Episode 105 of the Public Key podcast is here and this is our “Live from Links” series, where we showcase our podcasts recorded live at the Chainalysis Links Conference in NYC! The future of crypto regulation is ever changing and in this episode we speak to Noah Perlman (Chief Compliance Officer, Binance) to hear how Binance is focusing on compliance, law enforcement collaboration and adapting to the emerging innovation in the crypto space.
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Public Key Episode 105: Binance’s focus on compliance and approach to the future of crypto regulation
“Compliance always needs to be improving.”
In this episode Ian Andrews (CMO, Chainalysis) speaks to Noah Perlman (Chief Compliance Officer, Binance), whose exchange was very focused on trading and users in the early days and now turning the page to building out a robust Compliance program.
Noah shares his journey from being a prosecutor at the US Attorney’s Office, working at Morgan Stanley, to his current role at Binance.
He discusses the challenges and opportunities of working in compliance in the crypto industry, the importance of trust and transparency and the steps Binance is taking to improve its compliance program.
Noah also talks about the collaboration between Binance and law enforcement agencies, the regulatory landscape in different countries, and his excitement for innovation and the future of centralized exchanges vs decentralized platforms.
Quote of the episode
“I think there’s room for everybody. And so I think DeFi will continue to play an important role and will grow, but I don’t think the centralized exchanges are going anywhere anytime soon” – Noah Perlman (Chief Compliance Officer, Binance)
Minute-by-minute episode breakdown
2 | Noah’s transition from a prosecutor to Chief Compliance Officer at Binance
6 | Experience and cultural differences between TradFi and Crypto
9 | Importance of rebuilding trust in the crypto market and industry
12 | Impact of the settlement with the US government on Binance and Chief Compliance Officer role
15 | Collaboration with law enforcement and focus on rooting out bad actors
19 | Discussion on the future of crypto and the role of centralized exchanges
21 | Debate on the US government’s approach to crypto regulation
25 | Excitement about innovating in compliance through technology and killer crypto use cases
Related resources
Check out more resources provided by Chainalysis that perfectly complement this episode of the Public Key.
- Website: Binance: 188,487,264 Users Trust Us!
- Blog: Binance FZE Receives a VASP Licence from Dubai’s Virtual Assets Regulatory Authority
- Blog: Binance’s Proof-of-Reserves System: A Year of Upgrading User Assets Transparency
- Press Release: Statement Regarding Tigran Gambaryan
- Registration: Digital premiere of Links 2024 (NYC Main Stage Content and more – Register Now!)
- YouTube: Chainalysis YouTube page
- Twitter: Chainalysis Twitter: Building trust in blockchain
- Tik Tok: Building trust in #blockchains among people, businesses, and governments.
- Telegram: Chainalysis on Telegram
Speakers on today’s episode
- Ian Andrews * Host * (Chief Marketing Officer, Chainalysis)
- Noah Perlman (Chief Compliance Officer, Binance)
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Transcript
Ian:
Hey there. Back with another episode of Public Key, live from Lynx. I’m your host, Ian Andrews. I’m joined by Noah Perlman, who is Chief Compliance Officer at Binance. Noah, welcome to the program.
Noah:
Thanks so much. Thanks for having me in.
Ian:
Let’s start with your background. I feel like I need to go to law school to keep up with the guests that I’ve had here at the conference. You, like many of the previous that have appeared here, started your career in the District Attorney’s Office?
Noah:
Actually, US Attorney’s Office.
Ian:
US Attorney’s Office, excuse me.
Noah:
Yeah. As a prosecutor, yes.
Ian:
How do you go from a prosecutor to a chief compliance officer of Binance? Wind us through that journey.
Noah:
Yeah, so we won’t make it too laborious. So I was an assistant US attorney here in New York, in the Eastern District of New York. Absolutely. Great office, great job. And sort of the first decision I made that was a little unconventional. A lot of people leave the US Attorney’s Office and some stay in government, do other government jobs. Another traditional route is to go to a big law firm, do some white-collar work. I, when I was in the US attorney’s office, and maybe we’ll get to this, I did a lot of different type of cases, but I did a lot of narcotics cases and my client, as it were, was the Drug Enforcement Administration. And DEA was looking for a chief counsel for their New York office and asked me if I was interested.
And so I went to DEA, which was a little bit unusual path, at least at the time, and did the DEA work for a few years. Then went to financial services, went to Morgan Stanley, where I had a number of legal and compliance roles. Started off running their internal investigations unit. Ultimately ran all of anti-financial crimes, so anti-money laundering sanctions work, both on the legal and compliance side. And then at some point in 2019 the crypto bug hit me, started out at a crypto exchange called Gemini, and then ultimately made my way to Binance.
