Binance hid links to China

This is an audio transcript of the FT News Briefing podcast episode: ‘Binance hid links to China’

Marc Filippino
Good morning from the Financial Times. Today is Thursday, March 30th, and this is your FT News Briefing.

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One of the world’s biggest online retailers is splitting itself up into six smaller companies. The world’s biggest crypto exchange says it’s got nothing to do with China anymore, but our reporter finds otherwise. And Switzerland’s biggest bank, UBS, is calling in a new CEO as it prepares to digest Credit Suisse. I’m Marc Filippino, and here’s the news you need to start your day.

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Social media giant Meta is considering a ban on political ads in Europe. Meta executives are concerned that its social networking platforms like Facebook and Instagram won’t comply with European Union regulations that are in the works. The European Union is working on new laws to force big tech companies to reveal more information about the political groups behind online campaigns and which users they are targeting. Sources tell the FT that Meta is concerned that the EU’s definition of a political ad will be too broad, and that would make it easy to refuse all paid-for political campaigns on the company’s sites.

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Switzerland’s biggest bank, UBS, is about to swallow its rival, Credit Suisse, in a rescue deal brokered by Swiss authorities last week. But UBS’s board decided they want a different CEO to manage the process, so they called in someone familiar. Sergio Ermotti ran UBS from 2011 to 2020. He’ll replace outgoing head Ralph Hamers. Here’s our European banking correspondent, Owen Walker.

Owen Walker
Sergio was at UBS. He was CEO for nine years. And in that time he led a very successful drive to cut back the investment bank and to really refocus the business on wealth management. And that’s really what they’re looking to do again with the Credit Suisse business. So they’re looking for Sergio to come in and basically pick up where he left off and do it on a bigger scale.

Marc Filippino
So, Owen, this announcement comes just a week before shareholders gather for UBS’s annual general meeting. Was that on purpose?

Owen Walker
You know, shareholders didn’t get a chance to vote on this transaction. And I think although, you know, it’s been sort of fairly well-received, the takeover of Credit Suisse among UBS shareholders, I don’t think the board wanted to, you know, have another AGM and then spring another surprise on them and say, oh, by the way, we’ve just changed our CEO.

The more interesting event next week is gonna be Credit Suisse’s AGM on the Tuesday and that promises to be a very colourful, very fiery event. There’s a lot of anger in Switzerland against the management team and the board at Credit Suisse. They really see this as being, you know, a national institution which has been lost through incompetence and poor management. Ultimately, it doesn’t matter too much because, you know, in the final weeks of this being an independent business and it’ll be consumed by UBS fairly soon, but I think it’s gonna be a real sign of protest for a lot of people who are against this takeover.

Marc Filippino
Owen Walker is the FT’s European banking correspondent. If you wanna hear the inside story about UBS’s takeover of Credit Suisse, our sister podcast Behind the Money has a great episode on it this week. We’ll share a link to that in the show notes.

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The world’s biggest cryptocurrency exchange is having a tough week. On Monday, a top US financial regulator accused Binance of illegally servicing US customers, despite the company’s claims to the contrary. And then separately, the FT’s digital assets correspondent, Scott Chipolina, reported on Binance’s extensive links to China. Scott joins us now to talk about what’s going on. Hey, Scott.

Scott Chipolina
Hey, Marc. How are you?

Marc Filippino
I’m doing well. So Binance claims to have left China in 2017, but you found plenty of evidence of operations there well after that time. It turns out they hid their links to China. Why is this important?

Scott Chipolina
There’s a couple of reasons. First is because it reveals an inconsistency from the public statements made by Binance’s senior executives that they left China. They said that they did that after the Chinese government clamped down on the crypto industry in September 2017. Another reason why it’s particularly important today is the United States and China are obviously in the midst of a significant, you know, economic rivalry, let’s call it, for want of a better phrase. And one of the things that is central to that with regard to Binance is its US affiliate, called Binance US, is currently trying to convince American regulators to greenlight the purchase, a proposed $1bn purchase of assets belonging to an American company that went bankrupt last year. And to the extent that the US government wants to control or exert influence over the crypto industry and in essence protect its economy from Chinese influence, links to China as a country from a company that has attempted to hide those links, I think, is quite interesting.

Marc Filippino
So it kind of sounds like Binance is in between a rock and a hard place. It’s up against regulators in Beijing and US regulators at the US Commodities and Futures Trading Commission. So let’s talk about that CFTC complaint. Scott, it alleges that Binance was illegally accessing US customers. There are some other damning accusations as well, right?

