Special Report: How crypto giant Binance built ties to a Russian FSB-linked agency

VILNIUS, April 22 (Reuters) – In April 2021, Russia’s financial intelligence unit met in Moscow with the regional head of Binance, the world’s largest crypto exchange. The Russians wanted Binance to agree to hand over client data, including names and addresses, to help them fight crime, according to text messages the company official sent to a business associate.

At the time, the agency, known as Rosfinmonitoring or Rosfin, was seeking to trace millions of dollars in bitcoin raised by jailed Russian opposition leader Alexei Navalny, a person familiar with the matter said. Navalny, whose network Rosfinmonitoring added that month to a list of terrorist organisations, said the donations were used to finance efforts to expose corruption inside President Vladimir Putin’s government.

Binance’s head of Eastern Europe and Russia, Gleb Kostarev, consented to Rosfin’s request to agree to share client data, the messages showed. He told the business associate that he didn’t have “much of a choice” in the matter.

Kostarev didn’t comment for this article. Binance told Reuters it had never been contacted by Russian authorities regarding Navalny. It said that before the war it was “actively seeking compliance in Russia,” which would have required it to respond to “appropriate requests from regulators and law enforcement agencies.”

The encounter, which has not been previously reported, was part of behind-the-scenes efforts by Binance to build ties with Russian government agencies as it sought to boost its growing business in the country, Reuters reporting shows. This account of those efforts is based on interviews with over 10 people familiar with Binance’s operations in Russia, including former employees, ex-business partners and crypto industry executives, and a review of text messages that Kostarev sent to people outside the company.

Binance has continued to operate in Russia since Putin ordered his troops into Ukraine on Feb. 24, despite requests from the government in Kyiv to Binance and other exchanges to ban Russian users. Other major payment and fintech companies, such as PayPal and American Express, have halted services in Russia since the Kremlin launched what it calls a “special operation” to demilitarise and “denazify” Ukraine. One of Binance’s main rivals in Russia, EXMO.com, said on Monday it would no longer serve Russian and Belarusian clients and was selling its Russia business. Some smaller crypto exchanges remain.

CEO Changpeng Zhao, widely known by his initials CZ, has said he is against the war and “politicians, dictators that start the wars” but not against “the people on both sides of Ukraine and Russia that are suffering.” Zhao didn’t comment for this article. Binance referred Reuters to Zhao’s previous statements on the matter.

Legal representatives for Binance told Reuters that “active engagement with the Russian government has now stopped due to the conflict.” On Thursday Binance told users it was limiting services for major clients in Russia because of the latest European Union sanctions on Moscow.

Binance’s trading volumes in Russia have boomed since the war began, data from a top industry research firm shows, as Russians turned to crypto to protect their assets from Western sanctions and a devaluing rouble. In one recent message to an industry contact, Kostarev said Binance’s priority was to ensure the market stayed open, so the exchange wasn’t “making a fuss.” He didn’t elaborate.

Asked by Reuters to clarify Kostarev’s message, Binance said the war and economic crisis could accelerate crypto’s adoption among working-class Russian citizens looking for alternative payment means. Binance added that it is aggressively applying sanctions imposed by Western governments, but would not unilaterally “freeze millions of innocent users’ accounts.”

THE FREEDOM OF MONEY

Since its launch five years ago in Shanghai, Binance has grown to dominate the unregulated Russian crypto sector with an estimated four-fifths of all trading volumes, market data shows. Binance said it doesn’t comment on “external data projections” and, as a private company, doesn’t share such information publicly.

Zhao, in 2019, told Russians that Binance’s mission there was to increase the “freedom of money” and “protect users.” Russians flocked to the platform, seeing it as an alternative to a banking system closely monitored by a state they distrusted.

In line with a draft law to regulate crypto companies, Binance agreed with Rosfinmonitoring to set up a local unit in Russia through which authorities can request client data, the Kostarev messages reviewed by Reuters show. Asked whether it had proceeded to set up this local unit, Binance responded, “Should we consider establishing a local entity in Russia in the future, Binance will never share data without a legitimate law enforcement request.”

Navalny’s chief of staff, Leonid Volkov, told Reuters that…