Binance says it follows global sanctions rules and has no banking relationships anywhere for its peer-to-peer service By Angus Berwick and Patricia Kowsmann Aug. 22, 2023 7:01 am ET 11 Binance, led by founder Changpeng Zhao, handles ruble-based trading on its exchange and facilitates peer-to-peer trades involving the Russian currency. PHOTO: ANDREY RUDAKOV/BLOOMBERG NEWS Binance is helping Russians move money abroad, potentially adding to its sprawling legal problems in the U.S. The cryptocurrency giant, led by founder Changpeng Zhao, joined many other major international companies early last year in scaling back its business in Russia, one of its largest markets by trading volume at the time. After Russia invaded Ukraine, Binance said it had stopped working there and was implementing Western sanctions requirements. It restricted trading on its platform in Russia. But Binance’s exchange continues to handle substantial ruble trading volumes, externally compiled data show. Via layers of intermediaries, clients can turn funds at sanctioned banks into balances at Binance, while Binance also enables peer-to-peer trades of rubles for digital tokens that frequently involve banks that are on Western blacklists, company websites, user screenshots and messages in official chat groups show. “Binance follows the global sanctions rules and enforces sanctions on people, organizations, entities, and countries that have been blacklisted by the international community, denying such actors access to the Binance platform,” a spokesperson for the cryptocurrency company said. The spokesperson said Binance has “no relationship with any banks whatsoever, in Russia or elsewhere” around its peer-to-peer service, and doesn’t collaborate with partners in the traditional financial system who are on any sanctions lists. The Justice Department is investigating Binance in connection with possible violations of U.S. sanctions on Russia, according to a person familiar with the probe. The investigation was first reported by Bloomberg. A Department of Justice spokesman declined to comment. The department has also been investigating Binance over suspected anti-money-laundering lapses, The Wall Street Journal has reported. The Commodity Futures Trading Commission and the Securities and Exchange Commission have previously accused the company and its founder Zhao of a slew of violations and compliance failures. Binance has said that it had sought to address authorities’ concerns, and that it is committed to transparency and cooperation with regulators and law enforcement. The company has said it intends to defend itself vigorously against the SEC charges. Zhao has also said Binance didn’t agree with the characterization of many issues alleged in the CFTC complaint. The U.S. has imposed broad sanctions on Russia’s financial sector, forcing other banks to sever ties or risk steep penalties. Many Russians, even if they themselves aren’t sanctioned, can’t wire rubles to bank accounts abroad or convert the money to other currencies. Crypto has helped to fill the void. The Securities and Exchange Commission is separately suing two major cryptocurrency platforms, Binance and Coinbase. WSJ’s Caitlin Ostroff breaks down the lawsuits and their potential impact on the crypto industry. Photo illustration: Adam Adada/Xingpei Shen Russians can exchange rubles for digital currencies, particularly stablecoins that are pegged to the dollar, such as tether. Those stablecoins can then be swapped for hard currency at brokerages abroad or transferred into other crypto wallets as a form of payment. “Everyone uses cryptocurrencies—except perhaps for my grandmother,” said Tatiana Maksimenko, a Russian businesswoman who formerly worked at another crypto exchange and who now runs a Montenegro-based marketing agency called IdolMe. Binance is one of the most popular cryptocurrency exchanges in Russia, she said. The main route for Russians to convert rubles into crypto has been via peer-to-peer services, according to the Bank of Russia. From October through March, Russians made peer-to-peer trades worth the equivalent of around $428 million each month at recent exchange rates, the central bank said. The U.S. Treasury Department has flagged peer-to-peer crypto transactions as a potential means of evading U.S. sanctions. Such trades don’t go through an exchange but are often facilitated by a platform such as Binance, which charges a fee to process them. A business wouldn’t require a formal relationship with a designated Russian bank to face potential U.S. sanctions risk, said Michael Parker, a former Justice Department prosecutor and ex-official at the Treasury’s Office of Foreign Assets Control. If a business was providing a “carve-out” where users could access currencies or services unavailable at sanctioned Russian banks, that could be seen as material assistance to those institutions, said Parker, who is now head of law firm Ferrari & Associates’ anti-money-laundering and sanctions practice. A recent review of Binance’s peer-to-peer service website showed that it offers Russian clients at least five sanctioned Russian lenders, including Rosbank and Tinkoff Bank, as options for processing payments. Binance said in 2020 that it “added support” for payments via both banks, alongside dozens of other payment methods. Sellers can give their bank-account details to buyers so they can directly receive funds. Binance holds the sellers’ crypto in escrow until they confirm receipt of the money. On a single day in late July, via Rosbank alone, Binance’s public peer-to-peer platform showed that several hundred traders were offering to buy or sell rubles for tether, in potential deals together worth the equivalent of almost $1 million. And on Binance’s official Telegram chat group for Russian clients, dozens of users have recently discussed their use of Rosbank and Tinkoff to make peer-to-peer trades via Binance. Rosbank and Tinkoff Bank didn’t respond to requests for comment. “It’s good that Binance never sleeps,” wrote one trader in the chat group, using the name Vitaliy Motiv. In recent months, Binance’s customer-service volunteers have told users in the Telegram group that the exchange is no longer enforcing any trading limits on Russian clients, which it introduced in April 2022 to comply with European Union sanctions, messages viewed by the Journal show. Binance has previously said such volunteers are neither employees nor spokespeople for the company. “All current restrictions related to sanctions against all Russian nationals are applied by the platform and its legal entities in the European Union in full,” the Binance spokesperson said. Binance doesn’t disclose where its main Binance.com platform is operated from. Russian citizens are forbidden to buy or sell dollars and euros using its peer-to-peer service, the spokesperson added. At Binance’s main exchange business, trading volumes in Russia are down compared with a peak in early 2022, but have rebounded somewhat in recent months, according to data provider CCData. Binance handled $8 billion of ruble-to-crypto trades in July, mostly for tether, CCData said. One way Russians can get funds to Binance has been via a low-key, Belize-registered payments firm called Advanced Cash, also known as Advcash. Binance announced a partnership with Advcash in 2019. Advcash provided “payment rails” for Russians to get into and out of crypto using the traditional finance system, said Artem Tolkachev, a lawyer who said he had advised the firm. To receive customers’ rubles, Advcash worked with local agents that held Russian bank accounts, he said. Over the following years, Binance staff raised concerns about the partnership to Binance’s management on several occasions, citing a lack of knowledge even within the company about Advcash’s operations, according to former employees and messages viewed by the Journal. Advcash’s website provides no details on its executives or ownership. An Advcash spokesman declined to provide details about its ownership, citing privacy. In response to questions about concerns expressed within Binance, he said Advcash had been open and transparent in responding to queries from Binance, showing the latter that it had strictly followed anti-money-laundering and know-your-client laws. Advcash users can use funds from ruble-denominated accounts at banks such as Rosbank and state-controlled Sberbank, which is also under sanctions, to make transfers onto its platform, website screenshots from May show. Advcash’s site links to “independent exchange providers,” which in turn can handle transfers from Russian banks to Advcash. Users can then move funds between their Advcash and Binance accounts. Sberbank didn’t respond to a request for comment. The Advcash spokesman said the firm didn’t work with any Russian banks and hadn’t used its own-ruble processing facilities since March 2022. It wasn’t responsible for “outside activities” taking place on third-party platforms, he said. Binance said it ensures that all services provided via partnerships comply with regulatory requirements.