Binance’s books are a black box, filings show, as crypto giant tries to rally confidence

The exchange claimed that due of its strong financial position and "we take our role as a custodian seriously," it managed net outflows of over $6 billion over 72 hours last week without "breaking stride." Changpeng Zhao, the founder of Binance, claimed his company would "lead by example" in adopting openness following the demise of competitor exchange FTX last month.

The core of the company, the massive Binance.com exchange that has handled trades worth over $22 trillion this year, is largely concealed from the public gaze, according to a Reuters review of Binance's corporate papers.

Binance refuses to disclose its location or that of Binance.com. It withholds basic financial data including revenue, profit, and cash on hand. The business has its own cryptocurrency, but it won't say what impact it has on the balance sheet. Customers can trade on margin using borrowed funds and receive loans secured by their crypto assets. However, it doesn't go into depth about the size of those bets, how exposed Binance is to that risk, or how much money it has set aside in reserves to pay for withdrawals.

Unlike its American rival Coinbase, which is listed on the Nasdaq, Binance is not obligated to release comprehensive financial statements because it is not a publicly traded corporation. Industry records also suggest that Binance hasn't raised outside funding since 2018, so it isn't now required to disclose financial details to outside investors.

Binance has aggressively resisted oversight, as Reuters revealed in October. According to corporate texts and interviews with former workers, consultants, and business partners, Zhao authorized a proposal by lieutenants to "insulate" Binance's main operation from U.S. regulatory scrutiny by establishing a new American exchange. Zhao asserted that the unit was established with the help of reputable law firms but denied having approved the proposal.

Since Binance accounts for more than half of all trading volume in the cryptocurrency market, U.S. officials are particularly interested in how it does business. According to Reuters, some prosecutors think they have enough evidence to indict Binance and certain top executives. The business is under investigation by the U.S. Justice Department for potential money-laundering and sanctions violations.

Reuters examined papers made by Binance entities in 14 jurisdictions where the exchange claims to have "regulatory licenses, registrations, authorisations, and approvals" in an effort to examine Binance's financial records. Several member states of the European Union, Dubai, and Canada are among these places. The authorizations have been noted as significant steps in Binance's "road to become completely licensed and regulated around the world," according to Zhao.

According to the documents, these units seem to have provided authorities with only a limited amount of information on Binance's operations. For instance, the amount of money moving between the units and the main Binance.com exchange is not disclosed in the public reports. Several of the units appear to be inactive, according to the Reuters study.

These neighborhood firms, according to former regulators and officials from Finance, are merely window decoration for the major uncontrolled market.

John Reed Stark, a former director of the U.S. Securities and Exchange Commission's Office of Internet Enforcement, claimed that the group was "coopting the language of regulation to create a façade of legality." Even more so than FTX's operations, according to Stark, are Binance's. In regards to its financial situation, "there is simply no transparency, no sunlight, and no proof of any type."

The analysis by Reuters of the filings for the units in the 14 jurisdictions, according to Binance Chief Strategy Officer Patrick Hillmann, was "categorically untrue." The quantity of financial and corporate information that must be revealed to regulators in such markets is enormous, he said, and frequently necessitates a six-month disclosure process. Comparing the exchange to privately held businesses like American confectionery producer Mars, he stated, "We are a private company and are not compelled to reveal our corporate finances." Mars responded in a statement that comparing its corporate governance and financial reporting standards to Binance's was "absurd," and that its products and services are "extremely regulated."

Hillmann further pointed out that the creator of FTX is facing fraud charges from American authorities. He asserted that "it would have been fraud regardless of what regulations were in place" if those charges are accurate.