Ian:
Amazing. When was the first time you remember encountering cryptocurrency?
Noah:
Yeah. So probably, certainly pre-2019 maybe sort of 2017, 2018, exposure both through reading about it, but also in my capacity at Morgan Stanley, sort of saw some opportunities there, was exposed to it through that. And so started a, I’m sure a lot of your guests, you talk about going down the rabbit hole, reading about it, and that was sort of my exposure there.
Ian:
And oftentimes, and I’m curious, your experience, when you find out about it for the first time and you have that moment of excitement, you start to share with your friends, right? Crypto people are notorious for talking about crypto non-stop. What was the reception maybe as you talked to some of your Morgan Stanley colleagues about crypto?
Noah:
Mixed.
Ian:
Yeah.
Noah:
But in fairness, there were many people at Morgan Stanley who understood and were as excited about it as I was, and other people in the crypto industry including some very senior people. Certainly the firm had its own sort of official policy, and like lots of firms, those policies evolve over time. But it was certainly mixed. You had probably every reaction you could imagine from the, “What are these magic beans?” To people who understood the tech, understood the promise and were super excited about it.
Ian:
Yeah. Now, what finally tipped the scales for you to leap in and take the first full-time crypto job?
Noah:
So look, at that point I had been at Morgan Stanley coming up on 14 years, had done a lot of stuff. Absolutely loved the firm, loved my colleagues, but it seemed just a ripe moment for a change. I had been involved in some significant remediations, we’d finished that work. And one of the nice things about having such a positive relationship there is, unlike sometimes when you leave a job and you sort of do it on the sly, here I really talked to my colleagues. I talked to some of my mentors in the firm and said, “Look, here’s the opportunity. What do you think? Does this make sense?” And sort of batted it around and ultimately decided it did make sense and no looking back.
Ian:
Wow. And what did you find when you got there? Because going from Morgan Stanley to midsize crypto firm in 2019, those are two radically different cultures, very different process. Was there even a compliance function at the time when you arrived?
Noah:
Yes, certainly there was a compliance function, but there was so many change. I mean, where to even begin. First of all, as I often do if I’m speaking, it is huge thanks to Tyler and Cameron Winklevoss who gave me that opportunity to come into crypto, both on the compliance side and then ultimately had me be the COO for a while. So it really indebted to them forever for giving me the opportunity. I mean, to start with, one of the biggest changes, I mean, I had never really worked in a small institution. Obviously the government Department of Justice and then to Morgan Stanley was the ability to get things done quickly without committees, without just really on my, say-so.
I remember sort of very early on, I forget, I can’t actually recall the exact issue, but there was a risk issue. We’re in a meeting, a management meeting, and I said something along the lines, they asked me sort of my opinion, I said, “I don’t think the risk here is appropriate for us to take. We probably should stop that.” And that was the end of it. The decision was made. There were no committees, there was no governance, there was no… I mean, it was remarkable.
Ian:
Yeah. Your recommendation and the book was closed right there.
Noah:
It was discussion, but that was it. And I was like, “Wow, this is definitely different.”
Ian:
Yeah. That’s amazing. Now, what led to the change to Binance?
Noah:
So just look, again, a similar story in the sense that the course had run at Gemini, again, and I left in incredibly positive terms and conditions with Tyler and Cameron. Basically had been there almost I guess three and a half years, which is in crypto years-
Ian:
It’s a long time.
Noah:
It’s a long time. We had built some very cool things, very cool products that I was proud of. And as they were thinking about the next stages, it was really clear that the sort of skill set that I brought may not have been the perfect skill set for what they were trying to build next. And again, had great conversations with Tyler and Cameron about what’s next, and the Binance opportunity was available. And they recognized as I recognized that what’s good for compliance is not competitive in the way that had I been going to do a business function, it would be much more likely that they may say, or anybody would say, “Hey, there’s a non-compete. You got to sit on the beach.” But compliance, if the industry’s uplifted at one shop, it’s uplifted everywhere.
Ian:
That’s right.
Noah:
So no competition issues there on the compliance front, and they sort of wished me well, and I stay in touch with them.
Ian:
Oh, that’s great.
Noah:
So the opportunity then to come to Binance was one that you couldn’t pass up.
Ian:
Now, from the outside, this was big headlines when you accepted this job. It seemed like that was a fairly risky thing for former US government employee, sterling reputation, to join Binance, who I think a really important firm in the crypto industry, but certainly one that has had a questionable reputation historically when it comes to compliance.
Noah:
Yeah.
