Binance attempted to recruit Gary Gensler as an advisor just before his current tenure as a U.S. regulator for closer ties to the country's regulatory bodies, according to a report from the Wall Street Journal on Sunday.
The crypto exchange approached Gensler in 2018 and 2019 when he was still a lecturer at the Massachusetts Institute of Technology. This was only two or three years before Gensler was nominated as the chairman of the U.S. Securities and Exchange Commission (SEC) under President Joe Biden. Gensler was previously also the chair of the Commodities Future Trading Commission (CFTC) in 2009, working under President Barack Obama.
The report detailed messages Binance executives sent regarding regulatory concerns for their U.S. branch, Binance.US. A series of messages showed that Ella Zhang, former head of venture investment, and Harry Zhou, co-founder of a major Binance trading firm, had approached Gensler in October 2018.
According to one of Zhou's messages, Gensler declined Binance's offer but was "generous in sharing license strategies," suggesting that the former chairman was open to discussing regulatory matters with the company.
Binance accurately predicted that Gensler would return to a regulatory seat after 2020 if the Democrats won the presidential election. In 2019, the company approached Gensler again in Tokyo, two years before Gensler stepped in as the chair of the SEC.
Sometime after the meeting with Gensler, Binance established a separate U.S. branch in 2019. Binance.US operated under BAM Trading Services Inc. and was considered a separate entity from Binance's core operations.
Despite this distinction, the branch still reported and functioned under Binance CEO Changpeng "C.Z." Zhao. While restating that the two companies were separate, former Binance.US CEO Catherine Coley told team members through Telegram to report their work to Zhao.
The company supposedly set up a separate entity for its U.S. branch to shield itself from regulatory issues, redirecting law enforcement and inquiries to Binance.US instead of Binance itself.
The Wall Street Journal report also discovered a presentation called "Insulate Binance from U.S. Enforcement," where Binance employees detailed how distancing themselves from the U.S. branch through contracts would force law enforcement to consider the two branches as separate.
A Binance spokesperson said the communications were strictly made to discuss U.S. regulations rather than to avoid any repercussions or responsibilities.
"When Binance.US was founded, there was an agreement with the Binance.com tech team to build out the tech infrastructure and provide other forms of support for the new US-regulated exchange. It was a white label service that supported other exchanges," a Binance spokesperson said.
"That is why you're seeing these old communications between members of the two organizations."
The Wall Street Journal also procured a statement from Binance. The crypto exchange firm emphasized that the messages were sent during the company's early years, and their procedures have since evolved.
"While growing at such a rapid pace, we made some initial missteps which have now been rectified," Binance said.
"Following a massive investment in compliance talent, processes and technology over the past two years, we are a very different company today when it comes to compliance."
Despite these claims, Binance has been under fire for numerous exchange violations in recent history. U.K. regulators criticized Binance for not providing adequate information in investigations, and countries like Malaysia have also charged the company for operations without proper licensing or registration.