After China, Japan, Binance May Leave Malta
Malta’s blockchain dream has been dealt a serious blow as the technology’s friendly Prime Minister Joseph Muscat was forced to quit last week following the public outcry over the murder of investigative journalist Daphne Caruana Galizia.
Muscat has been key to the technological development of the tiny Mediterranean island in recent years, supporting policies that are related to the growth of emerging technologies like blockchain, gaming and artificial intelligence. His exit is likely to impact a China-originated and one of the world’s top crypto exchanges by value traded which took advantage of the Maltese gesture to relocate its operating base from China to the European island nation in 2018.
Binance’s hope was to avoid a Chinese crackdown on exchanges in China and connect financial institutions from several points across the world at the time. Now, it’s dicey as about 200 countries have ganged up to tighten their regulation of crypto exchanges.
All has been good and is still good even with the sudden twist of the prime minister’s resignation which is likely to affect Binance in yet unknown ways. The uncertainty that may follow could see the exchange move its operation yet again to another crypto-friendly destination such as the British Virgin Island, Cayman Island or Seychelles.
Not just for Muscat’s resignation, Binance may also be moving for the Fifth Anti Money Laundering Directive (or 5AMLD) which took effect in Europe starting January 10, 2020. 5AMLD broadened the mandatory verification to include cryptocurrency platform users following the KYC and AML standards – obliged entities in the 4AMLD used to be financial institutions, accountants, tax advisors, lawyers, trust providers and estate/letting agents with whom the trustees form a business relationship. The fifth amendment states that where available, this should also include electronic identification means that have been approved by national authorities.
Exchanges like Binance would have to go by the new rules or leave the EU as a Bitcoin derivatives platform Deribit has already done citing the “implementation of these changes would greatly affect the exchange and its customers” hence moving from the Netherlands to Panama. Cryptocurrency exchange KyberSwap is also leaving Malta for the British Virgin Islands.
EU's Anti-Money Laundering Directive (5AMLD) is set to take effect in two weeks. Exchanges will have to register and let authorities obtain KYC of users. This means that even Binance and OKEx, both based in Malta, will be required to follow these rules or leave the EU
— Larry Cermak (@lawmaster) December 17, 2019
With exchanges forced to cooperate with local bodies and users’ data easily accessible by law enforcement agencies, it could lead to users who have been verified for trading activities to lose money or privacy depending on their state’s existing laws.
Muscat’s resignation and the implementation of the 5AMLD are significant to Binance’s operation in Europe especially in the wake of the release of Chainalysis 2020 Crypto Crime Report in which Binance reportedly allowed the withdrawal of large chunks of criminal-derived funds. Binance and Huobi allegedly lead all exchanges in illicit Bitcoin received by a significant margin, according to Chainalysis, though the research firm later notes that the report is meant to reveal a network of corrupt over the counter brokers and not aimed at any exchange in particular.
It has led to Binance being accused of several disservice to the space including helping to encourage questionable practices like providing a global platform for USDT, wash trading, and market manipulation even as it has been reported that users have to verify following KYC to use Binance’s full features.
Exactly. I don't know why everyone is so excited about this.
Binance has helped to contaminate the industry by flooding it with questionable practices, i.e. providing a global platform for USDT, accessing markets w/o license, allow washed trading, market manipulation, etc.
— Arturo Portilla (@Arturo_P_A) January 17, 2020
A logical next step could have been for people to switch to using decentralized exchanges since they seem a little harder for governments to control or ban. But going by a previous tweet by Binance’s Changpeng Zhao CZ, this may be hard to achieve since it requires users to store their own keys. He states:
“But the truth is, today most people are not able to secure a key even from themselves (losing it). A trusted centralized exchange is #SAFUer for most people. The numbers speak for themselves.”