Compliance changes under data: Decoding Binance’s strategic layout in the new era

Author: Climber, Golden Finance

Recently, Binance has been making good news: On August 15, Binance officially registered as a reporting entity with the Indian Financial Intelligence Unit (FIU-IND), achieving the 19th global regulatory milestone; On September 6, Binance Kazakhstan obtained a full regulatory license approved by the Astana Financial Services Authority (AFSA); Previously, Binance's Indonesian CEX Tokocrypto obtained a physical crypto asset trader license. In addition to compliance licensing, the Binance security team has also achieved remarkable results. As of the end of July 2024, the team has successfully recovered or frozen more than $73 million in user funds stolen by external institutions.

All of these are somewhat different from the Binance that users have in mind, which focuses on product services, project listings, and expanding wealth effects. What is presented to the outside world is no longer limited to the scope of exchange business, but taking the lead in setting an example and striving to practice the principle of user asset security first and institutional compliance operation.

Behind the above-mentioned outstanding achievements of Binance is precisely because it can uphold the concept of user first and the great efforts and contributions in compliance supervision. In the new era when the crypto asset industry is gradually moving towards maturity, compliance is particularly important. Binance obviously sees this clearly. Richard Teng, the CEO of the platform, said that it plans to recruit 1,000 people and spend more than $200 million to strengthen compliance this year.

In recent years, Binance has continued to increase its compliance investment, and while achieving great results in law enforcement training, case response, asset recovery and other aspects, it has also guided the direction for other companies in the industry. At a time when crypto assets are increasingly entering the mainstream, Binance is working hard to benefit the entire ecosystem and its users through compliance.

1. Compliance and supervision: full commitment and commitment to the highest standards in the industry

At the current stage, the approval of the US Bitcoin and Ethereum spot ETFs means that crypto assets are entering the mainstream, and the cryptocurrency industry has entered a stage of development and maturity. At this stage, regulatory compliance is crucial to user experience and security, business success, and responsible growth.

However, since the birth of the crypto industry, due to the lack of early compliance supervision, various financial crimes have emerged in an endless stream, which not only caused heavy losses to investors, but also caused many originally high-quality crypto projects to collapse step by step.

It is based on the above situation that Binance, as a leading company in the industry, has always been committed to building the platform into a compliant, secure and transparent company. Over the years, Binance has invested a lot of money and practical actions in strengthening compliance and security programs and building a talent team. Improvements made to the platform include:

substantially improving internal anti-money laundering (AML) monitoring and analysis capabilities, including on-chain and off-chain monitoring;

improving identity authentication (KYC) protocols and working with first-class third-party suppliers to supplement the platform's internal team and technology;

strengthening the platform's market supervision capabilities;

establishing an industry-leading financial crime compliance department to assist global law enforcement agencies in cryptocurrency-related investigations and share the skills and expertise needed to combat financial crime.

Specific to the data and facts, Binance's active participation in improving security and compliance includes:

In 2023, Binance reached a settlement with US regulators. After paying a settlement of US$4.3 billion, the platform experienced changes in leadership and a transformation of its corporate governance structure, and gradually moved towards a comprehensive compliance process.

Throughout 2023, Binance invested $213 million in compliance, up 35% from $158 million last year.

As part of its compliance program, Binance has established a world-class Financial Crime Compliance (FCC) department, comprised of top investigators, blockchain analysts, and former law enforcement officers in the industry. Distributed across multiple teams around the world, the FCC department plays an important role in protecting the ecosystem from malicious actors and fraudulent activities, leading the fight against cryptocurrency crime.

To further ensure user safety, Binance has refined its platform security measures and launched a series of security-focused educational activities. By the end of 2023, Binance's User Asset Security Fund (SAFU) was valued at $1.2 billion. The number of assets supported by Binance's Proof of Reserve (PoR) has increased from 9 in 2022 to 31 in 2023. Anyone can check it online at any time. Binance always supports user assets at a ratio of 1:1 plus additional reserves.

