Texts from crypto giant Binance reveal plan to elude US authorities
Exchange was intertwined with American firm portrayed as independent. Now, regulators are circling.

Although it operated largely from hubs in China, Japan and Japan, a fifth of its customers were located in the U.S. where authorities warned about a crackdown on unregulated offshore cryptocurrency players. A lawsuit by U.S. regulators could be like "nuclear fallout" for Binance's company and its officers, according to a Binance executive in a private chat.
Binance was worried about being charged and began to plan for a counter-attack. This is according to documents and messages from 2018 to 2020 that were reviewed by The Wall Street Journal, as well as interviews with former employees.
The strategy was to create Binance.US, an American platform that would license Binance.com's technology and brand, but appear completely independent from Binance.com. It would protect the Binance.com exchange from U.S. regulators, which would make it unusable for U.S. users.
But Binance and Binance.US have been much more intertwined than the companies have disclosed, mixing staff and finances and sharing an affiliated entity that bought and sold cryptocurrencies, according to the interviews and the messages and documents reviewed by the Journal. Binance developers in China maintained the software code supporting Binance.US users' digital wallets, potentially giving Binance access to U.S. customer data.
If U.S. regulators conclude that these links mean Binance has control over a U.S. company, they could claim the power to police Binance's entire business, which, to many investors, has been a black box since the start. This would also put Binance's billionaire founder and chief executive, Changpeng Zhao, and his finances under closer scrutiny. Recently, a Texas financial regulator said in a court filing that Binance.US didn't get a license to operate in the state because it wouldn't provide financial information from its largest shareholder, Mr. Zhao.
The Securities and Exchange Commission and the Justice Department have been probing the relationship of Binance, which lists no headquarters, to Binance.US at least since 2020, according to subpoenas and people familiar with the matter. The Justice Department and the SEC declined to comment.
A bipartisan group composed of senators asked Binance to respond to a series questions. They claimed that Binance had 'hidden financial information from customers and the general public'. Binance has also been subject to scrutiny from other countries where it was accused of operating in violation of a license.
Binance is by far the largest cryptocurrency platform standing after the collapse last year of others such as FTX left the digital-currency world reeling. The swift collapse of FTX changed the calculus for U.S. regulators, who now are engaged in an intensive effort to rein in the $1 trillion crypto sector. Binance's ability to navigate the industry turmoil and deal with regulators in the U.S. is a test case for the future of crypto.
Patrick Hillmann, Binance's chief strategy officer, said last month that the exchange expects to pay monetary penalties to settle existing U.S. regulatory and law-enforcement investigations of its business.
A Binance spokeswoman said, 'We acknowledge that we did not have adequate compliance and controls in place during those early years. We are a very different company today when it comes to compliance."
A spokeswoman for Binance.US said, 'Binance.US was founded specifically to serve U.S. customers with products and services that adhere to U.S. rules and regulations."
Binance's close involvement with Binance.US was on display in September 2019 when a Binance staffer in Shanghai turned on trading for the U.S. platform a few minutes before it was meant to launch, resulting in an exchange in a Binance chat group on the messaging app Telegram:
Ninj0r [a Binance software developer]: Why did trading start???? It's not time yet!!! Who started trading? We had the trading timers set? Who started trading?
Other messages followed, including another urgent one from Ninj0r: someone started TRADING EARLY. Who did it? At 8:56:09.822 someone manually started trading. Who? Why?
Eventually, the company founder and chief executive answered.
Changpeng Zhao: a guy here in Shanghai, mistake operation.
Developers in Shanghai maintained key software functions at Binance.US at least through the summer of 2021, the Journal has reported. The Shanghai developers' contracts were with Binance, not with the U.S. platform, according to a person familiar with the agreements.
The spokeswomen for Binance and Binance.US said the companies' relationship is governed by licensing agreements, including for Binance's technology. The Binance.US spokeswoman said that U.S. customer data is stored in the U.S. and that it and Binance never commingled user data.
The SEC has also been examining the relationship between Binance.US and two trading firms with ties to Mr. Zhao, Merit Peak Ltd. and Sigma Chain AG, the Journal has reported.
At the collapsed FTX platform, an improper relationship between the exchange and an affiliated trading firm, Alameda Research, led to the loss of billions of dollars of customer money, prosecutors have said. The Binance.US spokeswoman said that in contrast to FTX, 'Binance.US has never—and will never—trade nor lend out customer funds."
She said Merit Peak stopped all activity on Binance.US in 2021. She declined to comment on Sigma Chain.
In Binance's first two years of operation, 2017 and 2018, the exchange expanded rapidly, unencumbered by government regulation. Customers accessed Binance.com from anywhere in the world and weren't subject to the know-your-customer checks that banks and brokerage firms must conduct in most places.
Binance executives feared that if they took no precautions to anticipate regulatory scrutiny, the business could be exposed to lawsuits from U.S. regulators, private chats reviewed by the Journal show.
In late 2018, Harry Zhou, an employee of a Binance-financed bitcoin trading company, circulated a proposal to Binance executives to set up an American business that would attract U.S. enforcement and regulatory-agency inquiries, protecting Binance itself from their attention, according to a presentation seen by the Journal.
The plan, which was titled "Insulate Binance From US Enforcement", called for Binance's to have a "purely contractual" relationship. This would mean that Binance would be treated as an independent operation with its own management.
The presentation also included a section titled "Regulator Engagement Plans". It recommended that Binance engage in major PR efforts to demonstrate the US operation's willingness and ability to exceed SEC expectations. Forbes and Reuters previously published details of the plan.
