Binance hid links to China

The audio version of this transcript is available.

FT News Briefing

podcast episode:

Binance has hidden links to China

Marc Filippino

Hello from the Financial Times. This is the FT News Briefing for Thursday, 30 March.

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One of the largest online retailers in the world is dividing into six smaller companies. Our reporter discovers that the world's largest crypto exchange claims it has nothing to do anymore with China. UBS, Switzerland's largest bank, has appointed a new CEO to prepare for the acquisition of Credit Suisse. Marc Filippino is here to give you the latest news.

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The social media giant Meta has been considering a ban of political ads in Europe. Meta executives worry that their social media platforms, like Facebook and Instagram, won't conform to the European Union regulations in development. The European Union has been working on new legislation to require big tech companies reveal more information regarding the political groups that are behind online campaigns, and who they are targeting. The FT reports that Meta is worried that the EU definition of a paid political campaign will be too broad. This would make it easier to reject all paid political campaigns on Meta's websites.

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UBS, Switzerland's largest bank, is set to swallow rival Credit Suisse in a rescue agreement brokered by Swiss officials last week. UBS's Board decided that they wanted a new CEO to oversee the process. So they hired someone they knew. Sergio Ermotti was UBS's CEO from 2011 until 2020. Ralph Hamers, the outgoing CEO of UBS, will be replaced by Ermotti. Owen Walker, our European banking correspondent.

Owen Walker

Sergio worked at UBS. He was CEO for 9 years. In that time, he was able to lead a successful campaign to reduce the investment bank in order to refocus on wealth management. This is what Credit Suisse wants to achieve with its business. They're hoping Sergio will come in and pick up from where he left and take it to a larger scale.

Marc Filippino

Owen, you're right, this announcement is made just one week before UBS shareholders meet for its annual general meeting. Was it on purpose?

Owen Walker

Shareholders didn't have a vote on this deal. Although the Credit Suisse takeover has been well received by UBS shareholders, I do not think that the board wanted to hold another AGM, and then surprise them with the news that they had changed their CEO.

Next week, the Credit Suisse AGM is going to be more exciting. It promises to be an event that will be very colorful and very fiery. In Switzerland, there's a great deal of anger directed at the Credit Suisse management and board. Incompetence and poor leadership have led to the loss of a national institution, according to many Swiss. It doesn't really matter because it will be consumed by UBS in the next few weeks. But I believe it's going to be a sign of protest from many people who oppose this takeover.

Marc Filippino

Owen Walker is FT's European Banking Correspondent. Our sister podcast Behind the Money, which is a financial news show, has an excellent episode this week about UBS taking over Credit Suisse. In the show notes, we'll include a link.

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The biggest cryptocurrency exchange in the world is going through a rough week. Binance was accused by a US financial regulator of illegally serving US customers on Monday, despite Binance's denials. Scott Chipolina of the FT, a digital assets correspondent, also reported on Binance’s extensive links with China. Scott is here to tell us what's happening. Hey, Scott.

Scott Chipolina

What's up?

Marc Filippino

I'm well. Binance says it left China in 2017 but you've found evidence that operations continued there long after this date. They hid their ties to China. Why is this important to you?

Scott Chipolina

There are a few reasons. It's because the statements of Binance's executives about leaving China are inconsistent. They claimed that they left China after the Chinese government cracked down on the crypto-industry in September 2017. It's also important because the United States is in the middle of an economic rivalry with China, if you will. Binance's US affiliate Binance US is trying to convince American regulators that the proposed $1bn acquisition of assets from an American company which went bankrupt in 2017 is a good example of this. To the extent that the US wants to exert influence or control over the crypto-industry and, in essence, protect its economy against Chinese influence, the links to China from a company who has tried to hide these links is quite interesting.

