How Binance Is Trying to Outwit EU Regulators and Break into the UK Market

After retreating from Malta and failing to launch in the UK, Binance has set up a lucrative payments business in Lithuania Now senior executives of the firm are accused of fraud.

After fleeing China in anticipation of impending cryptocurrency regulations, Binance embarked on a quest to find a new home.

Initially exploring possibilities in Malta, their search proved fruitless. Next, London seemed promising, but a setback ensued when they were denied a local license to handle crypto assets, forcing them to move on once more.

The journey to find a European base proved arduous, but eventually, they found a welcoming host in Lithuania.

Settling in Lithuania

Not only did this country offer access to the European Union market, but it also served as an ideal platform for the massive crypto exchange to establish a subsidiary and manage billions of dollars.

Binance’sentry into the Baltic state has proven to be a mutually beneficial move for both parties.

According to data from the local tax office, Binance’s subsidiary, Bifinity, established in Lithuania last year, has emerged as the second-largest corporate taxpayer, contributing a substantial $44 million to the state treasury.

Moreover, the subsidiary has efficiently processed cryptocurrency transactions amounting to nearly $7 billion.

Facing allegations and lawsuits

Since the firm was located outside the reach of a major financial center, it was also used to carry out some dubious transactions.

So, Bifinity transferred $6.3 billion to Merit Peak, another subsidiary based in the British Virgin Islands, which, according to the US Securities and Exchange Commission (SEC), mixed customer deposits with the company’s own funds.

Binance calls these allegations “simply wrong.” Other money went to purchase a private jet for $55 million, while $62.5 million was sent to CEO Changpeng Zhao’s personal bank account.

If this company is solidly on its feet, why couldn’t everything be routed through other places? asks Anil Kashyap, lecturer at the University of Chicago and adviser to the European Central Bank. But they decided to do it where the standards are simpler, and – just think! – in the casino, it turns out, they gamble, adds the expert.

Furthermore, according to our findings at MarketsXplora, Bifinity played a crucial role in Binance’s ambitious endeavor to navigate the regulatory review process in the UK.

Zhao’s primary objective was to secure the platform’s legal status in the esteemed global financial center.

Despite the company’s acquisition of a Nasdaq-traded entity with a British crypto asset license, these efforts ultimately did not yield the desired results.

In a previously unreported class action lawsuit, Bifinity, Zhao and his senior executives are accused of making “substantially false” declarations that artificially inflated the company’s share price on the stock exchange.

Simon Matthews, director of public relations for Europe at Binance, told MarketsXplora that in terms of the lawsuit, the company “intends to defend its own position stubbornly.”

Responding to questions about the transfer of money to Zhao’s bank account, allegations of mixing user funds and buying a private jet, Matthews denied any misuse of capital, noting that “the auditors made unqualified opinions on financial documents for 2021 and 2022.”

According to the manager, Bifinity operates “openly and transparently” and is also “responsible for relationships with third-party regulated payment providers and banks.”

Now Binance has to deal with a bunch of problems in Europe and around the world, so many payment operators like Paysafe (which served Bifinity bank transfers in euros) refuse to cooperate with the crypto exchange.

In France, Binance is currently facing investigations for alleged fraud and money laundering, while the US SEC has leveled multiple charges of large-scale fraud against the company and its founder.

Related: ASIC Raids Binance Australia Offices

Among these charges, the US regulator alleges that Binance misused customer funds by transferring them to a commercial organization owned by Zhao.

Despite these allegations, Binance’s representatives have asserted their determination to “resolutely defend our platform.”

Due to such turmoil, Binance’s dependence on business in Lithuania only intensified.

Initially, the company was founded in 2020 under the name Binance UAB, and local authorities were skeptical about the idea: in July 2021, the Central Bank of Lithuania sent a warning to the company, stating that it provides “unlicensed investment services.”

However, Binance found a loophole and registered the organization in the state register of enterprises as a virtual currency exchange – this does not require a license from the central bank if the firm does not hold client funds.

A spokesman for the Bank of Lithuania told MarketsXplora that Bifinity is “not controlled or licensed” by the agency.

Binance spokesperson Matthews said that the company “does not need to obtain a license from the Bank of Lithuania, since Bifinity does not store or manage customer funds, nor is it issuing electronic money.”

