If Zhao’s downfall came in a Washington state courtroom, it arguably started in Australia, where ASIC began cancelling its licences months earlier.
Of all the places in the world, the end for Changpeng Zhao, the founder of the world’s largest cryptocurrency exchange, came at a local court in Seattle earlier this week.
Known as CZ, the Dubai-based businessman said he would quit as the chief executive of Binance, one of the most influential companies in the sector, and pay a $US50 million ($76 million) fine. His company would pay an additional $US4 billion for deliberately flouting the law to sign up customers and failing to report suspicious transactions on its platform.
A lengthy Justice Department investigation had revealed a culture at Binance of deliberately flaunting regulation around the world.
Changpeng “CZ” Zhao leaves leaving a courtroom in Seattle this week.  Bloomberg
But if Zhao’s downfall came in a Washington state courtroom in the midst of the North American autumn, it arguably started in Australia, where the corporate regulator began cancelling its licences months earlier. Several former employees at Binance’s local division have said it was Zhao’s undermining of regulators that contributed to the problems in Australia, issues that led to a wave of redundancies and staff exits.
Despite his resignation, Zhao, the Chinese-Canadian who founded Binance in 2017, has indicated that he will not stray far from the business. “As a shareholder and former CEO with historical knowledge of our company, I will remain available to the team to consult as needed,” he said in a post on social media.
In a way, Binance Australia was a rare branch of the sprawling empire because it did attempt to follow the rules.
Jeff Yew, an early bitcoin investor, was only 25 when he was appointed chief executive of Binance in Australia. He had been part of the team that founded Invest By Bit, a small company that had the fortune of holding a local financial services licence.
Yew struck a deal with Zhao to build Binance’s local brand around his start-up – but it was a rocky relationship from the outset. They had starkly different views on following the rules.
Yew, who is now in the process of launching a bitcoin ETF through his Monochrome Asset Management, was in favour of working with regulators. As far back as 2014, he had lobbied the federal government to think about establishing some legal guidelines.
But Zhao, as the Justice Department investigation found, was much happier to exploit a grey zone about how existing laws applied to nascent, but growing, cryptocurrencies. With no fixed address and a web of companies in opaque jurisdictions, Zhao was happy to run money through as many cryptocurrencies as the market could handle without asking too many questions.
Jeff Yew, was only 25 when he was appointed chief executive of Binance in Australia.  
Binance quickly developed a reputation for listing any crypto asset its users could dream up, regardless of their long-term value. It took five minutes to set up an account and begin trading. Any user could issue a currency and begin trading.
Although the new requirements to check customer identification and other anti-money laundering measures have changed Binance’s approach in many countries where it operates, these looser requirements are still available in other locations.
In April 2021, Yew resigned. He and Zhao had butted heads so frequently that the businessman wanted to get out quickly. “I couldn’t agree on things Binance wanted to prioritise,” Yew said last month. “That was ultimately [Binance’s] downfall, it exploited the fact they were not really regulated.”
In its infancy, Binance Australia reported to the global headquarters. Employees remember weekly calls from a Hong Kong-based regional manager called Iris. But the regional managers moved around a lot. The Australian operations weren’t always sure who they’d be reporting to each week.
They were also coming to terms with how the company was doing business globally. Rather than clear roles and responsibilities, employees who needed approvals or company data had to come to their global Binance colleagues with an offering or trade. One engineer remembers having to bargain for access to a customer list by swapping an hour’s worth of coding time.
Salaries were low, but employees competed for a generous pool of bonuses of between $20,000 and $40,000 every year.
After Yew’s departure, the search for a new local chief executive moved slowly. There weren’t many executives who understood cryptocurrencies and knew how to grow a tech business.
One Binance Australia employee who was part of the discussions to find Yew’s successor remembers the frank way their global colleagues approached the search. “They said they needed a white face to present Binance in Australia,” the person said. “They didn’t think the Australian public would react well to an international business.” Two other former employees have confirmed this comment.
At the time, most of the Australian exchanges – such as Independent Reserve, BTC Markets and Swyftx – were run by Australians who were promoting themselves as trustworthy in a world where hacks and collapses meant money was often siphoned offshore rapidly.
Leigh Travers had cut his teeth as an equity trader in Perth before turning up at DigitalX, an ASX-listed wholesale asset manager that had launched the country’s first digital currency fund.
In August 2021, he was appointed Binance Australia’s chief executive. Crypto markets were roaring and Binance now had a local derivatives licence, regulated by the Australian Securities and Investments Commission, thanks to the acquisition of a small company called Oztures Trading.
Derivatives were where the real money was. Placing bets on the future prices of crypto assets was a thrill to traders all around the world. And it was illegal in the United States and China, which meant Binance was particularly eager to be licensed in Australia.