Scott Chipolina
I would certainly recommend for listeners to go through the complaint itself, because it’s certainly worth a read. Just according to the complaint, in one instance in June 2020, according to the complaint, a Binance executive said in a chat message that certain customers, including some from Russia, were, and I quote directly, “here for crime”. A colleague allegedly replied, again according to the regulator, and I quote, “We see the bad, but we close two eyes.”

Marc Filippino
OK. So that’s, that’s a bit of a doozy. Um. Scott, is there a link to the timing of the CFTC complaint and your report on Binance’s links to China?

Scott Chipolina
No, I wouldn’t say that there is. I mean, I’ve been working on this story for a little bit, and it just so happened that, you know, it was ready this week at the same time as the CFTC complaint. So it’s, in a sense, it’s nice that they’ve both come together at the same time.

Marc Filippino
So for Binance’s part, you reported that they say they’re working with regulators, they’ve invested in compliance and are disappointed with the complaint. Scott, in the end, do you think anything significant is gonna happen to Binance?

Scott Chipolina
Precedent has told us that, you know, throughout an array of controversies with regulators around the world, Binance have managed to effectively just crack on. I mean, they control the majority of the crypto trading market. And just by one simple metric that’s considered, from a business perspective at the very least, a success. But I think, you know, this does, let’s say, raise the stakes somewhat. I think that the broad takeaway from the CFTC complaint is that the heat has been turned up on Binance.

Marc Filippino
Scott Chipolina is the FT’s digital assets correspondent. Thanks, Scott.

Scott Chipolina
Thanks so much, Marc. Appreciate it.

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Marc Filippino
Stocks in Hong Kong and China jumped this week after the Chinese ecommerce giant Alibaba announced a historic restructuring. Alibaba says it will split into six separate business units. It’s the tech company’s biggest shake-up since founder Jack Ma launched his company 24 years ago.

Eleanor Olcott
This is a really pivotal moment for Alibaba.

Marc Filippino
That’s the FT’s China correspondent, Eleanor Olcott.

Eleanor Olcott
It’s emerging out of a really bruising regulatory crackdown, which now appears to be in the back mirror, and Baba is surveying the destruction over the past two years, which has seen new and more nimble competitors enter into its core market of ecommerce, including Pinduoduo and ByteDance.

Marc Filippino
So, Eleanor, what’s Alibaba trying to do with this big restructuring?

Eleanor Olcott
There’s only really one thing that they can do with such a large organisation. When you’re the size of Alibaba, it’s really a margins game. It’s about improving profitability. Now Baba has a series of business units that are incredibly inefficient and lossmaking, including its entertainment and food delivery businesses. So by cleaving off the successful ecommerce units, which includes the hugely popular ecommerce platforms Taobao and the slightly more upmarket Tmall, some analysts project that this could boost the company’s valuation and return more value to shareholders.

Marc Filippino
Can we assume that Chinese regulators approve of this? I mean, Beijing’s been trying to rein in these giant companies. So splitting up should actually align with that, right?

Eleanor Olcott
So if you look at what’s happening at the other massive Chinese tech giant, Tencent, Tencent has been downsizing the stakes in other Chinese internet groups, including the food delivery service Meituan, in response to regulatory concern about the scale of their influence in this industry and their ability to use the massive influence of its ubiquitous WeChat messaging app to give a leg up to its portfolio of companies. There should be these kind of added benefits for Alibaba.

Marc Filippino
Do you see this as a new era for China’s tech giants, Eleanor?

Eleanor Olcott
We’re at a really interesting moment for Chinese internet companies. The way I see it is we’re kind of entering a third chapter of their development. The first was marked by this explosive growth, the rise of the internet economy and the explosive growth of the Chinese economy. The second chapter really started with the cancellation of the Ant IPO, and this brought in and ushered in a whole suite of regulatory actions taming these internet giants. We’re now entering a third phase when these tech giants are looking around and trying to chart a course that keeps them both on the good side of the government, while it’s also referring back to the old playbook of boosting shareholder value — something that’s been a little bit on the back burner while they’ve been fighting political battles. And it’s really in this new environment that we’re seeing changes and developments like Alibaba’s restructuring. So I think it’s the start of more to come.

Marc Filippino
Eleanor Olcott is the FT’s China correspondent.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.