While the Lithuanian division predominantly handled users’ credit card transactions, it also became a key element in Binance’s quest to gain a foothold in the UK.

Previous attempts by the exchange to obtain a British license to deal with cryptocurrencies have failed.

Hai’s involvement and the failed partnership

According to many former Binance employees, an executive named Helen Hai, a Chinese-born British citizen and wife of Daming Zhu, an early exchange investor and good friend of Zhao, was in charge at the time.

At Binance, MarketsXplora’ request to talk to Hai went unheeded.

Hai joined Binance in 2018 to lead philanthropy and has since become the company’s face when it comes to making a good impression with regulators around the world.

She is one of several women who have climbed the organization’s career ladder above the rest, along with Guangying Chen (an unofficial CFO in a recent MarketsXplora investigation) and Binance co-founder He Yi, who raises children with Zhao.

In March 2022, a Lithuanian firm called Bifinity was relaunched, with Hai taking over as president. As stated in the grandiose press release, which calls the revamped venture “Binance’s official fiat-to-crypto payment operator,” the company’s goal is to “accelerate the mainstream adoption of cryptocurrencies.”

The PR also stated that Bifinity bought out Nasdaq-listed firm Eqonex, which owns UK-licensed crypto asset manager Digivault.

We are starting this partnership with great joy and enthusiasm,” Hai said.

Jonathan Farnell, then CEO of Bifinity and head of Binance UK, was appointed CEO of Eqonex .

Judging by the statements in the class action filings, given the repeated attempts to appease the British regulators, the crypto exchange planned to use Eqonex to pass all the checks with the Digivault license to dispose of digital assets in the UK.

It came down to Binance being a red organization and Eqonex being clean and green, explains one person with knowledge of the matter.

But soon the partnership deal fell through, provoking the bankruptcy of Eqonex and delisting from Nasdaq.

In May, the firm’s investors sued Bifinity, Hai, Farnell, Zhao, and two other Binance executives in the Southern District of New York for alleged fraud.

According to the plaintiffs, Bifinity did not even intend to develop Eqonex’s core exchange business in Singapore, although it accounted for 80% of the firm’s total revenue a year earlier.

Despite promises to “use” the technology, a few months after the partnership was announced, the new owner closed the site and laid off hundreds of Eqonex employees.

The defendants have not yet responded to the complaint.

Hui’s earlier attempts to obtain a UK license for Binance also turned into fraud allegations. In 2019, the woman entered into an agreement with South African businessman Simon Dingle to set up a UK-based entity, Binance Digital Limited, which was then authorized to operate under the UK’s temporary registration program for crypto assets.

Zhao owned 80% of the organization, while Dingle’s company Dimplex owned the remaining 20%.

One person with knowledge of the matter believes that Dingle was “willing to take on some of the risk of Binance, obviously for a certain amount in the future.”

But in corporate filings last September, Dimplex accused the crypto exchange of filing “flagrantly inaccurate” financial returns for 2020, allegedly for fraudulent purposes.

A former Binance executive told MarketsXplora that Dingle’s business “didn’t get a penny” from that arrangement.

One person familiar with the case claims that the proceedings continue to this day. Dingle did not respond to a request for comment. Matthews, a spokesman for Binance, told MarketsXplora that the company is “unable to respond in detail” to the allegations.

Binance’s determination for a UK license

The crypto exchange still has a lot of other problems to deal with, and in recent months it has withdrawn or been forced out of the market in five European countries.

But Zhao is not parting with the idea of ​​acquiring a corporate base in the British capital.

In May, after the U.S. Commodity Futures Trading Commission (CFTC) sued Binance for illegally operating a crypto derivatives exchange.

Patrick Hillmann, then director of strategic development at the company, said at a specialized conference in London, that Binance will do “everything in our power” for approval from the British regulatory authorities. In particular, he added:

I believe that at some stage the United States will want to change the vector of movement and catch up with Europe.

Hillmann left the organization this month, citing a desire to spend more time with his family.

Three weeks later, the crypto exchange officially closed its last UK subsidiary, Binance Markets Limited.

According to the press service, the decision will in no way “affect Binance’s future plans for the UK”, and the company itself is still “strongly aimed at registering” in the country.