Ian:
And so how do you make that decision because it feels like you’re taking on quite a bit of personal risk?
Noah:
Yeah, no, good question. And so look, that was a decision obviously not made lightly. And one of the key things when coming into a place like Binance or any place at that sort of period of its history is it’s just critical that you get sort of all the information and transparency. So wouldn’t surprise anybody, I had an NDA in place. Sat with the lawyers and other management to understand, “Okay, what are you facing? What are the issues? What is the commitment to getting it right? Spent a lot of time with CZ and with others prior to joining to ensure I knew what I was getting into and that I would have the full support of the founders to do what needed to be done. And I sort of had that going in. And in the year and a quarter I’ve been there, I’ve seen that. I mean, one of the things that I was very wary about, which is why I spent the time up front to ensure that this wasn’t the case, was sort of being a rented credential.
Ian:
Right, right.
Noah:
“Oh, here’s a lawyer. He’s been in TradFi, ex-government guy. We’re going to sort of wheel him out, but we’re not really committed to doing it.” I wasn’t actually concerned about that. I mean, I wanted to make sure that wasn’t the case. And so in the conversations before joining got, like I said, got comfortable.
Ian:
Yeah.
Noah:
And as I said, thus far, this is a firm committed to doing the right thing now.
Ian:
Yeah. Well, the big news since joining, at least on the compliance front, is the settlement with the US government, how has your role and the work you’re doing internally been shaped by the settlement?
Noah:
So in a sense it’s a continuation of work that actually even began before I got there. Stepping back, Binance is only seven years old.
Ian:
It’s amazing by the way.
Noah:
Right?
Ian:
When You think about them as this behemoth of an industry, seven years old, a very young company.
Noah:
Young company started by tech people, traders very focused on users, on getting the tech right and getting this sort of trading. Not that it’s an excuse, but the reality is they were not compliance-focused. At a certain point, they understood that they needed to be. And again, that journey maybe took place maybe two or three years ago.
Ian:
Yeah.
Noah:
But there’s still, there’s consequences to not having it right in the first place. And so the settlement in a sense is sort of the culmination of what we call internally turning the page, making sure that we are as we follow all regulations, all compliance, not just the actual letter of the law, but the spirit. We think we can do that in a way that is consistent with our mission of being user-focused. And that’s the challenge and the opportunity. That is one of the things that drew me to it. I mean, can we do this in a way, but it’s also compliant? I think we can. But it is a journey and what the settlement has done has sort of crystallized both the challenge and the opportunity to get this right.
It’s a challenge because we’re really doing three things at once. First, we’re remediating past issues. That takes time. You need to get that right. Second, we’ve got to run a business-as-usual compliance program, 185 million users, biggest exchange in the world, just amazing volume. It takes time to run that right. And then the final piece is uplift. So we got to remediate, we got to run the program. We also have to improve the program. Compliance always needs to be improving. Any chief compliance officer that tells you they have a perfect program, actually, I don’t think any chief compliance officer would ever tell you.
Ian:
None of the ones I’ve met would ever say that they’re perfect.
Noah:
Yeah, we are not perfect. I don’t believe anybody is. We’re fit for purpose, but there’s more to do. There’s always more to do, and so we’re focused on that.
Ian:
One of the things that I imagine must be challenging about your job is you’re operating in a very large number of countries. I don’t even know the actual number, but it’s certainly tens of different markets, all have different regulatory frameworks. I think your business actually offers very different services in different markets from P2P exchange services in certain countries to spot exchange derivatives, futures, depending on the country. How do you keep track of and manage all of that?
Noah:
Yeah, no, it’s challenging. So we’ve got 18 registrations and licenses. I think it’s the most of any exchange or up there. I try not to compare too much to the other exchanges, but it’s 18.
Ian:
Yeah.
Noah:
And you’re exactly right. Some products are allowed in some jurisdictions, others are not. Getting that right is challenging, but something we’re very focused on. Look, it’s not an excuse to any regulator to say, “Oh, look, we meant to get it right,” or, “This is legal in one place and we’re sorry.” That doesn’t doesn’t fly.
Ian:
[inaudible 00:12:42].
Noah:
Yeah, it doesn’t fly, nor should it. And so on us, we’re beholden to get it right, to focus on the details. The other thing, look, I recognize we have to rebuild our trust in the market and in the industry, and that doesn’t happen overnight. I spend a lot of my time talking to regulators globally, in addition, talking to clients explaining where we have and where we are now and where we’re going. But I don’t expect them to take my word for it day one.
Ian:
Right.
Noah:
Because trust, but verify.
Ian:
Yeah.