In August of this year, the platform's CEO Richard Teng said in an interview that Binance will recruit 1,000 people this year, many of whom are designated for compliance positions. The cryptocurrency exchange spends more than $200 million annually to meet regulatory requirements (including US regulation under the plea agreement).

And this year, Binance has strengthened its compliance leadership team, allowing Steve Christie, a world-class expert and former senior vice president of compliance at the platform, to return to Binance as deputy chief compliance officer.

In addition, in order to combat criminal activities in the field of digital assets at an earlier stage, Binance has used the most advanced tools and technologies to monitor transaction flows inside and outside the platform in a combination of automatic and manual methods.  

In 2023, the platform improved its transaction monitoring capabilities, and the platform's on-chain monitoring team handled 677,772 on-chain alerts, achieving a 150% increase in on-chain transaction monitoring efficiency.

Binance not only analyzes blockchain risks, but the platform's enhanced dedicated tools can also monitor abnormal transactions and activities internally.

In 2023, the platform's analysts reviewed and closed 2,648,318 off-chain alerts. By implementing new internal and external tools, the platform has increased the efficiency of these efforts by about 40% compared to last year. In 2023, the platform's team recorded a 157% increase in the total number of internal investigations conducted and a 180% increase in work efficiency.

Finally, in terms of market surveillance, the platform’s team is responsible for monitoring Binance’s trading activity and ensuring the integrity of the platform’s markets, introducing new third-party monitoring solutions and reaching an average rate of investigating 20,000 alerts per month.

These efforts have enabled Binance to make significant progress in regulatory compliance, and to date, Binance has helped authorities freeze and confiscate more than $1 billion worth of crypto assets in public and private collaborations. In 2023, Binance’s FCC unit responded to more than 58,000 law enforcement requests, held 120 workshops and training sessions with law enforcement, and completed more than 51,600 suspicious activity reports (SARs)—a 180% increase from 2022—involving sanctions, scams, fraud, hacking, and more.

It is worth noting that on August 15, Binance announced that the Indian Financial Intelligence Unit (FIU-IND) was registered as a reporting entity, achieving the 19th global regulatory milestone, which ranks first among all centralized crypto asset trading platforms.

In addition, according to the Chainalysis report, in 2023, the most illustrative indicator of crypto-related crimes-the proportion of illegal transactions in the overall crypto trading volume-dropped from 0.42% to 0.34%. During the same period, the key indicators of Binance's compliance and security progress increased. By comparing the two sides, we can see that Binance has made a huge contribution.

Second, law enforcement training: sharing expertise and assisting in combating crypto crimes

With the popularity of cryptocurrencies, more and more criminals are attempting to abuse the cryptocurrency ecosystem in order to make ill-gotten gains. Therefore, it is increasingly important for law enforcement officers fighting cybercrime and financial crime to master cryptocurrency investigation skills.

However, law enforcement agencies are usually somewhat passive, resulting in a serious lack of experts in the field of blockchain and cryptocurrency. There are no relevant personnel who can both meet business needs and train investigators and prosecutors.

In addition, there are often obstacles in the cooperation between the private and public sectors in this regard. Law enforcement agencies need to access relevant data held by cryptocurrency companies in a timely manner, but many service agencies, including trading platforms, are slow to respond and cannot effectively assist in investigations. In addition, many agencies, especially those in developing countries, have difficulty accessing the latest high-quality training resources.

In response to this, in September 2022, Binance launched a global law enforcement training program to help law enforcement detect financial and cybercrime and assist in prosecuting criminals who use digital assets. Binance's comprehensive training courses provide law enforcement with the skills and knowledge needed to handle complex cryptocurrency investigations, filling some of the professional knowledge blind spots that law enforcement officers may have.

Binance has an experienced team of former law enforcement officers and financial investigators who can provide practical assistance, case consulting services and operational support, which makes the platform stand out in the industry and become one of other exchanges and companies in the industry.

