published that Zhao is part of the world’s richest billionaires with a net fortune estimated at more than $96 billion, according to the Bloomberg Billionaires Index.

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