How Binance Facilitated Transactions for Al-Qaeda – The Failures of AML/CFT

November 27, 2023 by Sam Strand

What are AML/CFT Regulations and Why Are They Important? 

Binance has been found guilty of violating AML/CFT laws in the United States. But what are AML/CFT laws?

AML stands for Anti-Money Laundering, while CFT stands for Countering the Financing of Terrorism. Because these two concepts are alike in several ways, they are often grouped together under the umbrella term AML/CFT

AML/CFT is a broad concept that refers to the laws and regulations governing how financial institutions must interact with their clients in such a way that actively addresses the threat of money laundering and terrorist financing. 

In other words, AML/CFT laws are designed to combat money laundering and the financing of terrorist activity. 

$4.3 Billion in Fines – What Did Binance do Wrong? 

Binance – the entity that operates the largest cryptocurrency exchange in the world – has pleaded guilty in November 2023 to the wide variety of charges that had been laid against it by the United States Department of Justice. 

As noted by the U.S. Department of Justice:

“Binance Admits It Engaged in Anti-Money Laundering, Unlicensed Money Transmitting, and Sanctions Violations in Largest Corporate Resolution to Include Criminal Charges for an Executive.”

It is not unheard of for financial institutions like banks, hedge funds and exchanges to violate AML/CFT laws. Such financial institutions are occasionally fined – or individuals prosecuted – for minor violations that often fail to make headlines. 

However, because Binance is a cryptocurrency exchange, Binance has always operated in a sector with little-to-no proper regulation – the world of cryptocurrencies is still not comprehensively regulated. 

Because of this, cryptocurrencies have become infamous for scams, shady business practices, and outright widespread fraud. The fall of Sam Bankman Fried and his cryptocurrency exchange, FTX, is a well-known recent example of such fraud. 

However, the extent to which Binance violated these laws – combined with the nonchalant and dismissive way in which Binance conducted illegal financial activity – has shocked the finance world. 

Binance Employees Joked about Money Laundering and Financing Terrorism 

In a press release, the U.S. Department of Justice described several of the charges on which Binance has been found guilty.  

“The violations include failure to implement programs to prevent and report suspicious transactions with terrorists — including … Al Qaeda, and the Islamic State of Iraq and Syria (ISIS) — ransomware attackers, money launderers, and other criminals, as well as matching trades between U.S. users and those in sanctioned jurisdictions like Iran, North Korea, Syria, and the Crimea region of Ukraine. By failing to comply with AML and sanctions obligations, Binance enabled a range of illicit actors to transact freely on the platform.”

These numerous and severe violations of AML/CFT laws are the 

Further investigations into Binance revealed a seeming company-wide organizational culture of indifference and even dismissiveness towards AML/CFT laws. 

In the official court filing of United States vs Binance, one charge alleged that a compliance employee for Binance wrote: 

“We need a banner ‘is washing drug money too hard these days? Come to Binance, we have cake for you.’”

Binance’s blatant flouting of AM/CFT laws has landed its founder-CEO Changpeng Zhao with a personal $50 million fine and barred him from any future involvement in the business. The company itself has been given a record $4.3 billion fine, potentially drastically hindering its operational capacity. 

As a result, Binance’s future remains uncertain, as well as the future of cryptocurrency regulation. 

AML/CFT Legislation – How Can Your Business Ensure Compliance? 

AML screening refers to the processes employed by an accountable institution that analyses clients and assesses their associated risk for financial crimes such as money laundering. The screening process is employed to check whether a client is, for example, featured on a sanction list or is a Politically Exposed Person (PEP)

The exact regulatory requirements will vary depending on a wide variety of factors (e.g., the specific country in question as well as the risk-related categorization of the business/institution/organization). 

However, there are several protocols and mechanisms for AML/CFT screening that are commonplace. They are: 

  • Identity Verification: All money laundering screening processes will entail some degree of identity verification. These checks ensure that an institution knows exactly who a client is before conducting business with them. 
  • Enhanced Due Diligence: In some cases, individuals/entities that represent a higher risk of money laundering (such as politically exposed persons) will be subjected to heightened levels of due diligence. 
  • Ongoing Monitoring: In some instances, individuals and/or entities may pose a high enough AML/CFT risk to justify their continued monitoring by the AI. For example, individuals and businesses with a high degree of political exposure are legally required to be subjected to ongoing monitoring designed to ensure the continued legitimacy of their transactions.  
  • AML/CFT Risk Management and Mitigation: An Accountable Institution (AI) is obligated to mitigate any AML/CFT risks that may arise during the initial screening process, as well as any risks that may arise long after the client has been screened. For example, if a client cannot be verified, an accountable institution cannot simply let them proceed – instead, the AI must take the necessary steps to mitigate the AML/CFT risk posed by that individual, such as restricting them from opening an account and conducting financial transactions. Or, in another instance, if ongoing monitoring of a client suddenly reveals highly suspicious transactions, it is the obligation of the AI to deal with the situation in such a way that aligns with regulatory requirements and successfully mitigates the associated risk.

Ongoing Monitoring, Sanctions Checks and AML/CFT Solutions for South Africa 

As South Africa’s leading provider of world-class due diligence and remote onboarding solutions, ThisIsMe is proud to be at the forefront of a trust-based and privacy-compliant digital world. We offer a wide range of FICA-compliant KYC services that encompass politically exposed person checks, account verification services, and company sanction and credit checks. To experience our full suite of due diligence solutions and see how we can help your business meet its AML/CFT regulatory obligations, book a demonstration by contacting our team here.