- Seven Iranians say they used Binance for crypto after US reimposed sanctions on Iran
- Weak background checks, high liquidity attracted Iranians to Binance, traders say
- News of Iranian trading on Binance could trigger US regulatory scrutiny, lawyers say
LONDON, July 11 (Reuters) – The world’s biggest crypto exchange, Binance, continued to process trades from customers in Iran despite U.S. sanctions and a ban on the company doing business there, a Reuters investigation found.
In 2018, the United States reimposed sanctions that had been suspended three years earlier as part of Iran’s nuclear deal with major world powers. In November, Binance informed traders in Iran that it would no longer serve them, telling them to liquidate their accounts.
But in interviews with Reuters, seven traders said they had circumvented the ban. Traders said they continued to use their Binance accounts until September last year, losing access only after the exchange tightened its anti-money laundering checks a month earlier. Until now, customers could only trade by registering with an email address.
Sign up now for FREE unlimited access to Reuters.com
I am registering
“There were some alternatives, but none of them were as good as Binance,” said Asal Alizadeh, a trader in Tehran who said she used the exchange for two years until September 2021. “It didn’t need identity verification, so that everyone uses it.”
Eleven other people in Iran besides those interviewed by Reuters said on their LinkedIn profiles that they also traded crypto on Binance after the 2018 ban. None of them responded to questions.
The popularity of the stock market in Iran was known in the company. Senior officials knew and joked about the growing number of Iranian users on the exchange, according to 10 messages they sent to each other in 2019 and 2020, reported here for the first time. “IRAN BOYS,” wrote one of them in response to data showing Binance’s popularity on Instagram in Iran.
Binance did not respond to Reuters’ questions about Iran. In a March blog post published in response to Western sanctions against Russia, Binance said it “strictly follows international sanctions rules” and has assembled a “global compliance task force, including world-renowned sanctions and enforcement experts.” Binance said it uses “bank-grade tools” to prevent sanctioned individuals or organizations from using its platform.
Iran’s mission to the United Nations in New York did not respond to a request for comment.
Iran’s stock market trading could attract interest from U.S. regulators, seven lawyers and sanctions experts told Reuters.
Binance, whose holding company is based in the Cayman Islands, says it has no headquarters. It did not provide details about the entity behind its main exchange, Binance.com, which does not accept customers in the United States. Instead, US customers are directed to a separate exchange called Binance.US, which — according to a 2020 regulatory filing — is ultimately controlled by Binance founder and CEO Changpeng Zhao.
Lawyers say this structure means Binance is shielded from direct U.S. sanctions that prohibit American firms from doing business in Iran. This is because the traders in Iran used Binance’s main exchange, which is not a US company. But Binance is at risk from so-called secondary sanctions, which aim to prevent foreign firms from doing business with sanctioned individuals or help Iranians evade the US trade embargo. In addition to causing reputational damage, secondary sanctions can also stifle a company’s access to the US financial system.
Binance’s exposure will depend on whether sanctioned countries trade on the platform and whether Iranian clients avoid the US trade embargo as a result of their transactions, four lawyers said. Non-U.S. exchanges “may face consequences for facilitating sanctioned conduct where they are at risk for allowing the processing of transactions for sanctioned parties or if they involve these types of users,” said Erich Ferrari, principal attorney at Ferrari & Law Firm Associates in Washington.
Reuters found no evidence that sanctioned individuals used Binance.
Asked about traders in Iran using Binance, a spokesperson for the US Treasury Department declined to comment.
Binance maintained lax compliance checks on its users until last year, despite concerns raised by some senior figures at the company, Reuters reported in January, citing interviews with former senior officials, internal communications and correspondence with national regulators. The exchange said in response that it was raising industry standards. New reports from Reuters show for the first time how loopholes in Binance’s compliance program allowed traders in Iran to do business on the exchange.
Binance dominates the $950 billion crypto industry, offering its 120 million users a range of digital coins, derivatives and non-fungible tokens, processing hundreds of billions of dollars worth of trades per month. The stock market is becoming more and more popular. Its billionaire founder Zhao – known as CZ – expanded his reach into traditional businesses this year, pledging $500 million to Tesla chief Elon Musk’s planned acquisition of Twitter. Musk then said he was backing out of the deal. Last month, Binance hired Portuguese soccer star Cristiano Ronaldo to promote its NFT business.
