Customers say Binance has served crypto traders in Iran despite US sanctions

LONDON, July 11 (Reuters) – A Reuters investigation has found that the world’s largest cryptocurrency exchange, Binance, has continued to process customer deals in Iran despite U.S. sanctions and a ban on the company from doing business there.

In 2018, the United States reimposed sanctions that had been suspended three years earlier as part of the Iran nuclear deal with major world powers. In November of that year, Binance notified merchants in Iran that it would no longer serve them, and asked them to liquidate their accounts.

But seven traders said in interviews with Reuters that they bypassed the ban. Traders said they continued to use their Binance accounts until as recently as September last year, only losing access after the exchange tightened anti-money laundering checks the previous month. Up until that point, clients could trade by registering with just an email address.

“There were some alternatives, but none of them were as good as Binance,” said Asal Alizadeh, a trader in Tehran, who said she used the exchange for two years until September 2021. I used it.”

Eleven other people in Iran other than those interviewed by Reuters on their LinkedIn profiles said they also traded cryptocurrency on Binance after the 2018 ban. None of them responded to questions.

The stock exchange in Iran was famous within the company. Senior employees were aware of and joked about the growing ranks of Iranian users at the exchange, according to ten messages they sent to each other in 2019 and 2020 that were first reported here. One of them wrote “Iran Boy” in response to data showing Binance’s popularity on Instagram in Iran.

Binance did not respond to Reuters questions about Iran. In a March blog post published in response to Western sanctions on Russia, Binance said it was “strictly following international sanctions rules” and had formed a “global compliance task force, including world-renowned sanctions and law enforcement experts.” Binance said it used “banking tools” to prevent sanctioned people or entities from using its platform.

Iran’s mission to the United Nations in New York did not respond to a request for comment.

Seven lawyers and sanctions experts told Reuters that Iranian trading on the stock exchange could attract the interest of US regulators.

Binance, whose holding company is headquartered in the Cayman Islands, says it does not have a single headquarters. It does not provide details about the entity behind the main Binance.com trading platform which does not accept customers in the US. Instead, US customers are directed to a separate exchange called Binance.US, which – according to the 2020 regulatory filing – is controlled by Binance founder and CEO Changpeng Zhao.

Lawyers say this structure means that Binance is protected from direct US sanctions that prevent US companies from doing business in Iran. This is because traders in Iran used the main exchange Binance, which is not an American company. But Binance faces the risk of so-called secondary sanctions, which are intended to prevent foreign companies from doing business with sanctioned entities or help Iranians evade the US trade embargo. In addition to causing reputational damage, secondary sanctions can also stifle a company’s access to the US financial system.

Four lawyers said that the exposure of the Binance platform will depend on whether sanctioned parties trade on the platform and whether Iranian customers have evaded the US trade embargo as a result of their transactions. said Eric Ferrari, principal attorney at Ferrari & Associates, a Washington law firm.

Reuters has not found evidence of sanctioned individuals using the Binance platform.

Asked about the use of Binance by traders in Iran, a spokesperson for the US Treasury declined to comment.

Reuters reported in January that the Binance platform kept weak compliance controls for its users until last year, despite concerns raised by some of the company’s senior figures, relying on interviews with former senior employees, internal letters and correspondence with national regulators. The exchange said in response that it was raising industry standards. A new Reuters report shows for the first time how loopholes in Binance’s compliance program have allowed traders in Iran to do business on the exchange.

The Binance platform dominates the $950 billion cryptocurrency industry, offers its 120 million users a range of digital currencies, derivatives and non-fungible tokens, and processes hundreds of billions of dollars in transactions each month. Exchange is increasingly heading in the mainstream. Its billionaire founder Zhao — better known as CZ — this year expanded his reach into traditional business by pledging $500 million for Tesla boss Elon Musk’s planned acquisition of Twitter. Musk has since said he will withdraw from the deal. Last month, Binance hired Portuguese soccer star Cristiano Ronaldo to promote its NFT business.

“Persian Binance”

Since the 1979 Islamic Revolution, the West and the United Nations have imposed sanctions on Iran in response to its nuclear program, along with alleged human rights abuses and support for terrorism. Iran has long considered its nuclear program for peaceful purposes.

Under the 2015 deal between Iran and six world powers, Tehran scaled back its nuclear program in exchange for some sanctions relief. In May 2018, President Donald Trump abandoned the agreement and ordered the reimposition of US sanctions that had been eased under the agreement. The restrictions came back into effect in August and November of that year.

Following Trump’s move, Binance added Iran to a list of what it called “sanctioned countries” regarding the terms of the terms of use agreement, saying it could “restrict or refuse” services in such areas. In November 2018, it warned its customers in Iran by email to withdraw their cryptocurrency from their accounts “as soon as possible.”

