Binance Faces Heavy Scrutiny as $22 Trillion Worth in Hidden Trades Are Found

Binance co-founder and CEO Changpeng Zhao speaks during a press conference at the Europe's largest tech conference, the Web Summit, in Lisbon, Portugal, on Nov. 2, 2022. Patricia de Melo Moreira/AFP via Getty Images

Binance, the world’s biggest crypto exchange, is under heavy scrutiny as $22 trillion worth in hidden trades were found, according to a recent report.

The exchange is currently attempting to drum up confidence after a surge in customer withdrawals and a massive drop in the value of its digital token, BNB, has it facing a reliability crisis

An assessment of Binance’s corporate filings conducted by Reuters in a special report shows that the primary component behind the growth of its massive Binance.com exchange, which has facilitated trades worth over a total value of $22 trillion this year, has been mostly concealed from public view.

Binance said that due to its strong financial position they have been able to manage net outflows of $6 billion over 72 hours last week without “breaking stride“ and that they take their ”responsibility as a custodian seriously,” reported Reuters.

The firm’s founder and CEO, Changpeng Zhao, told investors that his company would “lead by example” in embracing transparency after the collapse of its major rival, FTX, on Nov. 11.

Binance was one of the few major crypto firms to not incur any major losses in the wake of the FTX meltdown.

Binance Refuses to Disclose Internal Documentation Regarding Its Basic Finances

In addition to the mysterious $22 trillion in trades this year, Binance refused to disclose basic financial information such as revenue, profit, and cash reserves, the location of its operations, as well as that of Binance.com, to investigators from Reuters.

Binance, which is registered in the Cayman Islands, also would not reveal what role or impact its BNB coin has on its own balance sheet.

The crypto exchange lends users money against their crypto assets and lets them trade on margin using borrowed funds, but does not disclose how big those bets are, how much it exposes itself to that risk, or even the full extent of its reserves that allow it to facilitate withdrawals.

Unlike its American rival Coinbase, which is listed on the Nasdaq, Binance is not required to publish detailed financial statements because it is not a publicly traded company.

The Chinese-founded firm has not raised outside capital since 2018, according to records, which excused it from sharing financial data with external investors since then.

In February 2022, Binance bought a $200 million stake in Forbes. and acquired $1.022 billion in Voyager assets on Dec. 19, despite the criticism over the transparency status of its cash reserves.

CEO Claims the Crypto Exchange’s Finances Are Sound Amid DOJ Investigation

“We have the assets to convert. And, there’s no margin, there’s no leverage, we just needed the banks to open. When banks are closed and you try to withdraw money it doesn’t work,” Zhao told CNBC.

Zhao claimed that his firm was financially stable and was the strongest exchange in the industry after the reports about its alleged difficulties faced last week.

“Our finances are sound. The legal team will handle it,” he responded, after being asked if Binance could afford to repay the $2.1 billion it earned from leaving FTX in 2021.

In May 2021, Binance was put under investigation by both the U.S. Department of Justice and the Internal Revenue Service on allegations of money laundering and tax violations.

Federal investigators and prosecutors have been probing how the firm does business, as the exchange currently accounts for more than half of all trading volume in the cryptocurrency market.

It has allowed been alleged that Binance allowed crypto transactions worth $1 billion for Iran-based companies, violating U.S. sanctions laws.

The DOJ is apparently divided on whether it should move ahead with filing criminal charges against Binance and its top executives, Reuters reported.

Some prosecutors think they have enough evidence to issue indictments.

“Reuters has it wrong again. Now they’re attacking our incredible law enforcement team. A team that we’re incredibly proud of—they’ve made crypto more secure for all of us. Here’s the full statement we sent the reporter and a blog about our remarkable law enforcement team,” commented Binance in a tweet regarding the DOJ investigation.

The firm was also suspended in June 2021 from conducting regulated activity in the United Kingdom by Britain’s Financial Conduct Authority.

Filings by Binance offices in 14 jurisdictions where the exchange listed its “regulatory licenses, registrations, authorizations, and approvals,” in locations such as Dubai, Switzerland, Canada, and several member members of the European Union, were reviewed by Reuters.

“They are co-opting the nomenclature of regulation to create a veneer of legitimacy. There is absolutely no transparency, no sunlight, no confirmation of any kind about its financial position,” John Reed Stark, a former chief of the U.S. Securities and Exchange Commission’s Office of Internet Enforcement, told Reuters, regarding the numerous jurisdictions where Binance operates.

“There is absolutely no transparency, no sunlight, no confirmation of any kind about its financial position.” Stark noted.

He believes that Binance’s operations are more shady and questionable than FTX’s business dealings.

Leading Auditing Firm Dumps Binance and Other Crypto Firms

Auditing firm Mazars suspended its services for Binance and other crypto exchanges after it failed to be reassured by their asset reports, reported Bloomberg.

“Mazars has indicated that they will temporarily pause their work with all of their crypto clients globally, which include Crypto.com, KuCoin, and Binance. Unfortunately, this means that we will not be able to work with Mazars for the moment,” said a Binance spokesperson.

The news of Mazars cutting ties with the crypto exchange appears to have caused a drop in BNB coin’s value.

This combined with a bearish sentiment in the crypto market continues following the Federal Reserve’s indication of a continued rate hike in 2023, which has led to an uptick in short-selling activity since last week, reported Coingape.

Meanwhile, Patrick Hillmann, Binance chief strategy officer, told Reuters that its analysis of the units’ filings in the 14 jurisdictions was “categorically false.”

“The amount of corporate and financial information that has to be disclosed to regulators in those markets is immense, often requiring a six-month-long disclosure process,” said Hillman.

“We are a private company and are not required to publicize our corporate finances,” he continued.

As of the afternoon of Dec. 19, BNB coin stood at $243, down 2.49 percent in the last 24 hours, according to price tracking platform CoinMarketCap.

Reuters contributed to this report.