Binance Helps Law Enforcement Agencies Ban Chinese Accounts Brings Controversy

Aug 25, 2022

Author：Colin Wu

Recently, some Binance users in the Chinese community found that their accounts were temporarily suspended due to requests from some law enforcement agencies. The screenshots spread that caused a great panic in the community. Binance took the rare step of issuing two back-to-back statements.

First statement on August 19:

In response to the recent incidents of account blocking for assisting in the investigation, Binance Chinese Channel responded: Binance will never do anything to harm the interests of users out of self-interest, especially the recent rumors. Globally, the platform party is obliged to provide necessary assistance when law enforcement agencies in various countries put forward reasonable needs for assistance in investigations, However, some recent incidents were purely maliciously distorted and interpreted. Please treat the rumors rationally, and we will continue to pay attention.

Second statement on August 24 released more information:

In response to the recent account suspension, Binance issued a statement again on August 24, stating that, as the world’s largest exchange, protecting users has always been our highest principle. For accounts and funds involved in investigation cases, Binance has responsibilities and obligations to assist law enforcement agencies in their investigations, and Binance also has strict standard operating procedures, which is a consistent attitude and practice of Binance around the world. The recent rumors and remarks about the security of Binance in the community should not be taken at face value. The funds of users in Binance are guaranteed. If there is no further effective judgment from the law enforcement agencies, the assets and accounts will be unlocked within a limited time (the cycle varies from cases). If you find that your account is under risk control, please contact customer service for assistance in a timely manner, and we will explain the situations to users based on individual circumstances. At the same time, it also reminds users again, please be careful to receive assets from unknown sources through OTC transactions. Once black property is involved, your account may be subject to assisted investigation and risk control. It is recommended that users conduct transactions (especially deposit transactions), please be sure to Choose formal platforms and merchants, avoid risks, and do not lose the big because of the small.

Compared with the first one, the statement added an explanation of the suspension time and reasons: “If there is no further effective judgment from the law enforcement agency, the assets and accounts will be unlocked within a limited time (the cycle varies from cases)”; And “Please be careful to receive assets from unknown sources through over-the-counter transactions. Once black property is involved, your account may be subject to co-investigation and risk control”.

The latter sentence seems to imply that this incident was a user who purchased “black USDT” with fiat currency and transferred it to the Binance account after over-the-counter transactions. The police contacted Binance after investigation, and Binance assisted in blocking the account. In addition, the article emphasizes “especially the deposit transaction”, which is relatively rare. Because in the past, most of the problems were caused by withdrawals (the cryptocurrency was exchanged for legal currency, and the bank card was frozen because the legal currency was black money). The emphasis on “deposit transactions” this time refers to the use of fiat currency to buy cryptocurrencies. Cryptocurrencies are black money, so they are blocked, which also confirms the above implication.

Effective judgments by law enforcement agencies have also raised concerns. Another derivatives exchange, for example, said it needed a written request from the court to suspend accounts, seemingly intent on robbing customers. But Binance attracts more attention because of its larger volume, the compliance may need to be stricter; also, it is not necessarily required to have a written document from the court for investigating in the legal system of China or any other countries. As for specific cases, waiting for slower court documents can lead to the hacker/criminal’s funds fleeing again.

Binance and law enforcement agencies information inquiry assistance system has also attracted attention. In fact, this is not a system that was released suddenly and recently. In a press release back in March of this year, it was stated that law-enforcement has been implemented, a system that governments and law enforcement agencies can use to submit requests for information,” which should have been online in 2021.

The system guidance shows that Binance collects, uses and store user records in accordance with the Binance Terms of Use and Privacy Policy, as amended from time to time. This includes information collected from users for the purpose of opening a Binance account, providing services to the users, regulatory compliance (such as mandatory record keeping, Anti-Money Laundering (AML), Know-Your-Client (KYC) obligations). In order for Binance to provide information relating to our users in aid of an ongoing criminal investigation, we will require a valid court order from a competent jurisdiction or police orders/warrants. Following the receipt of a preservation order request relating to a criminal investigation, Binance will take steps to preserve records in connection for 90 days. Law enforcement officials from government and law enforcement agencies must make additional requests through LERS for extended retention of information and records.

All in all, centralized exchanges have always been actively cooperating in the face of government requirements. Recently, FTX even actively blocked and censored accounts that interacted with currency mixers with the support of third-party tools. The current frequency of such incidents only reflects the increased attention of law enforcement agencies to cryptocurrencies, and the assistance of more technical partners to trace the flow of cryptocurrencies. However, it is inevitable for ordinary users to panic. It is more difficult to judge the transaction and flow of cryptocurrency and prevent whether or not to receive black money. Therefore, major institutions such as Binance FTX should explain more doubts, assume the responsibility of communicating with law enforcement agencies and provide more preventive guidance to ordinary users.

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