The world’s largest cryptocurrency exchange, Binancecontinued to process customer business in Iran despite US sanctions and the company’s ban on doing business in the country, according to a Reuters investigation.
In 2018, the United States reinstated sanctions that had been lifted three years earlier as part of Iran’s nuclear deal with major world powers. In November of that year, Binance informed cryptocurrency traders in Iran that it would no longer serve them and asked them to close their accounts.
But in interviews with Reuters, seven operators said they circumvented the ban. They said they continued using their Binance accounts until September of last year, only losing access after the exchange tightened its anti-money laundering checks a month earlier. Up until that point, customers could trade by just registering with an email address.
“There were some alternatives, but none of them were as good as Binance,” said Asal Alizade, a trader in Tehran who said he used the exchange for two years until September 2021. “It didn’t need identity verification, so we all did. ”
Eleven other people in Iran, in addition to those interviewed by Reuters, said on their LinkedIn profiles that they also traded cryptocurrencies on Binance after the 2018 ban. None of them responded to questions.
Binance’s popularity in Iran was known within the company. Senior officials knew and joked about the growing number of Iranian users, according to 10 messages they sent each other in 2019 and 2020. “Iran Boys,” one wrote in response. to the data showing the popularity of Binance in Iran.
The company did not comment on the matter. In March, in response to Western sanctions on Russia, Binance said it “strictly follows international sanctions rules” and has set up a “global compliance task force.” The company said it used “bank-grade tools” to prevent sanctioned persons or entities from using its platform.
Binance, whose holding company is based in the Cayman Islands, says it does not have a single headquarters. The company does not provide details on the entity behind its main exchange, Binance.com, which does not accept clients in the United States. Instead, North American clients are directed to a separate exchange called Binance.US, which – according to a 2020 regulatory filing – is controlled by Binance founder and chief executive Changpeng Zhao.
Lawyers say this structure means Binance is protected from direct U.S. sanctions that ban U.S. companies from doing business in Iran.
This is because traders in Iran used Binance’s main exchange, which is not a US company. But Binance runs the risk of so-called secondary sanctions, which are aimed at preventing foreign companies from doing business with sanctioned entities or helping Iranians escape the US trade embargo. In addition to causing reputational damage, secondary sanctions can also prevent a company from accessing the US financial system.
Binance’s exposure depends on trading on the platform between sanctioned parties and whether Iranian clients have evaded the trade embargo as a result of their transactions, four lawyers said.
Asked about cryptocurrency traders in Iran who used Binance, a US Treasury spokesperson declined to comment.
Binance dominates the cryptocurrency industry, offering its 120 million users a variety of digital currencies, derivatives and non-fungible tokens. The company processes transactions worth hundreds of billions of dollars a month.
The founder, billionaire Zhao – known as CZ – this year extended his reach into traditional businesses, pledging $500 million for Elon Musk’s takeover of Twitter. Last month, Binance hired football star Cristiano Ronaldo to promote its NFT business.
Under the 2015 deal between Iran and six world powers, Tehran curbed its nuclear program in exchange for an easing of some of the sanctions. In May 2018, then US President Donald Trump abandoned the agreement and ordered the re-imposition of sanctions. The restrictions took effect again in August and November of that year.
In August 2019, Binance deemed Iran — along with Cuba, Syria, North Korea and Crimea — a “Hard 5 Sanctioned” jurisdiction where the company would not do business, according to an internal document seen by Reuters. The May 2020 document included Iran in a list of countries titled “strictly no,” citing compliance director Samuel Lim.
Even as Binance’s stance on Iran strengthened, its profile among the country’s legions of cryptocurrency users was growing, traders said.
Cryptocurrencies became attractive there as the sanctions had a big impact on the economy. Since the birth of bitcoin in 2008, users have been lured by the cryptocurrency’s promise of economic freedom from the reach of governments. Isolated from global financial services, many Iranians have relied on bitcoin to do business on the internet, users said.
“Cryptocurrency is a good way to get around sanctions and make good money,” said Ali, a trader who spoke on the condition that he be identified only by his first name. Ali said he used 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 service users from Iran, citing recommendations from the United Nations Security Council sanctions lists.
Other traders cited its weak client background checks, as well as its easy-to-use trading platform, high liquidity and a high number of cryptocurrencies that could be traded as reasons for the company’s 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” controls, he said, citing the fact that traders could open accounts simply by providing an email address.
Binance’s Angels – volunteers who share information about the exchange around the world – also helped to promote the company in the country.
In December 2017, Angels announced the launch of a group called “Binance Persa” on the messaging app Telegram. The group is no longer active. Reuters could not determine how long the group existed, but it identified at least one Iranian who was an active angel after Washington reimposed sanctions.
After the 2018 ban, at least three high-ranking Binance employees were aware that the exchange remained popular in Iran and was used by customers there, according to Telegram accounts and company chat messages among employees. that were seen by Reuters.
A 2020 Binance compliance document seen by Reuters gave Iran the highest risk rating of all countries for illegal finance.
“A Beginner’s Guide to VPNs”
Binance’s growth in Iran, operators said, was due to the ease with which users were able to circumvent sanctions through virtual private networks (VPNs) and tools to hide IP addresses.
Mehdi Qaderi, who works in business development, said he used a VPN to trade about $4,000 worth of cryptocurrencies on Binance in the year to August 2021. “All the Iranians were using it,” Qaderi said of Binance.
In a 2021 guide to how sanctions apply to cryptocurrency companies, the United States Treasury said that sophisticated analytical tools existed that could detect IP address obfuscation. Industry companies can also collect information to alert them about users in a sanctioned country, he said, such as email addresses. Binance itself has supported the use of VPNs.
Zhao tweeted in June 2019 that VPNs were “a necessity, not optional”. He deleted the comment at the end of 2020. In July of the following year, Binance published a “A Beginner’s Guide to VPNs” on its website. One of his tips: “You can use a VPN to access blocked sites in your country.”
Zhao was aware of cryptocurrency users evading Binance controls in general. He said in November 2020 that “users find smart ways to get around our block sometimes and we just need to be smarter about the way we block”.
Source: CNN Brasil
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