What Does the Binance Crypto Exchange Investigation Mean for Crypto Traders?

By Michael B. Cohen

Vice President of Global Operations

Pakistani authorities are currently investigating allegations that users of Binance, one of the world’s largest cryptocurrency exchanges, were made to transfer a total of $100 million to strange crypto wallets. The Federal Investigation Agency (FIA) of Pakistan is looking into the matter and will determine whether fraud was perpetrated by those using the exchange or if Binance was directly involved in a cryptocurrency scam. 

Binance is not the only cryptocurrency exchange that is currently under investigation as customers increasingly become victims of illegal cryptocurrency schemes. However, Binance is the world’s largest and most popular cryptocurrency exchange. It should be noted that, although Binance’s site and platform may look professional, it is not universally regulated and received a warning from the FCA, the Financial Conduct Authority of the United Kingdom, to cease its operations with UK clients.

Presumably, Binance users did not know about the crypto exchange’s regulatory problems or, if they did, they did not feel it was important. For this reason, it is important to do research before buying or trading cryptocurrency.  MyChargeBack experts deal with many victims of cryptocurrency schemes who were not aware that the crypto exchange they were using was not appropriately licensed.  

MyChargeBack also assists victims of cryptocurrency schemes to track down their funds on the blockchain. We offer a variety of services, including consultation, case analysis and we also create intelligence reports that will give law enforcement and crypto exchanges the full picture and will help them pursue your case. 

The Binance Investigation

Pakistan’s FIA received numerous complaints from Binance users that their money was being transferred to third-party wallets. They questioned Hamza Khan, the general manager and growth analyst of Binance in Pakistan, and asked him if he could explain any connection the exchange might have had with “fraudulent investment mobile applications” that were allegedly defrauding customers. The investigators also identified 11 fraudulent apps used on the exchange. Most of them showed apparently random numbers and letters, such as HFC and BB001, rather than names. According to customer testimony, they were encouraged to follow these entities on the social media platform Telegram, where they were offered “expert betting signals” in exchange for money. Each of these channels hosted at least 5,000 people. 

Binance executives released a statement on Twitter that it is working with the authorities. Binance said that while it would not comment on this specific case, it was “a matter of general policy” to cooperate with investigations “whenever possible,” adding “Binance tries to work closely with law enforcement.” 

This may be genuine, or it may be a fig leaf, but since Binance has a history of skirting the law and regulations, the statement is highly suspect. Even though Binance may seem to do and say the right thing under these circumstances, there were numerous problems with Binance before the problem in Pakistan arose. 

The Problem with Binance 

Researching crypto exchanges and brokers is essential before committing any funds. No one would trust their valuable possessions to people they don’t know, and the same is true of hard-earned cash. Therefore, it is important to look at Binance’s background to put the present issue in context.

Binance is currently the largest cryptocurrency exchange in terms of the number of daily transactions. It was founded in 2017 and was headquartered in China. It was started by Changpeng Zhao who also created high-frequency trading systems. However, when China cracked down on cryptocurrency exchanges, it moved its headquarters to the Cayman Islands, which has notoriously lenient regulations. 

Binance surged in popularity but also faced many scandals which, presumably, many of its customers were unaware of. The crypto exchange rose to prominence in 2018 only to be called into question when it claimed it was located in and regulated by Maltese authorities, and these organizations released a statement refuting Binance’s false claims of licensing. 

Financial authorities in Thailand filed a complaint against Binance for operating without a license and other financial offenses. 

In 2021, Binance was investigated by the Internal Revenue Service (IRS) and the U.S. Department of Justice for tax offenses and money laundering. Also in 2021, as noted above, the Financial Conduct Authority ordered Binance to cease offering any of its services in the United Kingdom. 

It appears that Pakistan may be the next in a long line of countries that may ban citizens from using Binance. In this case, a significant amount of customers’ money is at stake.

It is staggering that a major cryptocurrency exchange can be so popular and widely used and, at the same time, its users seem unaware or heedless of alarms that have been sounded about this exchange. 

Binance presents itself as a professional service and, ironically, features a well-written blog about how to stay safe from cryptocurrency schemes. However, it is not able to protect its own customers from these schemes. Perhaps the current investigation will uncover direct involvement, perhaps it won’t but one thing is clear – licenses are essential for all financial services, including cryptocurrency exchanges. 

How to Choose a Cryptocurrency Exchange

  • Make sure it is licensed 
  • Check the quality of the license
  • Dig deeper and do research on the crypto exchange
  • Make sure it is encrypted and uses the highest standards of security

Binance is a cautionary tale about using only a regulated cryptocurrency exchange. Its flashy content and popularity will give you nothing if you have lost your money to a crypto scheme on the platform. Don’t be satisfied with a claim about licensing, but confirm its location and license with the regulator’s site. As was seen with Binance in Malta, an exchange can make false claims about regulation and location. 

Ensure that the license is issued by a top-tier regulator, such as the Financial Conduct Authority in the UK. Low-grade licenses are usually not worth the risk, since they do not provide any oversight for customers and do little else but give cover to crypto schemes. Look for new stories about the crypto exchange. It took just a few minutes to find the plethora of official complaints and cases against Binance. Do not skip this step, but use your search engine to find out more about an exchange. Also, make sure the crypto exchange uses encryption and keeps your data safe.

MyChargeBack Will Help You Find Your Funds on the Blockchain

If you have lost money to a cryptocurrency scheme, seek fund recovery assistance right away. Consult with MyChargeBack experts and get started with your fund recovery claim. We have extensive knowledge and working relationships with regulators and more than 450 law enforcement agencies around the world, as well as the solutions that can improve your prospects of getting your cryptocurrency back.