Crypto community has recently received quite a disturbing signal, which is, nonetheless, is not of much surprise: while introducing much stricter regulations for Russian users, it also became known about possible Binance crypto exchange ties with the FSB (Russian federal security service) and tight cooperation with authorities regarding uncovering users’ activity linked to political opposition movement in Russia and sharing customers’ data, according to the Reuters article.
My take on that was first posted on LinkedIn:
In this sense, regulated crypto providers are no difference from any banks or centralized financial institutions, ‘centralized’ being a key word here. Pseudo-anonymous nature of most cryptos is the first step to getting anxious, and the regulation and following legal vulnerability of the centralized crypto providers brings in even much more trouble.LinkedIn post from 22.04.2022
One may argue that it heavily depends on a jurisdiction, which is also true to some extent. But once the interests of high-influence dictatorship countries are affected, they have plenty of means to push these crypto providers hard enough to make them cooperate with fascist governments and state surveillance authorities.
Remember how people were enthusiastic with digital photography at the dawn of the technology? One click and you have a digital image, no film, no lab, no hassle. Well, until RAW format was introduced which you now need to ‘develop’ in Lightroom software just like a film. WTF?
Something, somewhere went terribly wrong.
As the topic quickly gained much attention on social networks, I would like to make an important update on that.
I am expressing my own personal opinion and by no means I am taking any side, definitely not being able to conclude whether Reuters’ accusations of Binance are false or true. However, nor I am revealing anything that remained a secret before.
After the initial report was published by Reuters, Binance issued an official statement on their website, and it is absolutely understandable for them to deny the claims about their ties with the FSB, which is definitely harmful for a business reputation.
Gleb Kostarev, Binance regional director in Russia, also posted another statement on his personal Facebook page, which says in Russian, “This is an absolute lie that me or Binance has leaked Navalny’s or other users’ data to Rosfinmonitoring or the FSB”:
However, there are a few important considerations which are closely tied together and need to be clarified: Russian legislation, surveillance efforts of the state, and a general way of doing business in Russia.
It is absolutely not a secret that starting from a certain scale of operations, big business gains the attention of authorities in Russia, and for a number of reasons. Companies possess huge amounts of customers’ data which can be extremely helpful in a task of citizens’ surveillance. Telecoms, internet companies, all kinds of financial institutions, wherever else gathering personal or financial information – all can provide various data so much sought after by FSB and other state authorities. Obviously, the amount of that data is too large to closely survey over everyone, but naturally, those who actively oppose the state policy are becoming targets number one for the state itself. In other words, an average citizen should not be bothered with any state interception into his private life and personal data – until the state actually has something to look for specifically about that very citizen.
Just a few links that help to gain an understanding of state control over Russian business:
- So far, over 10 years ago it was already openly acclaimed that Russian tech giants like Yandex are sharing the data with the FSB (article from 2011): https://arcticstartup.com/russian-search-engine-yandex-shared-information-with-fsb/
- It hasn’t been also a secret that FSB was always able to request data from tech companies – a type of ‘polite request’ which can hardly be denied: https://www.themoscowtimes.com/2020/02/12/russias-fsb-tells-internet-firms-to-hand-over-user-data-the-bell-a69254
- Any big tech company in Russia does not have much choice but to comply with authorities. Vkontakte, Mail.Ru, Odnoklassniki, Yandex, Rambler, LiveJournal, Kaspersky Labs, etc – all of them are state-controlled to a big extent, and are not able to waive any legal restrictions.
- Recent legislation proposals that taxi riding companies should share their data with FSB (https://www.reuters.com/business/autos-transportation/russia-draws-up-law-force-taxi-firms-share-data-with-fsb-document-2022-03-29/), or attempts to regulate crypto ownership up to a level that one could be “criminally liable” just for not willing to share their keys with authorities (https://cointelegraph.com/news/russian-bankers-reportedly-want-to-outlaw-noncustodial-crypto-wallets)
- Telecoms are much loved by authorities In Russia because of the invaluable customer data they possess: https://techcrunch.com/2019/09/18/russia-sorm-nokia-surveillance/.
- Companies as large as Nokia have contributed to building Russian state surveillance system: https://www.nytimes.com/2022/03/28/technology/nokia-russia-surveillance-system-sorm.html
- Finally, any financial institution is always under tight authority control because the state wants to know where the money goes, and how much, thus it can request to freeze basically any bank account: https://www.reuters.com/article/us-russia-politics-navalny-idUSKCN1UY1ER.
- In 2014 I personally witnessed FSB officers visiting Yandex.Money (where I have been working at that time) and doing investigations in relation to political opposition owned and ‘some other’ accounts and funds movement: https://www.themoscowtimes.com/2014/05/23/yandex-offices-searched-during-investigation-into-navalny-backers-a35725 .
This said, starting from a certain level you are not able to continue your business if you don’t play the rules (which are politely offered to you with no possibility to decline). This is especially true when a local representative or head of the company are a local person themselves: this makes easier to manage the company with the knowledge of the specific market and professional connections, but at the same time, local manager is always more vulnerable for any authority pressure or threat. The price of your non-compliance? Your business, at the very least. In some cases, your life.
Just a couple of examples from 2021:
- FSB agents threatening a Google executive in order to remove Free Elections voting app from Play Market: https://www.businessinsider.com/russia-agents-threatened-google-exec-to-remove-voting-app-moscow-2022-3.
- Ilya Sachkov, one of the biggest Russian cybersecurity experts and Group-IB cybersecurity company founder, has been imprisoned in 2021 in a state treason case and rumors are either he ‘knew too much’, or ‘went too far’, or just ‘didn’t comply’: https://www.bbc.com/news/world-europe-58738952.
So it’s time to ask yourself a question, why Binance – a financial institution working in a very loosely regulated cryptocurrency domain, which draws very high interest from state authorities – should make an exception and NOT be asked to give out any customers’ data by FSB, government or other authorities, or be asked and denied to comply?
At the end, the reality is such that, rephrasing a well known pitch, in Soviet Russia just one call from authorities makes anyone comply, or just one call plus life threat to you and your family members – you still have a choice, it’s a democracy in the end, isn’t it?..
But finally, this is not just about Binance at all.
After the war in Ukraine started and sanctions emerged, many ordinary people on all sides were in trouble trying to move their funds out of Russia while physically being outside, or trying to flee away. I have many friends who were left with nothing but crypto as the only means to do that. And they can get themselves into a bigger trouble if they don’t understand the risks of centralized financial institutions of whatever origin operating in country like Russia, where loose regulation creates a false feeling of safety when using crypto, while absolute government lawlessness and brutal power can basically interfere and terminate any business they want while also getting hold of customers’ data, especially when there’s a money thing or ‘state interests’ involved.