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How Binance Exchange Hides the Legal Structure from Regulators and Users

Important: Forbes: Binance earns from U.S. investors by cheating regulators (Operation Tai Chi)

Binance Exchange was launched in 2017 and in just a few months took the lead in trading volumes (although no one doubts that these volumes are not real). Since its launch, it has added many new services and now serves customers around the world.

However, Binance still does not disclose its legal structure and keeps secret he location of their offices, as well as the name of the company responsible for safeguarding the user funds. And not only in public, but even in the responses to its users, for example: Head of Binance Exchange refuses to disclose the location of its headquarters и Binance fails to answer questions about its legal and physical location.

In May 2020, when asked by Unchained podcast author Laura Shin about company headquarters, Changpeng Zhao, aka CZ, said that the beauty of blockchain is that bitcoin has no office. He then added that the company’s employees reside in 50 countries, and the Binance office is located in the city where he lives. After that, on Twitter, he asked a rhetorical question: “Why should we be a regular company?” This tweet was since deleted.


When asked where the company pays taxes, Zhao replied that they did not hide anything, but Binance was not quite a traditional company; rather, it was a team with a common goal. Laura Shin never got an answer to her question and was very surprised that CZ avoided this topic, although others discuss it without problem.


ForkLog figured out what is known about the legal structure of the largest cryptocurrency exchange, which its management holds most tightly.

Did the Exchange Move from China?

The exchange was founded in China in the summer of 2017. However, in September, the country's authorities tightened the regulation of the bitcoin industry. According to the official version, Binance left the PRC. It is not known for certain where the exchange moved its headquarters. In an interview with news.bitcoin.com on October 24, 2017, CZ said that the exchange transferred IP addresses from Hong Kong to the British Virgin Islands and “some other jurisdictions.”

On December 1, 2017, TechAsia posted an article with CZ’s comments. It said that the exchange was operating from Tokyo, and the team and servers left mainland China a week before the ban was imposed. The same article said that CZ was working on opening an office in Hong Kong.

Correspondence with Binance representatives on this topic can be found on Reddit. One example is a question asked in December 2017. The response of a Binance employee was that exchange offices were located in Tokyo and Shanghai, and the exact addresses were not disclosed “for security reasons.” Here’s a similar question, only in February 2018. The answer is the same: “We cannot disclose the exact address ‘for security reasons’.”

In January 2018, Bloomberg wrote that Binance was located in Hong Kong. In March 2018, South China Morning Post also indicated that Binance was based in Hong Kong. That was also where the litigations between California-based Sequoia Capital and Changpeng Zhao were held, of which the latter emerged victorious.

A company called Binance (Hong Kong) Limited can actually be found on the Hong Kong Corporate Register. It existed from September 28, 2017 to September 7, 2018.

Hong Kong is a special administrative region of the PRC with a high degree of autonomy. One way or another, this is Chinese territory. In addition, a support service confirmed the presence of an office in Shanghai.

At the end of 2019, The Block, citing sources, reported a police raid on the Binance office in Shanghai, which employed “50-100 people.” First Binance denied having such an office. On Twitter, the support service wrote that these were “rumors,” and that the exchange did not have a “fixed” office in China. Following this, Zhao hinted that the news of the police raid was the machinations of competitors, claiming that Binance had not had an office in Shanghai for two years (probably since moving in 2017). He later deleted this tweet, but the Internet remembers everything.


Binance accused The Block of distributing fake, and CZ threatened to sue journalists. In response, the media published a large material, in which it spoke not about one but as much as two exchange offices in Shanghai, even showing their pictures. According to the publication, one of them employed up to two hundred people. Other users also found reporting from the Chinese channel about the closure of the Binance office; law enforcement officials appear in the footage.



A month before the alleged raid, CoinDesk mentioned the Binance office in Shanghai in one of its articles. Back then, the exchange did not refute it.

Changpeng Zhao called the idea of headquarters and offices obsolete. Although this sounds quite relevant, the rejection of outdated ideas did not stop Zhao from announcing the opening of the Binance Academy office in Shanghai in March 2020 (the exchange’s educational division). In the summer of 2019, CZ even “hoped” that it would open an office in London “very soon.”



