After fleeing from Malta and failing to set up shop in the U.K., Binance set up a lucrative payments business in Lithuania. Now its leading executives are being accused of fraud.
By David Jeans, Giacomo Tognini and John Hyatt, Forbes Staff
After fleeing China ahead of looming crypto regulations, Binance needed a new home. It failed to find one in Malta. Then it tried London, only to be pushed out when it again couldn’t obtain a local crypto license. As it struggled to find a base in Europe, a tiny nation finally opened its doors: Lithuania. Not only did the country offer access to the European Union, it provided a place for the massive crypto exchange to establish a subsidiary and park billions of dollars.
Binance’s arrival in the Baltic nation appeared to be mutually beneficial: The company’s local subsidiary Bifinity was Lithuania’s second-largest corporate taxpayer last year, contributing $44 million, according to Lithuanian tax filings, and Binance used it to process nearly $7 billion in crypto transactions.
But established outside the oversight of a major financial center, Bifinity was also used to facilitate some of Binance’s more dubious transactions. Bifinity sent $6.3 billion to another subsidiary called Merit Peak, a British Virgin Islands-based firm that the SEC alleged had commingled customer deposits with the company’s funds. (Binance said the allegations were “simply wrong.”) Other funds were used to purchase a $55 million private jet and some $62.5 million was directed to CEO Changpeng Zhao’s personal Bank account.
“If they’re an upstanding company, why couldn’t they get through the process in these other locations?” said Anil Kashyap, a University of Chicago professor and advisor to the European Central Bank. Instead, “they set it up in a place with weaker standards, and surprise, surprise, there’s gambling in Casablanca.”
In addition, Forbes found, Bifinity was crucial to Binance’s attempts to get regulated in the United Kingdom — a key goal for Zhao that would have given Binance coveted legitimacy in a global financial hub. But the effort, which involved acquiring a Nasdaq-listed company with a British crypto license, collapsed. Bifinity, Zhao and his executives are now being accused in a previously unreported class-action lawsuit of making “materially false” statements that artificially inflated the publicly listed firm’s stock price.
Simon Matthews, Binance’s PR director for Europe, told Forbes that the company “will defend [its] position vigorously” against the class action claims. Responding to questions about the payments to Zhao’s bank account, accusations of commingling customer funds and the private jet, Matthews denied the transactions indicated anything untoward, telling Forbes that “auditors issued unqualified opinions regarding 2021 and 2022 financial statements.” He added that Bifinity operates “in an open and transparent manner” and “manages the relationships with third party regulated payment providers and banks.”
“They set it up in a place with weaker standards, and surprise, surprise, there’s gambling in Casablanca.”
Many payment providers, such as Paysafe — which processed its Euro-denominated bank transfers — are now dropping Binance as it faces headwinds in Europe, and around the globe. It is under investigation for fraud and anti-money laundering in France, and last month the SEC accused the company and Zhao of widespread fraud and filed more than a dozen charges against both. The SEC’s allegations include that Binance misused customer funds and diverted them to a trading entity controlled by Zhao. Binance said at the time it intended to “defend our platform vigorously.”
Such issues have only increased Binance’s reliance on its Lithuanian operation. First incorporated in 2020 as Binance UAB, Lithuanian authorities were initially skeptical: The country’s central bank issued a warning against the company in July 2021, alleging that it was offering “unlicensed investment services.” But Binance found a workaround: Instead, it registered the company as a virtual currency exchange with the country’s business registry, a process that doesn’t require a license from the central bank as long as the firm doesn’t hold any customer funds.
A spokesperson for the Bank of Lithuania told Forbes that Bifinity “is not supervised or licensed” by the bank. Binance’s spokesperson Matthews said the company “is not required to be licensed by the Bank of Lithuania as Bifinity does not hold, manage, or collect client funds or issue electronic money.”
While the Lithuanian entity primarily processed customer credit card transactions, it also became integral to Binance’s effort to gain a foothold in the U.K. The company’s previous attempts to gain a U.K. crypto license had failed under the direction of an executive named Helen Hai, a Chinese-born British citizen who is married to Daming Zhu, an early Binance investor and personal friend of Zhao’s, according to multiple former Binance employees. (Binance did not make Hai available for comment.)
Hai had joined Binance to lead its charity operations in 2018 and became the face of the company’s charm offensive on global regulators. She is one of several women to ascend to Binance’s highest ranks, including Guangying Chen (the company’s unofficial CFO, a recent Forbes investigation found) and Binance’s cofounder, Hi Ye, with whom Zhao has children.
In March 2022, Hai took charge as president of the Lithuanian company when it relaunched as Bifinity. In a splashy press release touting the firm as Binance’s “official fiat-to-crypto payments provider,” Hai said in a press release the company’s aim was to “accelerate mass crypto adoption.” The press release also announced it had acquired a stake in a Nasdaq-listed firm called Eqonex, a company that owned a U.K.-licensed crypto custodian called Digivault. “It is with great excitement and enthusiasm that we enter this partnership,” Hai said. Jonathan Farnell, then CEO of Bifinity and head of Binance U.K., was named Eqonex’s CEO.
Given multiple failed efforts to appease British regulators, Binance planned to use Eqonex to piggyback off Digivault’s U.K. crypto custodian license, according to claims made in the class action lawsuit. “The idea was that Binance was a red entity, and Eqonex was clean and green,” a person with knowledge of the situation told Forbes.
But the partnership quickly collapsed, leaving Eqonex bankrupt and delisted from the Nasdaq. In May, investors of Eqonex sued Bifinity, Hai, Farnell, Zhao and two other Binance executives in the Southern District of New York for alleged fraud, claiming Bifinity never had any intention of supporting its main Singapore-based exchange business, which generated 80% of Eqonex’s revenues the prior year. Binance had shuttered the exchange a few months after the partnership was announced, despite promises to “leverage” its technology, and laid off hundreds of Eqonex employees. (The defendants have not yet responded to the claims.)
Hai’s earlier efforts to obtain a U.K. license for Binance also resulted in fraud allegations. In 2019, Hai had partnered with a South African entrepreneur, Simon Dingle, to set up Binance Digital Limited, a U.K. company that obtained compliance under Britain’s temporary crypto registration program. Zhao held 80% of the entity, while Dingle’s business Dimplex held the other 20%. Dingle was “willing to take on the risk for Binance, obviously in exchange for some payment in the future,” says one individual familiar with the matter.
But in a corporate filing last September, Dimplex accused Binance of filing “grossly inaccurate” financial statements for 2020 in an alleged effort to stiff it. A former Binance executive told Forbes Dingle’s business “never saw a single penny” from the arrangement. The dispute is ongoing, according to an individual familiar with the matter. Dingle did not respond to a request for comment. Matthews, the Binance spokesperson, told Forbes that the company “is unable to respond in detail” to the allegations.
Binance continues to face an array of other troubles and has withdrawn or been ejected from five countries in Europe in recent months. But Zhao isn’t giving up on establishing a London base for his company. In May, after the U.S. Commodity Futures Trading Commission sued Binance for illegally operating a crypto derivatives exchange, Patrick Hillmann, Binance’s then-chief strategy officer, said at an industry gathering in London that Binance would do “everything we possibly can” to be regulated in the U.K. “I expect at some point the U.S. is going to want to pivot and play catch-up to Europe.” (Hillman left Binance this month, citing a desire to spend time with his family.)
Three weeks later, Binance deregistered its last-remaining U.K. subsidiary, Binance Markets Limited. The decision will have “no impact on Binance’s future plans in the U.K.,” a company spokesperson said, insisting that the company still has “every intention of registering” in the country.
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