"Financial Colonoscopy" Incoming For Former Binance Users

Illicit crypto users' worst nightmare could be about to become reality as Binance gives up years of data.

Are Binance users about to get more than they bargained for?

Early Binance users might be in line for a nasty shock, as the exchange finalizes its deal with US authorities over various violations of US KYC laws, which enabled criminals to avoid tax, launder money, and pay for illegal goods and services.

Shortcuts To Growth

Founded in July 2017, Binance rapidly grew to become the largest crypto exchange in the world, thanks in part to its lax approach to KYC. In its early years, users were only required to provide an email address to open an account. This appears to have been a calculated move, with core team members recognizing that placing a greater burden on users would limit growth.

The strategy caught up with the exchange last month, as the US DOJ imposed a $4 billion settlement on Binance. CEO and founder Changpeng "CZ" Zhao stepped down, and now faces criminal charges. However, it doesn't end there. As explored by Wired in an in-depth article, the terms of the settlement could have serious implications for former Binance users.

Old Transactions Under Scrutiny

The deal requires that Binance look back through all transactions made between 2018 and 2022, searching for anything that might be linked to criminal activity. They will have to file a Suspicious Activity Report (SAR) for each event, which will be passed on to FinCEN (the US Treasury Department financial crimes outfit), and from there to appropriate law enforcement agencies. Binance's compliance with the so-called SAR lookback will be ensured by an in-house team that will monitor them.

This is bad news for any early Binance customers who used the exchange because they believed it would allow them to engage in criminal activity undetected. All of their transactions will now be scrutinized and subject to law enforcement, if applicable.

While users may not have given up personal information (such as id documentation, bank account numbers, and so on), they are definitely not safe. The public and transparent nature of the blockchain, along with the sophisticated tracking and analysis software now used by the authorities, means that it will be possible to link their transactions to other accounts, exchanges, services, and suspicious transfers. In many cases, there will be enough information to give away their identity.

Former SEC enforcer John Reed Stark (an outspoken critic of crypto and Binance), calls the level of access unprecedented, describing Binance's agreement as a "24/7, 365-days-a-year financial colonoscopy."

"The stark reality is that neither Binance nor any other mega-crypto firm (or any financial firm in the world for that matter) has ever been party to a DOJ/FinCEN plea agreement as vigorous, forceful and all-inclusive as the one Binance has agreed to pay for." Binance's collapse is, he believes, inevitable.

That might be going too far, but a lot of criminals who used the exchange years ago are now going to be rethinking their future plans.


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