“BINANCE PERSIAN”
Since the 1979 Islamic Revolution, the West and the United Nations have imposed sanctions on Iran in response to its nuclear program, along with alleged human rights abuses and support for terrorism. Iran has long maintained that its nuclear program is for peaceful purposes.
Under the 2015 deal between Iran and six world powers, Tehran curbed its nuclear program in exchange for some sanctions relief. In May 2018, President Donald Trump pulled out of the agreement and ordered the reimposition of US sanctions that had been eased under the deal. The restrictions came back into effect in August and November of that year.
Following Trump’s move, Binance added Iran to a list of what it called “sanctioned countries” in its terms of use agreement, saying it could “restrict or deny” services in such areas. In November 2018, he warned his customers in Iran via email to withdraw their crypto from their accounts “as soon as possible”.
Publicly, some Binance executives praised its compliance program. Its then chief financial officer said in a December 2018 blog that it had invested heavily in the fight against dirty money, saying it had taken a “proactive approach to detecting and cracking down on money laundering”. In March of the following year, it hired a US compliance platform to help it check for sanctions risks.
Until August 2019, Binance considered Iran – along with Cuba, Syria, North Korea and Crimea – a “HARD 5 SANCTIONED” jurisdiction where the exchange would not conduct business, according to an internal document seen by Reuters. The May 2020 document included Iran in a list of countries titled “definitely not,” citing Chief Compliance Officer Samuel Lim.
Even as Binance’s stance on Iran hardened, its profile among the country’s legions of crypto users was growing, traders said, citing their knowledge of the local industry.
Cryptocurrencies have gained traction there as sanctions have hit the economy hard. Since the birth of Bitcoin in 2008, users have been drawn to crypto’s promise of economic freedom beyond the reach of governments. Cut off from global financial services, many Iranians relied on bitcoin to do business on the Internet, users said.
“Cryptocurrency is a good way to circumvent sanctions and make good money,” said Ali, a trader who spoke on condition of being identified only by his first name. Ali said he has been using Binance for about a year. He shared with Reuters messages with Binance customer service representatives that showed the exchange closed his account last year. They said Binance was unable to serve users from Iran, citing recommendations from the UN Security Council’s sanctions lists.
Other traders on the exchange cited its lax customer background checks, as well as its easy-to-use trading platform, high liquidity and large number of tradable cryptocurrencies as reasons for its growth in Iran.
Pooria Fotoohi, who lives in Tehran and says he runs a crypto hedge fund, said he used Binance from 2017 until September last year. Binance won over the Iranians because of its “simple” know-your-customer controls, he said, noting how traders can open accounts simply by providing an email address.
“They were able to gain a huge amount of trading volume in many currency pairs in a short period of time,” Fotoohi said.
Binance Angels—volunteers who share information about the exchange around the world—also helped spread the word.
In December 2017, Angels announced the launch of a group called “Binance Persian” on the Telegram messaging app. The group is no longer active. Reuters could not determine how long he had been active, but identified at least one Iranian who was an active angel after Washington reimposed sanctions.
Mohsen Parhizkar was an angel from November 2017 to September 2020, managing the Persian group and helping its users, according to his LinkedIn profile. A person who worked with Parhizkar confirmed his role and shared the messages they exchanged. Contacted by Reuters, Parhizkar said Binance had canceled programs in Iran due to sanctions. He did not elaborate.
After the ban in 2018, at least three senior Binance officials were aware that the exchange remained popular in Iran and was being used by customers there, 10 Telegram and company chat messages between employees seen by Reuters show.
By September 2019, Tehran was among the top cities for followers on Binance’s Instagram page, ahead of New York and Istanbul, an announcement from the same month showed. The officials then ignored this. One jokingly offered to advertise Binance’s popularity in Iran, saying, “Put this on Binance US Twitter.”
In a separate exchange from April 2020, a senior official also noted that…
Add Comment