Binance Had Secret Access to Silvergate Bank Account of US Partner, Moved $400M in 2021

Binance, the largest crypto exchange by volume, is facing increased scrutiny over a secret channel it used to transfer funds. Over a few months, more than $400 million from Binance.US was shifted between accounts controlled by CEO Changpeng Zhao.

The cryptocurrency industry is often associated with secrecy and anonymity, and the movement of money by crypto firms is no exception.

While traditional financial institutions have to follow strict regulations and reporting requirements, the decentralized nature of cryptocurrencies and their lack of a central authority makes it easier for crypto companies to keep their financial dealings under wraps. 

Crypto Institutions Engaging in Questionable Practices

One of the primary reasons why crypto firms engage in secretive money movements is to avoid regulation. Since cryptocurrencies are not recognized as legal tender in many countries and their regulatory frameworks are still being developed, companies often prefer to keep their financial dealings away from the prying eyes of authorities. This allows them to avoid compliance costs and restrictions, giving them more flexibility to operate in a rapidly evolving industry. 

Another reason for the secrecy is to prevent competitors from gaining an advantage. The crypto industry is highly competitive, with many players vying for market share. Companies often use opaque financial practices to keep their strategies and positions hidden from rivals, preventing them from gaining a foothold or using the information to their advantage. 

Furthermore, crypto companies also engage in secret money movements to avoid public scrutiny. Many cryptocurrency businesses operate in a legal grey area, and their activities can be controversial. They may be involved in activities that some consider unethical or illegal, such as money laundering or terrorist financing. By keeping their financial dealings private, these companies can skirt negative publicity and potential legal action. 

Secretive Movements

Despite the benefits, secretive money movements by crypto firms also have significant downsides. They can undermine transparency and accountability, making it easier for regulators and other stakeholders to monitor and assess the risks associated with the industry. Moreover, they can increase the potential for fraud and other criminal activities, harming consumers and damaging the industry’s reputation. 

At present, in-trouble crypto exchange, Binance is facing regulatory heat. It is alleged that Binance transferred $400 million from its Binance.US account to a company reportedly tied to CEO Changpeng Zhao.

Even the former chief executive officer at Binance.US was left in the dark about the concerned outflows. This has caused concern and scrutiny in the cryptocurrency community.

According to a Feb. 16 Reuters report, an investigation of Binance’s banking records and company messages showed that more than $400 million was sent in a series of transactions in 2021 from an account controlled by Binance.US to trading firm Merit Peak. 

“Over the first three months of 2021, more than $400 million flowed from the Binance.US account at California-based Silvergate Bank to this trading firm, Merit Peak Ltd, according to records for the quarter, which were reviewed by Reuters.”

Silvergate, a massive crypto-friendly bank, has recently come under regulatory eyes, given its links to collapsed crypto exchange FTX.

This uncertainty and distrust have taken a toll on its stock price, which is currently sitting at long-term lows under $20 per share.

Silvergate Capital Corporation (SI) Stock Price | Source: TradingView

George Soros’ fund even bought put options (shorts) on 100,000 shares of Silvergate, worth $1.74 million as of Dec. 31, according to a 13F filing

Conflicting Concept of Transparency

In February last year, the United States Securities and Exchange Commission (SEC) launched a probe into potential connections between Binance.US and two specific trading firms—Sigma and Merit. The transfer has raised further questions about Binance’s transparency and commitment to comply with regulatory requirements. 

Interestingly, the report dropped amid Binance publishing a blog post titled “Building Trust in the Crypto Ecosystem,” in which the exchange says customer assets “should only be used in the ways that the customers have explicitly authorized.”

BeInCrypto reached out to the team at Binance for comment on the issue. However, the team replied by stating: 

“We don’t have comments on that.” 

Furthermore, ‘This is a Binance.US issue; they are a separate and independent entity from You can relay your request for comments/questions to them.’ the Binance spokesperson told BeInCrypto.

Following this, the team at the U.S. branch shared a screenshot with BeInCrypto that reads as follows:

Screenshot shared by Binance.US

Reminiscent of the FTX Collapse

The narrative of shuffling funds between entities and accounts echoes concerns about what happened with FTX. The now-bankrupt exchange was involved in shifting and interchanging funds across accounts managed by a single entity. 

This begs the question about regulation and the SEC’s clampdown on crypto exchanges. Many criticize the SEC for being slow to regulate the cryptocurrency industry, but it has recently stepped up its enforcement actions.

Several regulations exist today to prevent underground money movements in the cryptocurrency industry. One of the most significant is the Bank Secrecy Act (BSA), which requires financial institutions, including cryptocurrency exchanges, to report suspicious activities to the Financial Crimes Enforcement Network (FinCEN). This includes large transactions, unusual patterns of transactions, and transactions involving individuals or entities with known criminal or terrorist ties. 

In addition to the BSA, the SEC has recently taken action against cryptocurrency exchanges that violate securities laws. This includes offering unregistered securities or engaging in fraudulent activities. For example, the SEC is currently embroiled in a lawsuit against Ripple, the company behind the XRP cryptocurrency, for allegedly selling unregistered securities. The SEC has also charged the founder of the BitConnect cryptocurrency platform with fraud.

It’s worth noting that cryptocurrency firms are not necessarily doing anything traditional financial firms cannot do. However, the nature of cryptocurrency transactions and the anonymity of the participants can make it easier to engage in illicit activities. This is why BSA regulations are crucial in preventing money laundering and other illegal activities in the cryptocurrency industry.


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