The Binance spokeswoman said the presentation was rejected and never implemented.
In February 2019, Mr. Zhou incorporated a Delaware company, BAM Trading Services Inc., which soon became the operator of a business called Binance.US. Binance's chief financial officer at the time, Wei Zhou, told employees in the Telegram chat that BAM Trading Services Inc. had been formed, along with firms called BAM Management US Holdings Inc. and BAM Technology Services Inc.
Binance.US was established in June 2012 by BAM Trading and Binance. This company would license Binance’s technology. Binance.US was registered as a money-services company with the U.S Treasury's Financial Crimes Enforcement Network.
Binance did not disclose that Mr. Zhao, its founder and chief executive at the time, was in control of the BAM companies through a layer incorporated in the Cayman Islands or British Virgin Islands. According to the Journal documents, this information was not disclosed.
The Binance spokeswoman did not respond to requests for Mr. Zhao's comment. Wei Zhou and Harry Zhou did not respond to requests for comments.
Binance.US will only offer basic cryptocurrency trading without leverage or complex derivatives. Traders of derivatives in the United States must register with the Commodity Futures Trading Commission (or the SEC).
Binance said it would no longer accept U.S. customers to its platform. Binance officials discussed internally how Binance could continue to accept U.S. customers on its larger exchange. They could trade crypto derivatives as well, which is a popular and lucrative business.
An employee of Binance noted that 18% of Binance.com page views were from U.S. users in a Telegram chat. Samuel Lim, then Binance's compliance chief and the one who mentioned 'nuclear falls out' from any U.S. regulatory suit, suggested ways Binance could keep the largest U.S. customers, despite the pledge not to allow Americans to trade on the global platform.
He said this in Telegram chat on June 2019. VPN (virtual private network) allows computer users to appear to be in another country.
A part of Binance called Binance Academy that teaches users how to trade published a guide to using a VPN in 2020. It has since been deleted.
Mr. Lim also discussed internally whether U.S. customers had offshore entities they could use to access Binance.
Requests for comment were not answered by Mr. Lim.
Binance.US's first chief executive, Catherine Coley, said in a podcast shortly after trading began that 'we are a very separate entity" from Binance. 'We are simply licensing software."
Three months later, she told the staff in a separate, Binance.US Telegram chat to send progress updates for her to forward to Binance's then-CFO Wei Zhou and to CEO Mr. Zhao, who is known as CZ.
"Everyone, please send your weeklies by tonight at 7:45 pm est/4:45 pst to Wei so that we can all be in Wei's good graces. Saturday will be for Weekly Updates! Ms. Coley asked for 2-5 bullet points that outline what CZ/Wei should have about your work from the past week.
Ms. Coley's lawyer, who left in spring 2021 didn't comment.
One employee attempted to create a Google Form to serve new Binance.US customers. However, he was using a global account and couldn't change the creator of the form to Binance.US.
That 'will surely be seized upon by media and can be cited as direct evidence for corporate veil piercing in an adversarial judiciary proceeding," Harry Zhou wrote on the Binance Telegram chat.
He wrote, "It is especially concerning here because the form has to do opening client accounts." "If I were an AG, this would be evidence that Binance is a foreign-based [money service business] not registered and onboarding US clients."
Harry Zhou also reminded employees to avoid writing in the tone of Binance when drafting copy for the Binance.US website. 'Great feedback! Sit in ‘Binance.US' shoes when drafting," responded Binance's then-CFO, Wei Zhou.
Employees looked for ways to get close to the U.S. regulators. In mid-2019 Gin Chao, then Binance's chief strategy officer, learned that a high-school friend, Sigal Mandelker, oversaw the U.S. Treasury's Office of Foreign Assets Control. He flagged this in a chat group and noted that he might bump into her at a school reunion that fall.
Binance officials debated whether they should drop by Ms. Mandelker's conference, before Mr. Chao decided to message her on LinkedIn. In late 2019, Ms. Mandelker resigned from the Treasury. Chat messages did not mention whether any Binance executives had ever spoken to Ms. Mandelker. According to someone who knows Ms. Mandelker's story, they didn't.
In 2018 and 2019, Binance staff approached Gary Gensler, then a former Commodity Futures Trading Commission chair and now SEC chair, to become an adviser. Mr. Gensler, then teaching at Massachusetts Institute of Technology, was 'likely back in a regulators seat if Dems win the 2020 election," a Binance employee told colleagues on a chat.
Ella Zhang, then head of Binance's venture investing arm, and Harry Zhou met with Mr. Gensler in October 2018, according to the chat. Mr. Zhou wrote: 'I observe that while Gensler declined advisor-ship, he was generous in sharing license strategies."
While teaching at MIT from 2018 to 2021, Mr. Gensler was approached by multiple private firms including Binance to be an adviser, which he declined to do, said a person close to him. Mr. Gensler met with Binance's founder in March 2019 in Tokyo, the person said, and interviewed him over video during the following summer for a cryptocurrency course at MIT. Mr. Gensler became SEC chair in April 2021.
Some messages in Binance.US Telegram chat suggested Binance had oversaw at most a portion of their budget.
In January 2020, staffs of Binance.US and Binance mingled at a retreat at a South Korean ski resort. Ahead of the trip, Binance.US's then-CEO Ms. Coley told her employees to think about 'your shackles (items of your job that require SH answers, access, approval, funding)." SH refers to Shanghai, said a person familiar with the message.
—Vicky Ge Huang and Paul Kiernan contributed to this article.
Write to Caitlin Ostroff at EMAIL and Patricia Kowsmann at EMAIL