In April this year, Binance held its first online law enforcement training day event, aimed at helping to combat cybercrime and providing advanced cryptocurrency education to the international law enforcement community.

To fill these gaps, Binance provides various training and sharing sessions for law enforcement partners. The content covered is quite extensive, ranging from cryptocurrency basics, user experience of wallets and cryptocurrency trading platforms, to advanced topics such as cryptocurrency mixers and cross-chain transactions.

In addition, Binance's team of law enforcement training experts will provide insights on recent cryptocurrency crime trends, types and modus operandi analysis, and present case studies using commercial blockchain analysis tools and open-source cryptocurrency intelligence tools.

Binance has a leading professional team in the crypto industry. The team consists of approximately 30 former law enforcement investigators, each of whom has extensive experience in the crypto industry or cybercrime investigations. This expertise enables Binance to provide practical and effective support to law enforcement agencies. When receiving a legitimate request, the data provided by the platform often helps identify suspects or greatly advances the investigation.

Binance's efforts to assist law enforcement have been fruitful. In recent years, the platform has assisted in large-scale investigations, helping law enforcement agencies successfully dismantle multiple international criminal networks and seize funds worth hundreds of millions of dollars. The platform's efforts have been recognized worldwide: the platform has won the Cyber ​​Security Professional Award (CSPA) issued by the Hong Kong Police Force; the head of law enforcement training has won a certificate of commendation from the Director of the Korean National Police Agency; the platform has also been invited to hold joint press conferences with government agencies such as the Royal Thai Police.

In addition to practical assistance, the Binance Law Enforcement Training Program also held more than 120 on-site and online training sessions in 2023, focusing on practical investigation methods to help law enforcement agencies effectively deal with complex cryptocurrency investigations.

III. Case Response: Building Web3 Ecosystem Security

According to Chainalysis's 2024 Crypto Crime Report, in 2023, cryptocurrency crime decreased significantly, the value obtained by illegal cryptocurrency addresses decreased, and the share of illegal transactions decreased. This is due to the industry's enhanced security and compliance efforts and better cooperation with law enforcement partners. But this is inseparable from the efforts of Binance. The platform actively responded to law enforcement agencies in various crypto-violation cases, effectively reducing criminal behavior throughout the ecosystem.

Binance regards ecosystem security as a shared responsibility of industry participants, users, regulators and law enforcement agencies, and has strengthened its collaborative efforts to combat crime. At the same time, in order to combat illegal activities involving crypto assets, the platform has increased its cooperation with global anti-crime organizations.

In order to safeguard the interests and safety of users and the reputation of the entire crypto industry, Binance actively responds to the needs of solving various cases and helps law enforcement agencies combat online and offline crimes. The main types of case responses are:

1. Combating criminal gangs

In 2020, Binance cooperated with the Ukrainian Cyber ​​Police to carry out the Bulletproof Exchanger project, which aims to track transactions between Binance and high-risk entities. The project led to the identification and arrest of a cybercriminal group that launched a ransomware campaign and laundered more than $42 million in cryptocurrency over the past two years.

The following year, Binance investigators participated in an international case with the Ukrainian Cyber ​​Police, the South Korean National Police Agency Cyber ​​Bureau, U.S. law enforcement agencies, the Spanish Civil Guard, and the Swiss Federal Police, among others, to arrest members of FANCYCAT. FANCYCAT was an active cybercriminal gang that caused more than $500 million in losses by launching cyberattacks and laundering money through darknet operations and high-profile cyberattacks.

Binance’s AML analytics tools detected suspicious activity on the Binance platform and expanded the group of suspects. After mapping out the full network of suspects, the team worked with private sector blockchain analytics firms TRM Labs and Crystal to analyze on-chain activity, ultimately identifying and arresting FANCYCAT members.

In a well-known counter-terrorism case in 2023, Binance worked with the National Bank of Tajikistan and blockchain analysis company TRM Labs to arrest several key members of the terrorist organization Islamic State-Khorasan Province (ISKP).  