Publicly, some Binance executives have praised its compliance program. The then chief financial officer said in a blog in December 2018, it had invested heavily in fighting dirty money, saying it had taken a “proactive approach to detecting and squashing money laundering.” In March of the following year, it hired a US compliance platform to help it screen sanctions risks.

By August 2019, Binance deemed Iran — along with Cuba, Syria, North Korea and Crimea — a “Fifth Decade” jurisdiction where the exchange could not do business, according to an internal document seen by Reuters. The May 2020 document included Iran on a list of countries that reported “no,” citing Head of Compliance Samuel Lim.

Traders said that even as Binance’s stance on Iran hardens, its profile among the country’s hordes of crypto users is growing, citing their knowledge of the local industry.

Cryptocurrencies are becoming attractive there as sanctions take a heavy toll on the economy. Since the birth of bitcoin in 2008, users have been drawn to the cryptocurrency’s promise of economic freedom beyond the reach of governments. After being cut off from global financial services, users said, many Iranians have relied on bitcoin to do business on the Internet.

“Cryptocurrency is a good way to get around sanctions and make good money,” said Ali, a trader who spoke on condition that he be known only by his first name. Ali said he has been using Binance for about a year. He shared with Reuters messages with Binance customer service representatives that the exchange closed his account last year. They said the Binance platform was unable to serve users from Iran, citing recommendations from the UN Security Council sanctions lists.

Other traders on the exchange cited poor client background checks, the easy-to-use trading platform, deep liquidity and a large number of cryptocurrencies that can be traded as reasons for its growth in Iran.

Poriya Fattohi, who lives in Tehran and says he runs a cryptocurrency hedge fund, said he used the Binance platform from 2017 until September last year. He said Binance’s platform has outperformed the Iranians due to its “simple” know-your-customer controls, noting how traders can open accounts simply by providing an email address.

“They succeeded in gaining huge trading volume, with many currency pairs, within a short period of time,” El-Fotohi said.

Binance Angels – volunteers who share information about the exchange around the world – also helped spread the word.

In December 2017, the Angels announced the launch of a group called “Binance Persian” on the Telegram messaging app. The group is no longer active. Reuters was unable to determine how long it would operate, but it has identified at least one Iranian who was an active landlord after Washington reimposed sanctions.

Mohsen Parhizkar was an angel from November 2017 to September 2020, managing the Persian group and helping its users, according to his LinkedIn profile. Someone who worked with Parhizkar confirmed his role and exchanged messages between them. In a call with Reuters, Parizkar said Binance has canceled programs in Iran due to the sanctions. He did not go into details.

After the ban in 2018, at least three senior Binance employees were aware that the exchange remained popular in Iran and used by customers there, according to 10 Telegram messages and company chat messages among employees seen by Reuters.

By September 2019, Tehran was among the top cities for Binance’s Instagram followers to follow, topping New York and Istanbul, one post appears from the same month. Then the staff mocked this. Someone jokingly suggested announcing the popularity of Binance in Iran, saying, “Pay it on Binance US Twitter.”

In a separate exchange from April 2020, a senior employee also noted that Iranian merchants are using Binance, without explaining how he knew this. Binance’s compliance document from the same year, reviewed by Reuters, gave Iran the highest risk rating among all countries regarding illegal funding.

“Beginners Guide to VPNS”

Underpinning Binance’s growth in Iran is the ease with which users can bypass restrictions via virtual private networks (VPNs) and Internet Protocol (IP) anonymizers that can associate internet use with the site, dealers said. North Korean hackers used VPNs to hide their locations while creating accounts on Binance to launder stolen cryptocurrency in 2020, Reuters reported in June.

Mehdi Qadri, a business development worker, said he used the VPN to trade $4,000 worth of cryptocurrency on Binance in the year to August 2021. “All Iranians were using it,” Qadri said of Binance.

In its 2021 guide on how to apply sanctions to crypto companies, the US Treasury said there are sophisticated analytics tools that can detect IP address obfuscation. It said crypto companies could also collect information to alert users in a sanctioned country, such as email addresses.

“It is expected that cryptocurrency exchanges will have these types of measures in place in order to comply with the sanctions,” said Sidor Rehman, legal director at the London-based law firm Rahman Rafeli.

Binance itself has supported the use of VPNs.

Zhao, CEO of Binance, tweeted in June 2019 that VPNs were “a necessity, not an option.” He deleted the comment by the end of 2020. In response to a question about the tweet, Binance did not comment. In July of the following year, Binance published a “Beginner’s Guide to VPNs” on its website. One of his tips: “You may want to use a VPN to access sites that are blocked in your country.”

Zhao was aware of crypto users generally circumventing Binance’s controls. He told interviewers in November 2020 that “users find smart ways to get around our roadblock sometimes and we just have to get smarter about how we block.”

(Reporting by Tom Wilson and Angus Berwick; Editing by Janet McBride)

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