Travers – who has repeatedly declined to answer questions – was a welcome leader for some in Binance. He was organised. He was clear in what he wanted. He stayed up all night to field calls from the global operations so that other employees didn’t have to.
Despite the grand ambitions, however, Binance’s local employees didn’t expect Travers to last long. Leaders and executives didn’t tend to stick around at the company. At the US operations, five CEOs had come and gone in just six years.
And as the Justice Department’s findings have illustrated, every decision filtered up and needed to be confirmed by Zhao, who made sure to obscure where he was at all times. In any video conference call that he was on, he was careful to be placed against a plain white background. Mostly, however, he was in Dubai.
But the arrival of Travers, and his insistence on more resources, soon began to needle at the global headquarters.
Most Binance country teams comprised five or six people. In Australia, it soon ballooned out to 25 people. This also included a set of compliance staff who began pointing out problems with Binance’s aggressive marketing strategies.
Binance Australia launched its derivatives trading halfway through 2021. The advertising campaign was aggressive. In Australia, only investors who are classified as sophisticated can trade derivatives. Some of Binance’s advertising pointed out that traders who pushed through large volumes would automatically qualify as sophisticated. These ads were quickly taken down.
Changpeng Zhao speaking virtually at a conference in Singapore in September.  Bloomberg
The derivatives business was a huge success. It is difficult to quantify how much money was running through Binance during the soaring bull market of 2021. But one company insider says they were processing between $15 billion and $20 billion trades a week.
Much of this money came from China. Chinese money had flooded into Australia after Beijing banned crypto trading and mining in September 2021. Two sources said that about 90 per cent of a day’s trade – often hundreds of millions of dollars – came from three Melbourne-based family offices.
But the success of Binance’s local derivatives business didn’t mean there was plenty of money going around for Australian staff. Binance Australia, which was banked through Cuscal, was forever struggling to get projects approved by its global colleagues.
In early 2021, the company set up an appeal for donations to assist the Koala Clancy Foundation restore koala habitats impacted by the 2019-20 bushfires. The appeal raised more than $1 million in Binance’s own cryptocurrency token, BNB.
Although about $400,000 was paid out for planting trees, company insiders say the rapid rise in the price of BNB meant the total donation pool’s value ballooned out to tens of millions of dollars. Where that money ultimately ended up remains unknown.
Another time, one marketing employee remembers trying to secure Binance Australia’s sponsorship rights for the AFL. It was a $3 million deal and the AFL had flown some members of the Binance team to Melbourne to attend the 2021 Brownlow medal awards night.
“But we just couldn’t squeeze the money out of CZ,” the employee said, adding that emails and requests to head office were ignored. Binance Australia ended up losing the deal because crypto.com – a competitor – doubled the offer and scooped the contract.
Binance also earned money by providing liquidity – access to the thousands of cryptocurrencies spinning across blockchains – to most of the big Australian exchanges. Brisbane-based Swyftx, Melbourne-headquartered CoinSpot all paid fees to use Binance as a liquidity provider.
By the start of last year, the market had turned – in a big way. The prices of bitcoin and ether, the cryptocurrency that powers the smart contract network ethereum, began to tumble. Billions of dollars disappeared quickly as cascading losses at major exchanges and hedge funds – including Terra, Celsius and Three Arrows Capital, which often acted like banks – collapsed.
Amid the carnage, the Australian Securities and Investments Commission started to take note. The regulator’s chairman, Joe Longo, had been talking about his plans to crack down on unlicensed cryptocurrency businesses for months. In a way, that was because a niche industry of traders was rapidly going mainstream, hiring social media influencers to spruik crypto investments to unsophisticated customers who were losing large amounts.
Late last year, ASIC opened an investigation into Binance Australia’s derivatives business. The regulator was concerned that retail investors were gaining easy access to derivatives trading.
Company insiders remember the regulator approaching the business and asking how it was managing its customers.
In March, Travers abruptly resigned, leaving Binance Australia rudderless. A general manager from New Zealand, Ben Rose, was installed to run the region, but a wave of redundancies and exits alarmed staff and rapidly shrank the team.
Rose has refused several requests for an interview.
In April, Binance asked ASIC to cancel its derivatives licence. The cancellation rippled through the industry and Longo suggested that Binance had folded to avoid more scrutiny.
But ASIC kept pushing. In July, the regulator raided Binance’s offices in Sydney, seizing laptops and documents. On the company’s internal messaging system, employees were encouraged to ensure their “logs were clean”.
Just weeks earlier, the Commodity Futures Trading Commission in the US had sued the exchange, along with Zhao, alleging that Binance was operating an “illegal” exchange and a “sham” compliance program.
Zhao ultimately pleaded guilty, and resigned. Binance’s Australian employees, however, are sceptical about a clean-out. “There’s no way he’s just going to let this thing go,” one said.
Correction: BTC Markets does not source liquidity from Binance. An earlier version of this story suggested it did.
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