Binance reveals losses from KYC rollout

The cryptocurrency exchange Binance lost “around 90% of customers and billions of dollars in revenue” due to the introduction of KYC. In an interview with CoinDesk said representatives of the exchange’s compliance team.

According to them, in July 2021 Binance imposed withdrawal restrictions on unverified users. As a result, the daily withdrawal limit fell from 2 BTC to 0.06 BTC. This was done to combat money-laundering and reduce illicit activity, but it directly affected the number of users and the company’s revenue.

Representatives of the compliance team refuted that CEO Changpeng Zhao ignored their calls for a more permissive KYC policy and AML efforts.

“I know for certain that CZ made decisions that cost Binance a fortune. We removed accounts with millions of users because of risk-based decisions. It cost billions of dollars, but he supported this step,” said Tigran Gambaryan, Binance’s vice president of global intelligence and investigations.

Recently Reuters published a series of reports about Binance in the context of illicit activity. In one article, it pointed to a deep connection between the exchange and the Russian-speaking darknet marketplace Hydra. According to the agency, since 2017 the platform processed Hydra-affiliated payments totaling $780 million.

Matthew Price, the senior director of investigations at the exchange, told CoinDesk that Hydra’s scale is real. However, Reuters’ claims of its links to Binance are tantamount to saying Bank of America banks money launderers for drug cartels, he noted.

According to Gambaryan, criminals chose Binance because it proved to be “the simplest and cheapest path.” He stressed that the exchange cannot control the funds as they come in, but it can monitor their subsequent movement. He noted that using a VPN does not hinder user identification.

Price added that illicit activity is tracked through transaction monitoring, which means that “dirty money circulates beyond exchanges, offline.” That is where KYC helps.

The compliance team also commented on Reuters’ information that Binance continued to serve Iranian customers, circumventing U.S. sanctions and the ban on doing business in that country.

“From a sanctions perspective, Iranian citizens living outside the country are not a problem for the Office of Foreign Assets Control. US sanctions apply only in accordance with American law. Extending them to Iranian citizens living abroad is illegal,” said Chagri Poiraz, Global Head of Sanctions Compliance.

Gambaryan stressed that Binance is not a legal entity in the United States and operates in various jurisdictions. The exchange follows a conservative approach and complies with U.S. sanctions, although this contradicts EU law.

Earlier, in 2021, financial regulators from the Netherlands, Italy, Poland, Japan, Thailand, Hong Kong, Singapore, South Africa and a number of others issued warnings to investors about the company’s activities.

In this context Zhao published an open letter, in which he outlined Binance’s plans to ensure regulatory compliance and customer protection.

In August of that year the exchange introduced mandatory verification of users and invited former US Treasury Department investigator Greg Monahan to the role of AML officer.

In a Bloomberg interview in November 2021, Changpeng Zhao said that in the wake of tougher KYC requirements Binance lost only 3% of its users.

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