2. Resist hackers

In 2022, Binance recovered funds stolen from the Axie Infinity vulnerability. When the North Korean hacker group Lazarus transferred assets stolen from 86 different wallet addresses to Binance, the platform immediately withheld the transactions and eventually recovered $5.8 million worth of cryptocurrency.

In August 2022, Binance froze crypto assets stolen from Curve Finance users, worth approximately $450,000, or 83% of the hacker attack amount. The Curve Finance hacker used various techniques to bypass the platform's security controls to send assets to Binance, but was eventually discovered. Binance worked closely with law enforcement to return the funds to users.

In 2023, several teams at Binance worked internally to identify two people involved in exploiting the decentralized protocol Platypus Finance. They then handed the case over to French law enforcement, who arrested the suspects.

3. Stop crimes that violate personal rights

Two cases in Sao Paulo, Brazil in 2022 are vivid examples. In one of the cases, the Binance investigation team worked closely with the Sao Paulo Prosecutor's Office to track down the proceeds of kidnapping and extortion, which resulted in a loss of approximately 2 million Brazilian reals (more than $400,000). The suspects tried to use the advanced privacy features of crypto wallets to obfuscate their transactions, but this was not enough to prevent investigators from identifying the suspects' deposit addresses.  

The Binance Investigations team worked closely with the Sao Paulo Civil Police to track and freeze the proceeds of another extortion case. In both cases, Binance’s collaboration with law enforcement and the Know Your Customer (KYC) procedures implemented on the Binance platform played a key role in the subsequent arrests of the perpetrators.

In October 2023, the platform’s Investigations team was contacted by the Attaché des Attachés of the Royal Malaysian Police regarding the kidnapping of a Malaysian citizen in Manila earlier this year. Unfortunately, the victim did not survive. However, Binance investigators were able to assist law enforcement in their investigation. The arrest of the identified suspect by Philippine law enforcement is another win for the collaboration since the start of Binance’s training promotion campaign.

4. Fighting Scammers

In 2023, Binance supported the FBI and the Department of Justice (DOJ) in a major pig slaughter case, seizing more than $112 million in funds. The platform's investigation team acted quickly to identify and restrict the flow of illegal funds through the platform. This directly helped recover the funds lost by the victims. The team's efforts complement the work done by federal authorities.  

In one case, Binance assisted the Central Investigation Bureau (CIB) of the Royal Thai Police in handling another cryptocurrency fraud case, resulting in the dismantling of a large transnational criminal organization network. The arrests were carried out at 30 locations in Bangkok, Samutprakarn and Udon Thani, with more than 200 law enforcement officers deployed.

5. Provide assistance in real time

The Turkish artist whose funds were stolen contacted Binance customer support to report the incident. The platform's investigators identified the suspects and negotiated with them.

Eventually convinced them to return the assets to the rightful owners. The story of the 23-year-old investor also followed a similar scenario, and the thief eventually returned the funds. The fake "friend" of the Belgian caregiver was identified and sentenced by a Nigerian court. With the help of Binance, the kidnapped cryptocurrency CEO successfully recovered the approximately $2.6 million ransom that had been paid previously.

From the above crypto cases that Binance responded to, it can be seen that the platform has a huge role in solving the case. Data shows that in 2023, Binance responded to more than 58,000 law enforcement requests and supported law enforcement agencies in cracking a series of high-profile cases, assisted in the capture of many criminals and terrorists, seized billions of illegal proceeds, and destroyed multiple international criminal networks.

Fourth, recover assets: user security first

In terms of protecting the security of user assets, Binance takes a proactive and hands-on approach and is committed to achieving collaborative security in the Web3 field.

As of July 31 this year, the Binance security team has successfully recovered or frozen more than $73 million in user funds stolen by external institutions, an amount that exceeds the $55 million recovered in 2023.

