SBF’s alleged Chinese bribe, Binance clarifies account freeze: Asia Express
Our weekly roundup of news from East Asia curates the industry’s most important developments.
SBF’s Chinese bribe scandal worsens
According to October 11 testimony from Caroline Ellison, co-founder of FTX-linked hedge fund Alameda Research, her colleague — disgraced FTX founder Sam Bankman-Fried — allegedly paid $150 million in bribes to Chinese government officials in 2021, higher than the $40 million disclosed initially.
Ellison said during the FTX trial that two years prior, $1 billion worth of Alameda Research’s digital assets on crypto exchanges OKX and Huobi were frozen by Chinese law enforcement as part of a money-laundering investigation. Senior FTX executives, such as chief operations officer Constance Wang and Alameda trader David Wa, were also involved in the incident. The individuals first tried to contact a Chinese lawyer to unfreeze the funds, which didn’t work.
Then, FTX and Alameda staff allegedly created accounts on OKX and Huobi using the identification of a Thai prostitute to negotiate the return of funds. When that didn’t work out, Ellison accused Bankman-Fried of paying a $150 million bribe to unfreeze the accounts. The bribe was recorded as “the thing” in future Alameda balance sheets. According to Ellison’s testimony, the funds were immediately unfrozen following the bribe.
Presiding Judge Lewis Kaplan of the United States District Court for the Southern District of New York reminded the jurors that Bankman-Fried’s alleged bribery of Chinese officials is not within the scope of the ongoing FTX trial. Instead, a second trial relating to SBF’s bribery charges has been scheduled for March 11, 2024. The FTX trial will remain ongoing for the month of October.
Binance clarifies account freeze
Yi He, a co-founder of Binance, clarified on the Chinese social media app WeChat earlier this week that only accounts of users suspected of violating international sanctions will be frozen on the exchange.
The statement came after a wave of inquiries in response to local news reports that the exchange froze accounts of suspected Hamas militants per Israeli law enforcement’s request. Yi He explained:
“Hamas is a designated terrorist organization by the United Nations. Therefore, any organization, including banks and trading platforms, will need to cooperate on the receipt of freeze requests. This is not something Binance can decide on its own.”
The Binance executive commented: “I have no political biases, yet no trading platform can refuse such law enforcement requests. Palestine has an organized government. Hamas is a local militant group. They kill civilians; that’s the problem. Hamas is not Palestine; the freeze is targeted towards Hamas, not Palestine.”
In a follow-up post on October 11, Yi He further clarified that “Binance would not confiscate nor freeze assets of ordinary users. Rules are created by the strong; in the face of international regulations, Binance is a nobody.” She also pointed to the fact that, despite the ongoing war between Russia and Ukraine, the exchange has not frozen the accounts of ordinary Russians.
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Crypto lending invalidated by second Chinese court
Crypto lending contracts in China are not protected by law because the underlying asset is illegal, a second Chinese court has ruled.
As narrated by the Nanchang People’s Court on October 10, plaintiff Mr. Ming lent 80,000 USDT to defendant Mr. Gang in April 2021 for the purpose of stablecoin trading. The loan was to be repaid within six months. Mr. Gang subsequently defaulted on the loan, leading to a civil lawsuit by Mr. Ming. Both the lawsuit and its appeal were dismissed.
In their decision, the presiding judge wrote:
“There are legal risks involved in participating in virtual currency investment and trading activities. If any legal person, unincorporated organization, or natural person invests in virtual currencies and related derivatives that violates public order and good customs, the relevant civil legal actions will be invalid, and the resulting losses shall be borne by them.”
The judge further explained that according to various legislation forming China’s crypto ban, “virtual currencies only exist in digital form, are not legal tender, and do not have legal compensation, such as Bitcoin, Ethereum, Tether, etc., and cannot be used as currency in the market. Virtual currency-related business activities are illegal financial activities that harm national financial order, financial security and social public interests, and are strictly prohibited.”
The ruling does not extend to the digital yuan central bank digital currency, which the presiding judge said “is a legal currency in digital form issued by the People’s Bank of China. It is operated by designated operating agencies and redeemed by the public. It is equivalent to banknotes and coins.”
Previously in August, a Chinese man lost $10 million worth of Bitcoin after the borrower defaulted on his Bitcoin lending agreement and a court ruled that the contract was invalid, citing similar reasons as the Nanchang People’s Court.
