Binance, one of the most important cryptocurrency exchanges in the world, could be facing an investigation by both the United States Justice Department (DOJ) and Internal Revenue Service (IRS) according to Bloomberg.
The investigation would be the result of the US efforts to stop illegal activities that have found a way to take advantage of the decentralized and private nature of the cryptocurrency market, which despite certain legislations and controls remains highly unregulated.
According to Bloomberg sources, officials from both governmental agencies have been looking into information from individuals who might have insight into the way Binance handles its business, which could lead to important findings regarding money laundering and tax evasion.
According to a report by blockchain forensics company, Chainalysis concluded that Binance was a specially attractive platform for criminals looking to use crypto exchanges to manage their funds.
Jessica Jung, Binance spokeswoman, referred to the report by stating:
“We take our legal obligations very seriously and engage with regulators and law enforcement in a collaborative fashion. We have worked hard to build a robust compliance program that incorporates anti-money laundering principles and tools used by financial institutions to detect and address suspicious activity. ”
The scope of the investigation is still unknown as no allegations of wrongdoing were done in all of the inquiries, but seem to include not only the exchange’s user base but also its employees.
Cryptocurrency and Money Laundering Are Not Such a Perfect Match
While cryptocurrencies have been widely stigmatized by governments, regulatory entities, and critics as an easy way for criminals to make use of their illegal money, a report by Chainalysis found that criminal activity only represented about 2.1% of all cryptocurrency transaction volume.
The same report also shows that in 2020, the criminal share of all cryptocurrency transaction volume was even lower, falling to 0.34%. While this could be due to an increase in legitimate uses of crypto, the estimated value of the activity more than halved.
Forbes determined that when comparing the percentage of money laundering and illegal activities that are making use of cryptocurrency to move their money, the use of cryptocurrency is much smaller than the use of Fiat currency, which has been used by criminals for centuries.
Experts weighted in this debate back in January of 2021 when the newly appointed secretary of the treasury, Janet Yellen, said that cryptocurrencies are used “mainly for illicit financing.”
Jake Chervinsky, General Counsel at Compound Labs, told Forbes:
“It’s disappointing to hear Dr. Yellen repeat the mistaken view that crypto is mainly used for illicit activities. Her statement is demonstrably false . . .That said, it’s important to remember that crypto is a relatively small issue compared to everything else the Treasury Department is responsible for, so she likely hasn’t spent time deeply considering it yet.”
The Investigation Might Have Negatively Impacted the Market
According to CoinGecko data, the market capitalization dropped by about $70 Million around the time of the announcement, only to stabilize again soon after. While the drop was minimal when compared to the drop of more than 290% experienced between May 12th and May 13th, the move seems reflective of the report.
Binance Coin (BNB) also experience a similar drop when it saw its value decrease from $607 to $546 in about an hour. In the case of the cryptocurrency, the value also started a correction that saw its value return to $580 by the end of the day.
Changpeng Zhao, Founder, and CEO of Binance, referred to Bloomberg’s article by Tweeting:
“The “news” title is bad. The article itself isn’t so bad actually (but who reads). It described how @binance collaborated with law enforcement agencies to fight bad players but somehow made it look like a bad thing… Anyways. Back to work.”
The move by the IRS and DOJ is not new, however, as the entities have also moved in the past to investigate exchanges like Kraken and Coinbase, openly requesting permission to submit “John Doe” summons that would grant them access to user data.
With cryptocurrency regulation becoming a major concern by governments around the world, the eyes of cryptocurrency advocates are set in the development of similar events as they are sure to decide how the use of cryptocurrency develops in the future.
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