Marc Filippino

Binance seems to be caught between a stone and a difficult place. It is up against Chinese regulators and US regulators from the US Commodities and Futures Trading Commission. Let's discuss that CFTC lawsuit. Scott, the complaint alleges Binance illegally accessed US customers. You're sure there are other accusations, too?

Scott Chipolina

It's worth reading the complaint. According to the complaint in June 2020 a Binance executive allegedly said, in a chat, that certain customers - including those from Russia - were, I quote, "here for criminal activity". According to the regulator's complaint, another colleague replied that, "We see the bad but we close our eyes."

Marc Filippino

Scott, Is there a connection between the timing of Binance's China links and the CFTC complaint?

Scott Chipolina

No, I would not say there is. I have been working on the story for a while, and, as it happened, the CFTC complaint was filed this week. It's nice, in a way, that both came together at the same moment.

Marc Filippino

Binance, on the other hand, has reported that it is working with regulators and they have invested in compliance. They are also disappointed by the complaint. Scott, Scott, what do you think will happen to Binance in the end?

Scott Chipolina

Precedent told us that Binance has managed to keep going despite a variety of disputes with regulators all over the world. They control the majority in the crypto trading markets. Just by this one simple metric, it's a huge success from a business standpoint. This, I believe, does raise the stakes a bit. The CFTC complaint has a broad impact, and I believe that Binance is now under more scrutiny.

Marc Filippino

Scott Chipolina, the FT digital assets correspondent. Thanks, Scott.

Scott Chipolina

Marc, thank you so much. Appreciate it.

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Marc Filippino

Hong Kong and China's stocks soared this week, after Alibaba, the Chinese ecommerce company announced an historic restructuring. Alibaba has announced that it will be split into six different business units. This is the biggest shake-up for the tech company since Jack Ma founded his company in 1994.

Eleanor Olcott

This is an important moment for Alibaba.

Marc Filippino

Eleanor Olcott is the FT China correspondent.

Eleanor Olcott

Baba has emerged from a brutal regulatory crackdown that now seems to be behind it. It is assessing the damage caused over the last two years by new, more agile competitors entering its core market, ecommerce. These include Pinduoduo, ByteDance, and others.

Marc Filippino

What is Alibaba doing with this massive restructuring, Eleanor?

Eleanor Olcott

With such a huge organisation, they are only able to do one thing. It's all about margins when you have the size of Alibaba. It's all about increasing profitability. Baba's entertainment and food delivery business are among the many inefficient and losing businesses. Analysts believe that by separating the profitable ecommerce businesses, including the massively popular Taobao platform and the slightly upmarket Tmall site, the company could increase its valuation and provide more value to investors.

Marc Filippino

Can we assume Chinese regulators are in agreement with this? Beijing has been trying to control these giant corporations. Splitting up companies should be in line with this, right?

Eleanor Olcott

Tencent is also a massive Chinese tech company. Tencent has downsized its stakes in many other Chinese internet companies, including food delivery service Meituan. This was done in response to regulators' concerns about their scale of influence in the industry, and their ability of using the huge influence of the ubiquitous WeChat app to give its portfolio of businesses a leg-up. Alibaba should have these added benefits.

Marc Filippino

Eleanor, do you think this is a new age for China's technology giants?

Eleanor Olcott

We are at an exciting time for Chinese Internet companies. As I see it, we're entering a new chapter in their development. The explosive growth in the Chinese economy, and in the internet economy was the first chapter. The second chapter began with the cancellation the Ant IPO. This brought about a series of regulatory measures to tame these internet giants. Now we're entering the third phase, where these tech giants will be looking to chart a path that keeps them on the good side with the government while also referring to the old playbook to boost shareholder value. This has been put on the backburner while they have been fighting political wars. In this new environment, we are seeing major changes like Alibaba's reorganization. So, I believe it's just the beginning.

Marc Filippino

Eleanor Olcott, the FT China correspondent.

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Read more about these stories on FT.com. Your daily FT News briefing. Check back tomorrow to get the latest business news.