Recently it became known that Binance will launch a regulated site in the UK on the domain binance.uk. There is BINANCE DIGITAL LIMITED in the British company registry, one of the directors of which is Binance employee Wei Zuowen. Changpeng Zhao owns a 75% stake in this company. It was registered on November 29, 2019.

In the same register, there are two more companies controlled by Zhao, —BINANCE EUROPE LTD (founded in March 2020) and BINANCE MARKETS LIMITED (founded in March 2015). Until June 10, 2020, the latter was called EDDIEUK LTD, and Zhao transferred control of it only on June 8.

In April 2020, Binance registered the Chinese domain binance.cn with the Ministry of Industry and Information Technology of China. Shanghai Bi Nai Shi Information Technology LLC filed the application.

From Japan to Malta — to the “Spiritual Headquarters”

The main version of the media is that after China, Binance moved to Japan. According to Bloomberg, in the winter of 2018, Binance, among other major Chinese exchanges, tried to obtain a license in Japan.

In the story of Changpeng Zhao's success, published in early February 2018, Forbes wrote that the company rented a small office in Japan. Then Binance hired developers and support staff in Taiwan.

But a month later, in March, instead of a license, Binance received a warning about the impossibility of working in Japan from a financial regulator.

CZ denied the warning and even blamed Nikkei, the first to report it, of being unprofessional.


The exchange then acknowledged problems with the regulator and announced its intention to move its headquarters to Malta.

After the failure in Japan, at the end of March 2018, Binance allegedly found a new place for its headquarters — Malta, — which at that time had a reputation as a “blockchain island” for favorable regulation. The move of Binance was welcomed by Prime Minister Joseph Muscat himself.



Binance launched a stormy activity on the island. Malta, as a member of the European Union, was to become the basis for the further expansion of the exchange in Europe.

In June 2018, Binance opened a bank account on the island to introduce support for the euro and open pairs with European currency. In the same month, Binance promised to support the development of fintech startups and entrepreneurship from the Malta Stock Exchange. Soon after that, a memorandum of plans to establish a regulated platform for trading security tokens with the Malta Stock Exchange was signed.

Already in July 2018, Binance acquired a stake in the Maltese Founders Bank. In October 2019, the exchange increased investments in this enterprise. The goal was to gain access to the infrastructure in order to offer the “full range of banking services” on the exchange.

Since 2018, Founders Bank has been in the process of obtaining a European banking license and Maltese — for the provision of financial services. Founders Bank still does not have a license, and a joint project of Binance with the Malta Stock Exchange has not been launched.

Joseph Muscat, the main ideologist of the “blockchain island,” fell into a corruption scandal related to the murder of journalist Daphne Caruana Galizia. In January 2020, he resigned, after which the attitude of the authorities towards the crypto business changed dramatically.

One month after Muscat left, the Maltese financial regulator, MFSA, said Binance had no financial licenses. This discouraged the community. Moreover, according to the MFSA, Binance ceased to be interested in licensing in the fall of 2019. Later it turned out that dozens of cryptocurrency companies had not received licenses.

In response to the news of the lack of a license, Zhao poked the topic with a needle. He said that Binance had no headquarters at all and did not work in Malta — this was “outdated news”. The exchange, he said, was managed “decentrally” with the goal of creating a DAO. He did not explain how this related to a centralized exchange, the presence of an administration, and a hierarchical management structure led by Zhao.



Binance Development Director Ted Lin introduced a little more clarity. He exchange that the stock exchange in Malta had employees of customer support and compliance, but there was no headquarters as such.

“We have a spiritual headquarters there,” he added vaguely.

In the Register of Malta, there are companies Binance Marketing Services Ltd (registration number C 85602) and Binance Europe Services Ltd (C 85624). Organizations were registered on April 9 and 10, 2018, respectively, and are located at the same legal address.

Cryptofiat platforms

Cryptofiat exchanges are part of the Binance Empire. Since the rules for working with cryptocurrencies in different countries differ, Binance decided to open trading platforms in favorable jurisdictions that are accessible only to local users and comply with all the rules of local regulation.

This made it possible to open a fiat gateway and start trading pairs of cryptocurrencies with local fiat currencies. For example, Binance Jersey is registered; on Jersey — an autonomous territory under British ownership — and is intended for users from the UK and Europe. BTC and ETH are traded on the exchange with the euro and the British pound.

