Week In Crypto: Binance Sells Russian Business To Unknown Company

September 29, 2023
Binance offloads its Russian business, Tether admits to issuing unbacked stablecoins, and a US regulator sanctions an Ethereum wallet linked to a Mexican drug cartel.

Binance offloads its Russian business, Tether admits to issuing unbacked stablecoins, and a US regulator sanctions an Ethereum wallet linked to a Mexican drug cartel.

After several weeks of sanctions-related headlines and executive resignations, Binance has sold its Russian unit to an unknown, one-day-old company.

On Wednesday (September 27), Binance confirmed that it had entered into an agreement to sell its entire Russian business to CommEX, an exchange that launched one day prior to the sale’s announcement.

Financial details of the sale were not disclosed, but Binance said that it will have no ongoing revenue split from the sale and has no option to buy back shares from CommEX.

“As we look toward the future, we recognise that operating in Russia is not compatible with Binance's compliance strategy,” said Noah Perlman, chief compliance officer at Binance. 

“We remain confident in the long-term growth of the Web3 industry around the world and will focus our energy on the 100+ other countries in which we operate.”

Binance will gradually “sunset” all exchange services and business lines in Russia over the next several months, and existing customers will be able to migrate to CommEX.

A “portion” of new user registrations will immediately transfer to CommEX, Binance noted, and that portion will be scaled up over time.

What is CommEX?

After Binance announced the sale, users began asking who owns CommEX and how it was able to take over from Binance in a key jurisdiction.

On X (formerly Twitter), Binance’s official account gave no clues as to who owns CommEX, advising users to “go to CommEX.com and connect with them directly.”

Some users noticed similarities between the Binance.com interface and CommEX.com, stoking speculation that CommEX.com is a white-label version of Binance.com.

Bennett Tomlin, co-host of the Crypto Critics Corner podcast, subscribed to this view, noting that the launch of CommEX is typical of a larger exchange faking its exit from a jurisdiction.

CommEX is a “surrogate” that will pay to licence Binance’s front-end, he said, but will send trades placed on its own platform to be executed on Binance.com.

Binance CEO Changpeng Zhao responded with a statement of his own, claiming that he is not the ultimate beneficial owner of CommEX and does not hold any shares in the company.

Zhao said CommEX’s “design, APIs, etc are similar to Binance,” but “we asked for this to ensure a smooth user experience.”

He added that a “few” ex-Binance employees “may” join CommEX, or may have already done so, and that is a “good thing”.

Sanctions and resignations

In the weeks prior to the sale, Binance had faced allegations that it has violated sanctions by servicing Russian users and facilitating peer-to-peer (P2P) transactions.

An article by the Wall Street Journal (WSJ) alleged that Binance has recently handled more than $2bn a month in rouble-to-crypto trading volume and $428m a month in P2P transactions, including to sanctioned banks such as Sberbank.

These transactions continued despite Binance's announcement, in April last year, that it would restrict access to its services to Russian nationals who hold more than €10,000 in crypto-assets, in compliance with the EU's fifth Russian sanctions package,

Days after the WSJ’s article was published, Binance stopped offering its Russian clients P2P transfers via sanctioned banks, but on CommEX.com, the sanctioned banks are back.

At the time of writing, CommEX users can sell their crypto-assets and receive roubles from their counterparty, paid into accounts at sanctioned banks including Sberbank.

Last month, as covered by Vixio, Gleb Kostarev and Vladimir Smerkis, Binance’s VP and general manager of the Commonwealth of Independent States (CIS), a bloc that includes Russia, both resigned.

Tether lawyers’ own goal in class action court filing

This week, in a new court filing, Tether appears to admit that it has at times broken its own Terms of Service and has issued unbacked stablecoins.

One of the biggest criticisms of Tether is that it does not have sufficient reserves to back its stablecoins. It has also never opened its books to a full audit, so it has done little to allay this concern.

In a class action lawsuit that has been open since 2019, five US traders allege that Tether has engaged in fraud, money laundering and manipulation of the cryptocurrency markets.

At the centre of the case is the 2017-18 crypto bubble, a phenomenon that the plaintiffs claim was a direct result of Tether’s efforts to inflate the market.

“USDT was not backed 1:1 by US dollars,” the complaint notes. “Tether issued billions of unbacked USDT to manipulate the price of bitcoin and other cryptocurrencies.

“This scheme enabled Tether to buy massive amounts of bitcoin without paying for it, and profit outrageously from the boom-and-bust cycles they created.”

This week, Tether’s lawyers responded to a plaintiffs’ motion to provide certain documents.The plaintiffs had asked for records showing all “payables” to Tether from Bitfinex, a crypto exchange owned by iFinex, which is also the parent company of Tether.

“In certain instances, Tether issued USDT to Bitfinex and did not immediately receive a payment in US dollars,” the filing reads.

“Bitfinex always repaid those amounts in full, but in the meantime Tether temporarily counted as part of its USDT reserves a ‘receivable’ in the amount of the issued USDT.”

Tether is resisting handing over the documents sought. The case continues.

OFAC sanctions Sinaloa Cartel wallet

Finally, the US Treasury’s Office of Foreign Assets Control (OFAC) has sanctioned a crypto wallet belonging to a member of Mexico’s Sinaloa Cartel.

Jimenez Castro, 34, is suspected of using crypto-assets and wire transfers to launder money from fentanyl sales in the US back to cartel leaders in Mexico.

The single wallet address that was designated by OFAC is an Ethereum wallet that has been active since 2022.

The Etherscan blockchain explorer shows that the wallet has received two transactions from a Binance exchange wallet, and has made 16 outbound transactions using Tether and Circle.

Most of the transactions are worth five figures in US dollars, and some are worth six figures. 

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