Published: July 30th, 2021
Global cryptocurrency exchange Binance is introducing a new Tax Reporting Tool for traders that will allow users to ‘stay on top of their crypto trading activities and simplify tax reporting, a press release published this week announced.
Binance CEO Changpeng Zhao (CZ) said ‘The truth is that in many countries where we operate, cryptocurrency rules are still evolving. Everyone is working out the correct path for our young and promising industry’.
The new reporting tool lets users send their transaction history to an accountant or other third party while displaying an overview of their local tax liabilities in a dashboard. Though the capability is aimed at exchange users, the launch timing comes amid a storm of compliance-driven controversy.
Through most of 2021, Zhao has been compelled to prove that he’s making progress on efforts to address repeated concerns by financial regulators around the world that Binance is a serial rule breaker.
‘I support a well-thought-out regulatory framework,’ he told reporters in early July. ‘Over the long term, regulation can provide a solid foundation for advancing crypto as an essential component of day to day commercial life’. In the past, he's said that the quickening pace of crypto adoption globally means that ‘clearer regulatory frameworks are needed in different countries.’
While Zhao’s public statements have been accommodating, big questions about Binance’s seriousness in meeting its regulatory obligations persist.
The company’s history is strewn with regulatory controversy.
Last year, Malaysia’s financial oversight body said Binance was effectively a rogue business operating in the jurisdiction without permission or licensing. Malaysia’s announcement came several months after the Maltese financial regulator told Binance to close up shop on the island.
But in 2021, regulators have really turned up the heat, focusing on the business’s ‘decentralised’ structure, which means it operates without an official headquarters.
In June and July alone, regulators from Italy, the UK, Japan, and the Cayman Islands have all said Binance is barred from operating in their countries.
Britain’s Financial Conduct Authority (FCA) told Reuters in June that it has a ‘major issue’ with the exchange’s reluctance to properly incorporate a head office, making it harder to hold executives legally to account if the company breaks regulatory rules.
The FCA also maintains that the UK entity set up to allow Binance to operate an exchange in the country wasn't living up to British anti-money laundering rules.
As Binance faces intensifying pressure, CEO Zhao is dropping hints that he's looking for an exit.
In an interview last week hoisted by Thailand’s Siam Commercial Bank, he said he hopes to hire the person who will eventually succeed him as CEO 'very soon.
‘I’m actually looking right now for a senior leader with a strong background in financial compliance to lead the entire organisation, even potentially becoming the new Binance CEO,’ he said.
'At heart, I'm really a tech entrepreneur, and four years after launch, it's clear we're moving from startup to high growth business. We have to undertake a pivot, and I don’t think I’m the best person to lead through the company’s next phase. Somebody with a solid regulatory background would likely be more suitable.’
In the same interview, Zhao also revealed his objective to make Binance a public company in the US.
The company has already announced a series of high-profile hires this year, some of which seem designed to address the exchange’s tense relationship with the world’s financial services commissars.
In May, Binance named former SEC regulator Brian Brooks as the new director of Binance US, a move widely seen as an effort to make nice with regulators. In July, the company hired eToro’s Jonathan Farnell as its new director of compliance.
Zhao’s attitude to regulation in the crypto space has been something of a journey.
In a March AMA session hosted by Clubhouse, he spoke about the crypto industry’s tense relationship with regulators. ‘If I were designing the rules today, the most logical thing would be to look at the regime that exists in traditional finance space and bring it into the crypto realm.’.
That doesn’t seem to apply, however, to the relatively standard requirement by financial regulators for any operating company to have a legal headquarters. Companies need to be licensed to operate in the jurisdictions where they do business, and a license requires a postal address.
But Zhao has been cagey about the exact location where Binance is headquartered, arguing persistently that the company runs on a decentralised structure and has no official headquarters. He’s also said that the legal definition of a corporate headquarters differs from country to country and that in places like Switzerland and the Cayman Islands, there are five-story buildings listed by thousands of companies as their ‘headquarters’.
In a panel session at the 2021 Ethereal Virtual Summit, he told attendees ‘How do you define headquarters; does it mean a physical office where people gather to work? For most of Binance’s history, I've worked from home. Is that our HQ?’
While that attitude might be popular among crypto enthusiasts, the world’s regulators haven’t been so impressed.
In recent months, Binance has stoked the ire of regulators in Japan, Italy, the UK, and Malaysia. Banks and payment processors have joined in the criticisms, while rival exchange FTX recently bought out Binance’s shares in its business to distance itself from the controversy.
It’s not yet clear whether Zhao has made firm plans to step down from Binance, or if the speculation about a successor is designed to distract from its compliance woes. The addition of a tax reporting tool for users may help assuage some concerns. Zhao’s successor will have plenty on their plate to deal with, and engaging with financial regulators will have to be top of the list.