Through Binance’s proactive efforts and collaboration with industry players and the public sector, Binance has successfully helped users recover misplaced and lost digital funds, of which approximately 80% of recovered funds were related to external hacks, vulnerabilities, and thefts.

Of course, the increase in recovered and frozen funds this year does not necessarily indicate an increase in criminal activity within the industry, but rather an increase in the efficiency of Binance’s proactive security measures.

In a public blockchain, all transactions are visible and traceable, making it easier to track and recover funds. At the same time, public records also facilitate the identification and monitoring of suspicious activities.

Binance Chief Security Officer Jimmy Su attributed this achievement to Binance’s user-centric corporate culture (which permeates all aspects of Binance’s operations); Binance is committed not only to protecting Binance users, but also to improving the overall security of the cryptocurrency ecosystem. "By partnering with more third-party services, Binance is able to expand its coverage when tracing and recovering stolen funds," he said.

Jimmy added: "Based on observations in recent months, market growth and volatility often lead to an influx of new investors who may be more vulnerable to scams and hacker attacks, and price increases during this period may lead to more capital losses."

In addition, he said: "Blockchain technology provides platforms with powerful tools to collect significant evidence and take action against criminals, paving the way for a safer and more secure investment environment. While it is important to remain vigilant and conduct comprehensive research, rest assured that the unique properties of blockchain give platforms an advantage in this fight against financial crime."

Binance has successfully helped users recover misplaced and lost digital assets and frozen and recovered ill-gotten gains that flowed into the Binance platform through its active efforts to support Web3 users and work with industry peers. In addition, Binance also works closely with the public sector to ensure that affected users get the help they need.

In a successful law enforcement collaboration in May this year, Binance assisted Indian authorities in dismantling a fraudulent investment scheme disguised as a gaming platform and recovered assets worth millions of dollars.

The joint operation identified and froze 42 digital asset accounts associated with the scam, totaling nearly $6 million in ill-gotten gains, and hundreds of bank accounts through meticulous blockchain analysis and significant ground operations.

The Indian Enforcement Directorate (ED) and Binance teamed up to hunt down the criminals and successfully froze 42 digital asset accounts associated with the scam, totaling nearly $6 million. The collaboration was not limited to blockchain analysis, but also included significant ground operations by the Indian Enforcement Directorate (ED).

The tough measures taken by the Indian Enforcement Directorate have further seized a large amount of illegal proceeds from the E-Nugget scam, including the discovery of 1,952 SIM cards and a large number of bank cards and passbooks linked to various bank accounts during raids. Nearly 2,500 bank accounts were examined, about 190 million rupees (about 2.3 million U.S. dollars) in cash were confiscated, and funds totaling nearly 900 million rupees (about 11 million U.S. dollars) in 70 accounts were frozen.

In addition, according to Chainalysis's 2024 Cryptocurrency Crime Report, the value received by illegal cryptocurrency addresses fell sharply in 2023, totaling $24.2 billion, down from $39.6 billion in 2022. The share of all cryptocurrency transaction volumes associated with illegal activities also fell from 0.42% in 2022 to 0.34%. The reduction in the amount greatly reflects the effectiveness of the proactive security measures taken by the industry, and Binance's contribution to recovering funds is enough to show that it plays a leading role in this regard.

Conclusion

The crypto industry has always been regarded as a dark forest. Due to the decentralized nature of crypto projects and the lack of supervision, low-quality projects have emerged in an endless stream, and many well-known projects also lack self-discipline, which puts ordinary investors at great risk. With the passage of the US Bitcoin and Ethereum spot ETFs, it is an inevitable trend for crypto assets to move towards the mainstream, but it is precisely regulatory compliance that restricts the crypto industry.

Binance is clearly aware of the importance of compliance supervision, and has spent a lot of manpower, material resources, and financial resources to build a Web3 security ecosystem. As an industry leader, Binance's move has undoubtedly set a good example for the entire crypto industry. Whether in the current complex global economic situation or in the future of the long-term development of the blockchain industry, Binance is clearly at the forefront of the times.