Huobi hacker returns all assets
According to a statement by Justin Sun, de-facto owner of cryptocurrency exchange HTX, formerly known as Huobi, a hacker has returned all of the 5,000 Ether ($8 million) stolen during a security incident last month.
“We have confirmed that the hacker has fully returned all funds, as promised, and we have also paid the hacker a white hat bonus of 250 ETH. The hacker made the right choice. We would like to express our gratitude to everyone in the industry for their help,” Sun wrote. On September 25, Huobi’s hot wallet was hacked for 5,000 ETH in an incident first detected by blockchain analytics firm Cyvers Alerts.
Sun subsequently offered a bounty and threatened legal action if the funds were not returned. During the incident, the blockchain personality also claimed that the exchange held around $3 billion in users’ assets. Last month, Huobi rebranded as HTX, raising community eyebrows due to the similarity of the name to the now-defunct crypto exchange FTX.
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According to the US Department of Justice, Wolf Capital’s co-founder has pleaded guilty to wire fraud conspiracy for luring 2,800 crypto investors into a Ponzi scheme.
Making Britain better off will be “at the forefront of the chancellor’s mind” during her visit to China, the Treasury has said amid controversy over the trip.
Rachel Reeves flew out on Friday after ignoring calls from opposition parties to cancel the long-planned venture because of market turmoil at home.
The past week has seen a drop in the pound and an increase in government borrowing costs, which has fuelled speculation of more spending cuts or tax rises.
The Tories have accused the chancellor of having “fled to China” rather than explain how she will fix the UK’s flatlining economy, while the Liberal Democrats say she should stay in Britain and announce a “plan B” to address market volatility.
However, Ms Reeves has rejected calls to cancel the visit, writing in The Times on Friday night that choosing not to engage with China is “no choice at all”.
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The chancellor will be accompanied by Bank of England governor Andrew Bailey and other senior executives.
She will meet with her counterpart, Vice Premier He Lifeng, in Beijing on Saturday to discuss financial services, trade and investment.
She will also “raise difficult issues”, including Chinese firms supporting Russia’s invasion of Ukraine and concerns over constraints on rights and freedoms in Hong Kong, the Treasury said.
But it did not mention whether Ms Reeves would raise the treatment of the Uyghur community, which Downing Street said Foreign Secretary David Lammy would do during his visit last year.
Britain’s Foreign Secretary David Lammy and Chinese Foreign Minister Wang Yi in Beijing. Pic: AP
On Friday, Culture Secretary Lisa Nandy defended the trip, telling Sky News that the climbing cost of government borrowing was a “global trend” that had affected many countries, “most notably the United States”.
“We are still on track to be the fastest growing economy, according to the OECD [Organisation for Economic Co-operation and Development] in Europe,” she told Anna Jones on Sky News Breakfast.
“China is the second-largest economy, and what China does has the biggest impact on people from Stockton to Sunderland, right across the UK, and it’s absolutely essential that we have a relationship with them.”
Read more – Ed Conway analysis: The chancellor’s gamble with China
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Nandy defends Reeves’ trip to China
However, former prime minister Boris Johnson said Ms Reeves had “been rumbled” and said she should “make her way to HR and collect her P45 – or stay in China”.
While in the country’s capital, Ms Reeves will also visit British bike brand Brompton’s flagship store, which relies heavily on exports to China, before heading to Shanghai for talks with representatives across British and Chinese businesses.
It is the first UK-China Economic and Financial Dialogue (EFD) since 2019, building on the Labour government’s plan for a “pragmatic” policy with the world’s second-largest economy.
Sir Keir Starmer was the first British prime minister to meet with China’s President Xi Jinping in six years at the G20 summit in Brazil last autumn.
Relations between the UK and China have become strained over the last decade as the Conservative government spoke out against human rights abuses and concerns grew over national security risks.
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How much do we trade with China?
Navigating this has proved tricky given China is the UK’s fourth largest single trading partner, with a trade relationship worth almost £113bn and exports to China supporting over 455,000 jobs in the UK in 2020, according to the government.
During the Tories’ 14 years in office, the approach varied dramatically from the “golden era” under David Cameron to hawkish aggression under Liz Truss, while Rishi Sunak vowed to be “robust” but resisted pressure from his own party to brand China a threat.
The Treasury said a stable relationship with China would support economic growth and that “making working people across Britain secure and better off is at the forefront of the chancellor’s mind”.
Ahead of her visit, Ms Reeves said: “By finding common ground on trade and investment, while being candid about our differences and upholding national security as the first duty of this government, we can build a long-term economic relationship with China that works in the national interest.”
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