A separate legal entity was created for each of these exchanges:
In early June, a conflict broke out between LCX founder Monty Metzger and Zhao on Twitter. From the skirmish it follows that the partnership did not work — at the same time, CZ called Metzger a “scammer,” who used the Binance brand to cheat. According to him, they no longer have any partnerships. Merzger said that Binance LCX AG is in the process of liquidation, but the founders still have obligations to creditors.


 
 

Binance is known to have a company in South Korea — Binance Co. Ltd. In partnership with fintech startup BxB, it will manage or already manage a support center.

The opening of cryptocurrency exchanges was a big trend at one time. Binance intended to open up to 10 local sites. However, the already launched exchanges failed to attract enough attention.

Then Binance decided to transfer efforts to the main exchange. In 2020, Changpeng Zhao promised to add 180 currencies support to binance.com.

Who owns the website Binance.com?

The most opaque are Binance relationships with offshore jurisdictions. In April 2018, Binance signed a memorandum of cooperation with the Government of Bermuda. On behalf of Binance, Zhao himself signed it, later participating in a press conference on the occasion.

CZ signed a memorandum on behalf of Binance Holdings Limited. In the media, this legal entity is mentioned in the summer of 2018 in one of the Bloomberg materials. In the future, the agency wrote about this company in articles about the exchange. In addition, in its press releases, Binance points specifically to Binance Holdings Limited as the name of the company whose website is binance.com.

According to DeCrypt, Binance Holdings Limited was registered in the Cayman Islands in 2017. We also found this company in your local registry. In addition, nine brands are registered for this legal entity, including the logos of the Binance exchange and the Binance Chain project.

DeCrypt also points to the registration in 2019 of the Binance Investments Company in Seychelles, another offshore territory. In the fall of 2019, Binance announced the purchase of the Seychelles crypto derivative trading platform JEX (JEX Technology Limited), renamed Binance JEX. In the same month, the main cryptocurrency futures trading platform, Binance Futures was launched.

Where to sue Binance?

Each online service is required to post terms of use on its website. Such a document is published on the Binance.com website. It has a section on dispute resolution, including through a court. After the Maltese regulator issued a statement in February of this year, Binance removed Malta's mentions from the agreement. Namely, the clause stating that the user should file a claim with Binance Europe Services Ltd, based in Malta.


The user agreement now says only that disputes can be resolved in any court that has jurisdiction over one of the parties (either Binance sues the user, or the user sues Binance). All details are offered to potential plaintiffs at [email protected]

You can also a version of the document dated February 15, 2020 in the online archive, which says that disputes are resolved through the Singapore International Arbitration Center (SIAC) or the Singapore Small Claims Tribunals (SCT). To recall, exchange manager on the binance.sg domain Binance Asia Services Pte. Ltd. is located in Singapore’s jurisdiction, but not Binance.com.

Meanwhile, in February, Binance Holdings Limited applied for a license for cryptocurrency transactions in Singapore after the relevant law entered into force there. Whether the exchange has this license today is unknown. Binance declined to comment on the legal structure of the company.

List of Companies

To summarize, here is a list of companies associated with Binance. This list is not exhaustive, since it does not include companies in which Binance has a share or which were purchased by the exchange.
  • Binance Holdings Limited (Cayman Islands, has a subsidiary);
  • Binance Investments Company (Seychelles);
  • Binance Co. Limited (South Korea);
  • Binance Europe Services Limited (Malta);
  • Binance Marketing Services Limited (Malta);
  • Shanghai Bi Nai Shi Information Technology LLC (PRC);;
  • Binance (Switzerland) AG (Zug, Switzerland);
  • Binance Digital Limited (United Kingdom);
  • Binance Europe Limited (United Kingdom);
  • Binance Markets Limited (United Kingdom);
  • Moon Tech PTY Limited (Australia, listed on site card.binance.com);
  • Binance Jersey Exchange Limited (Jersey Island);
  • Binance (Jersey) Limited (Jersey Island);;
  • Binance Uganda Limited (Uganda);;
  • Binance Asia Services Pte. Limited (Singapore);
  • BAM Trading Services Inc. (USA, affiliate company);
  • Binance LCX AG (Liechtenstein, winding-up).

In a recent lawsuit, Zhao himself is called a resident of Taiwan, although documents from Swiss Binance (Switzerland) AG and British companies say he has Canadian citizenship.шаблоны для dle 11.2
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