A special report from Reuters cites text messages between a Binance company official and one of his business associates in claiming that the popular cryptocurrency exchange was pressured into handing user data over to the Russian FSB, in the name of “fighting crime.”
The Russian financial intelligence unit requested user data from Binance’s regional head of Eastern Europe and Russia in April 2021 as part of an investigation into allegedly illicit funding of opposition leader Alexei Navalny, according to the report. For its part, Binance claims that it has never been contacted by the Russian authorities about Navalny but that it responds to “appropriate requests from regulators and law enforcement agencies.”
Russian FSB pressured regional head into sharing information about donations
The Russian FSB is the country’s central federal security agency, and answers directly to president Vladimir Putin. The agency reportedly approached Binance regional director Gleb Kostarev in April of last year and requested user data pertaining to millions in crypto donations made to support anti-corruption investigations attached to Navalny (serving a lengthy prison sentence after being convicted by the government on a fraud charge). Russian FSB agents reportedly requested names, addresses and other contact information for Binance users that had made such donations. The Russian government has justified similarly invasive actions by placing Navalny’s organization on a list of terrorist groups.
Reuters cites messages from Kostarev to one of his business associates, along with interviews with several former Binance insiders, as evidence that Kostarev agreed to the Russian FSB’s demands. Kostarev reportedly said in one message that Binance did not have “much of a choice” in the matter, further implying in another message that it would not be able to continue to operate in the country if it “made a fuss” over the user data request. For its part, Binance claims that the report is inaccurate, and that it was not approached by the Russian FSB about Navalny.
Part of the shadow of suspicion on Binance stems from the fact that it is one of the few major finance services to remain in operation in Russia in the wake of the invasion of Ukraine. Binance CEO Changpeng Zhao has voiced opposition to the war, but also a belief that the company should continue to serve the average uninvolved Russian citizen; Binance has also issued a statement indicating that it has ceased communicating with the Russian government.
The company has seen considerable growth in the country since February as Russians scramble to transfer assets to cryptocurrency as a hedge against the fluctuating fortunes of the national currency and the restrictions imposed by Western sanctions. Binance has stated that it will comply with sanctions, but will not freeze the accounts of individual Russians and businesses in the country that are not specifically sanctioned. The company has put some blanket limitations on users in the region, however: it has stopped accepting payments from credit cards issued in Russia, and just began limiting Russian accounts that hold over 10,000 euros to withdrawal-only mode.
“Out of character” handling of user data
The reported handover of user data would be out of character for Binance, which has developed an international reputation for refusing to cooperate with government requests for information (something that led Navalny to encourage followers to use it for donations). The company has butted heads with countries such as the United Kingdom and Liechtenstein in recent years over their requests for similar user data, and reportedly opted out of providing service in Malta given the amount of disclosure of personal information that country would require. The company maintains that it complies with legal requests for information in the countries in which it operates, but will not turn over user data when there is no legal basis for it.
This friction with national governments was an issue for the company in Russia in recent years as well. Binance has targeted Russia as a major piece of its growth strategy, but in spite of the government’s permissiveness in allowing a “Wild West” environment for cyber crime it has historically been fairly hostile toward cryptocurrency. Binance was banned there temporarily in 2020 for publishing “prohibited materials” about crypto, with the decision overturned by a court in January 2021. This was followed by a proposed ban on all use of crypto in Russia, something that Kostarev’s messages said had sparked “a war” with Binance.
Kostarev took to his personal Facebook page to deny that any user data was turned over to the Russian FSB improperly, though he did indicate the company may have responded to what it thought was a legal obligation. He also published email correspondence between Binance and Reuters, accusing the news outlet of refusing to speak off the record in the interest of protecting people associated with the company.
Navalny chief of staff Leonid Volkov has also come out against the Reuters story, saying that it is unlikely that Binance would have shared any user data with the Russian FSB and noting that at the time of the alleged incident (April 2021) Binance was not requiring that Russian users provide that sort of information when making crypto donations.