Canada’s anti-money-laundering agency has imposed a $6-million penalty on the world’s largest cryptocurrency exchange, Binance Holdings Ltd., the first monetary penalty issued by the financial intelligence unit against a virtual currency trading platform.
The Financial Transactions and Reports Analysis Centre of Canada, or FinTRAC, levied the penalty this week after finding that Binance had committed two violations of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.
The first violation was that it had failed to register as a foreign money services business, FinTRAC said Thursday.
Binance pulled out of the Canadian market last year, citing new regulatory guidance for cryptocurrency trading platforms.
However, FinTRAC said the company was in violation of its registration requirements before Sept. 25, when it officially ceased all of its operations in the country. Binance had been given several opportunities to register but missed its deadlines, FinTRAC said.
The second violation relates to large virtual currency transactions, which are a red flag for potential money laundering activity. Businesses such as banks, real estate brokers, casinos and money services businesses (MSBs) are required to report certain transactions, including suspicious ones and those involving large sums of cash or virtual currency, to the financial intelligence agency.
FinTRAC says it analyzed the blockchain, the public ledger of all cryptocurrency transactions, and found 5,902 transactions valued at the reporting threshold of $10,000 or more that Binance had failed to report between June 1, 2021, and July 19, 2023.
Binance did not respond to a request for comment.
There are hundreds of cryptocurrency companies registered with FinTRAC. Roughly 800 of the nearly 3,000 registered MSBs provide some virtual currency services, according to the watchdog, while another 200 or so are exclusively crypto platforms.
South of the border, Binance agreed to pay US$4.3-billion late last year as part of a plea deal after admitting to failures in its anti-money-laundering controls.
Jessica Davis, president and principal consultant of advisory firm Insight Threat Intelligence, said the penalties levied by FinTRAC are significantly lower than what Binance is paying in the U.S. because of differences between the two countries’ legal systems.
In Canada, the administrative penalties that can be issued by FinTRAC are not meant to be punitive, Ms. Davis said. Instead the regulator takes a more collaborative approach, working with businesses to ensure they are in compliance.
Even the recent penalties paid by several of the country’s big banks – including the nearly $9.2-million penalty levied on Toronto-Dominion Bank, the largest in FinTRAC’s history – amount to a “rounding error” for businesses with billions in quarterly profits, Ms. Davis said.
South of the border, TD Bank expects to pay much more. The bank announced late last month that it has set aside US$450-million to cover penalties relating to a lengthy U.S. regulatory and law enforcement investigation, although analysts are expecting the tally to go even higher.
“There is really an upper limit to how much money we’re going to be talking about in Canada, under the regime as it is,” Ms. Davis said. That contrasts with the U.S., where the levies can be punitive, she added.
“In really serious cases of non-compliance in Canada, instead of getting a really big fine, they would be referred for criminal non-compliance to the RCMP,” Ms. Davis said.
However, she added, the RCMP has a large number of competing priorities and does not always act on those disclosures. “They’re underresourced, they’re understaffed and underskilled to do that kind of investigative work. We do sometimes see results from those non-compliance disclosures, but it’s fairly rare,” she noted.
Binance is facing legal issues in several jurisdictions. Two Binance executives were recently detained in Nigeria on tax evasion and money-laundering charges.
Meanwhile, the exchange’s founder, 47-year-old billionaire Changpeng Zhao, has been sentenced to four months in U.S. prison after admitting to evading anti-money-laundering rules. Prosecutors said the company failed to report suspicious transactions involving designated terrorist groups such as Hamas and Islamic State.
Mr. Zhao’s sentence comes amid a global crackdown on the cryptocurrency sector. Earlier this year, Sam Bankman-Fried received a 25-year prison sentence in the U.S. for his role in defrauding users of his now-collapsed cryptocurrency exchange FTX.
Prior to its implosion in late 2022, FTX had plans to launch in Canada by acquiring Bitvo Inc., a Calgary-based crypto exchange regulated by all 13 provincial and territorial securities commissions in Canada.
Alexandra Posadzki