Binance, the world’s largest cryptocurrency trading platform, has faced public scrutiny and pressure from politicians and regulators around the world. One of the most controversial allegations against the company is that it serviced traders and firms in Iran for years, despite U.S. sanctions that prohibit such activities. It now appears that Binance might have gone too far in attempting to comply, blocking thousands of Iranian customer accounts when it shouldn’t have.
Iranian customers are not prohibited from using Binance services, but they are not allowed to live in Iran. However, Binance failed to make this distinction in thousands of cases, resulting in Iranian customers having their accounts blocked when they shouldn’t have been. Binance’s Global Head of Sanctions, Chagri Poyraz, admits that the company made mistakes, but he believes the issue has largely been resolved.
When Iranian accounts were blocked, customers were generally told to withdraw their funds or prove that they had legal residency outside of Iran. However, proving non-residency could take months, during which time Iranian customers couldn’t make any trades or move their crypto from one wallet to another.
Inside Binance, the process of dealing with Iranian customers was not always transparent. Three former customer service representatives allege that they were sometimes instructed not to explain to Iranian clients why their accounts were blocked and why they needed to withdraw their funds. Binance did not immediately respond to requests for comment regarding these claims.
Poyraz insists that Binance never intended to single out one group of people, stating that nationality does not make someone sanctioned. Tigran Gambaryan, head of financial crime compliance at Binance, adds that dealing with comprehensive sanctioned countries is nuanced, and the company’s actions are based on where customers are located, not their nationality.
Poyraz acknowledges that the process of deciphering which Iranian customers were in compliance and which were not was complicated and time-consuming, given that Binance has over 100 million active users and thousands of clients with ties to Iran.
The vetting of Iranian clients was further complicated by the fact that many Iranians purchase KYC-compliant accounts on the dark web. This allows them to use services like Binance more easily. Poyraz explains that Iranian sanctions are U.S. sanctions, meaning the European Union doesn’t apply them. Consequently, an Iranian can open an account in Germany, for example, causing further confusion and complications.
Two factors may have led to an increase in Iranians actively trading crypto in recent years while living abroad. First, the ascent of ultra-conservative cleric Ebrahim Raisi as president has spurred emigration, with around 500,000 Iranians leaving the country between 2010 and 2020. Second, Iranians have embraced cryptocurrency more than people from other nations due to Iran’s history of economic sanctions. This situation often leads to Iranians living abroad facing more scrutiny when interacting with financial institutions.
To correct past lapses in compliance, Binance has spent nearly two years strengthening its checks and balances. This includes hiring a team experienced in anti-money laundering, financial crime detection, and government regulation. Among the hires are Poyraz, who has over a decade of experience working in compliance and anti-money laundering for both the United Nations and HSBC; former U.S. lawmakers; and a former supervisor at the UK’s Financial Conduct Authority.
Binance has also invested heavily in technology that can detect when a customer is pretending to be someone else or located in a country where Binance services are unrestricted. In two years, Binance’s compliance division has grown by 650%, increasing from 100 to around 750 employees.
Poyraz doesn’t deny Binance’s compliance issues, which have included running afoul of regulators in the U.S., UK, Japan, Germany, and the Netherlands. However, he believes the trading platform has entered a new era. “As of today, I think we are in a better place,” says Poyraz.