“An absolutely natural process.” What user data exchanges hand over at the request of the authorities

When Reuters published an article accusing Binance of money laundering and violating international sanctions, the exchange reacted with a detailed response with explanations from Tigran Gambaryan, the company’s Global Head of Intelligence and Investigations.

Speaking about the benefits of Binance’s security system and its processes of interaction with law enforcement agencies, Gambaryan mentioned that the company’s staff involved in compliance procedures has increased “by more than 500%” since November 2021. In addition, according to the publication, the exchange responded to more than 47 000 law enforcement requests during the same period.

Concurrently, US crypto exchange Coinbasepublished a report saying it received 12 320 requests for information from law enforcement and regulators around the world from October 1, 2021, to September 30, 2022. That is a 66% increase over the previous year. Coinbase attributed the growth to the development of the company itself, as well as the increased interest of authorities in the crypto industry.

Coinbase noted that it does not respond positively to requests in all cases and also strives to provide anonymized and aggregated data rather than specific information about individual customers. The platform currently has more than 108 million customers worldwide.

“Nothing is surprising about this, rather it is an absolutely natural process,” commented InDeFi Smart Bank CEO Sergey Mendeleev. In his opinion, the growing number of requests may indicate both that criminals are more often using cryptocurrencies as a tool, and that more and more law enforcement officers understand how such crimes should be investigated.

First and foremost, this indicates an increase in crimes and disputes involving cryptocurrencies, agrees Nikita Zuborev, the senior analyst at Bestchange.ru. However, at the same time, it shows the mass adoption of cryptocurrencies by society. “The issue is not that the number of offenses has increased among the same audience as before, but with the growth of the audience, the number of disputes that arise has increased proportionally,” Zuborev explains.

Privacy issue

Coinbase said in comments on the report that it strives to protect customer privacy while helping law enforcement catch criminals using the platform. “In every instance, we carefully review law enforcement and agency requests before providing data to ensure we are honoring our customers’ rights over their personal information,” the publication said.

Depending on the nature and scope of the request, the exchange may provide, among other things, a customer’s name and last login/logout IP address, as well as their payment information. Direct access to customer or system information is not provided to any government, Coinbase assures.

No service is particularly enthusiastic about sharing information, Zuborev believes. “That is, by default, your data will not be shared with anyone just on a whim. But if services that operate in the Russian market receive official requests as part of a criminal investigation, certainly both exchanges and exchange offices have both a moral right and a legal obligation to provide related information,” the analyst explains.

According to Mendeleev, there should be no privacy in cases involving law enforcement. “Another question is how to distinguish a request concerning, say, the theft of bitcoins from a user’s wallet from a request that aims to prosecute an opposition journalist who collects donations through cryptocurrency for his activities?” the expert argues.

According to Mendeleev, in this sense, there should be some unified approaches in the format of such requests so that each responding party could assess the legality of providing a piece of information. In case of contradiction to the established democratic principles, it should be refused, referring the issue to a court decision.

Requests from Russia

Coinbase received the largest number of requests from law enforcement agencies and departments from the United States. Overall, about 80% of all requests came from the United States, the United Kingdom, Germany, and Spain. Coinbase does not work with Russian customers, but requests from local law enforcement agencies are also received by various crypto services.

Russian authorities are certainly asking for such information, and in most cases they get answers, says Mendeleev, citing a tweet from Binance CEO Changpeng Zhao in 2021, in which he directly confirms the existence of requests from Russia and Ukraine.

Just received a Certificate of Commendation from the National Police of Ukraine and Ministry of Internal Affairs from Moscow@binance works collaboratively with law enforcement agencies from all over the world to keep our space #SAFU. pic.twitter.com/4QHja2p8SP — CZ 🔶 Binance (@cz_binance) June 2, 2021

According to Zuborev, the process of interaction between crypto services and law enforcement is “put on stream,” but it largely depends on the format of the business and its jurisdiction. Small exchangers operating in the local market find it much easier to remain invisible to regulators and law enforcement agencies than international exchanges. But exchanges also try to do only the minimum necessary from a formal point of view, the analyst adds.

According to his observations, foremost, large international companies ask for court decisions, even from countries where the courts are quite biased. From the point of view of international law, such decisions and requests have a better chance to be satisfied than a direct request from the law enforcement agencies of a particular country to a service located in another jurisdiction.

“Here, in fact, Russia “shot itself in the foot” with the adoption of the law on Digital Financial Assets (DFAs), thereby banning the activities of crypto companies in the country and pushing all their local representations, obliging crypto exchanges to cooperate with Russian law enforcement agencies,” Zuborev reasons. Now that companies have been forced to minimize their presence in the country, they can literally ignore requests from Russia, which they are safely doing. Formally, Interpol remains the only legal way to exchange information.

Some platforms refused to cooperate with Russian law enforcement in principle after February for obvious reasons, adds Mendeleev. “But this is rather a tribute to the general trend started by Interpol itself. Alas, this does not help in the fight against real crime,” the expert explains.