Noah:
Be examined, we’ll be audited. There’ll be some findings. We’ll remediate that. And over time though, I’m confident that we will start to rebuild that trust. Like I said before, the founders are fully committed to getting this right. We as a company are. So it’ll take some time, but we will.
Ian:
One of the things that was a signal to me as I was getting into the industry and just learning who Binance was that something was changing was a number of other former government investigators that had worked closely with Chainalysis started joining the company, and it seemed like a real commitment to fighting crime, collaborating with law enforcement, which I understood from talking to people, had not been the early days position of the company. But that, maybe talk about what that organization does and some of the work and impact they’ve been able to make.
Noah:
Yeah, no, absolutely. So first of all, I observed it as well, and that gives one comfort to join. You’ve got some of the legends of crypto law enforcement who are there, people who’ve done Silk Road and welcome to video and other important cases, and then you speak to law enforcement community. One of the things, I’ve been at Lynx a number of years. One of the things I love about this conference is just walking sort of the halls and having members of the law enforcement community come up to me and they do all the time and say, “We’re grateful for the collaboration and cooperation that Binance gives us.” It’s really true, and a lot of my conversations with regulators are not as pleasant, but the law enforcement side is, and it’s for good reason. I mean, look, we’ve done… Take this, these are not precise numbers, but they’re directionally accurate. I think we responded to 58,000 law enforcement requests in 2023.
Ian:
58,000.
Noah:
58, 000. We did 120 law enforcement trainings where we go out and we train law enforcement on crypto investigative techniques. I think we have 12,000 law enforcement agents around the world who are registered with us to get information from us with proper court procedure, court orders. So we’re incredibly cooperative. This is, again, we think this is in our user’s interests because we think a safer crypto-
Ian:
It’s good for everybody.
Noah:
Is good for everybody. And so how do you get saved in lots of different ways? But one of the ways is rooting out bad actors and cooperating with law enforcement. There is this tension in the crypto industry, and I get it, between this libertarian nature and anything goes versus sort of law enforcement cooperation. I mean, and look, I myself, I’m torn, I sort of see the promise. I understand the importance of privacy and libertarian nature, but nobody wants to be ripped off.
Ian:
No.
Noah:
I mean, people don’t want to be ripped off, and I think most people don’t want to unknowingly be funding illicit activity and actions and things like that. So you do that through, there’s a balance. But cooperation with law enforcement, again, under proper court procedure, it protects privacy and everything, that’s important. In any event, back to your original question, I mean, the fact, I saw that too, the agents were there. We’ve got an incredible financial crimes compliance organization. Actually, it’s probably worth saying, I mean, I’m not sure when this is going to air, but the head of that organization, Tigran Gambaryan sort of a legendary IRS CI agent who’s done Silk Road, he’s sort of memorialized in Andy Greenberg great book, Tracers in the Dark, which if folks haven’t read, I highly recommend it as of this taping. Tigran is still in custody in Nigeria. He went in late February to do some regulatory meetings and testimony ended up being detained. He’s since been charged. We are working collaboratively with the Nigerian government to try and resolve the issues and get him home. And that remains a focus of ours.
Ian:
No, it’s something that weighs heavily on all of us here at Chainalysis, Tigran’s a friend and a longtime colleague of many, many of our employees.
Noah:
Yeah.
Ian:
So we certainly hope that situation’s resolved as soon as possible. So obviously the work that team is doing, I think is key to the reputation building with governments around the world. Maybe shifting gears a little bit, thinking about the crypto community and the role that Binance plays, for a long time, you’ve been the largest exchange by volume operated in the most markets, where do you see the future of crypto going? For a while, in 2021, it felt like, “Oh, maybe centralized exchanges are a legacy of the early years of crypto and everything’s going DeFi.” I didn’t personally subscribe to that, but that was definitely an active narrative. Where do you see this going?
Noah:
Yeah. Look, I’m not a maximalist on anything, right? So I’m not a max-
Ian:
That’s a healthy position to be in for a chief compliance officer.
Noah:
Yeah. So I’m not a maximalist on coins, I’m not a Bitcoin maxi, and I’m not a centralized versus decentralized maxi either. I think there’s room for everything. I think the pie will continue to grow. Look, I follow crypto Twitter, and it keeps me young, and I [inaudible 00:18:49] arguments. I love, “Not your keys, not your coin.”
Ian:
Yeah.
Noah:
But there’s some people who don’t want to hold their coin. I mean, they don’t want to hold their keys, they want to hold their coin, but they’d rather have that centralized, and I think there’s room for everybody. And so I think DeFi will continue to play an important role and will grow, but I don’t think the centralized exchanges are going anywhere anytime soon.
Ian:
Yeah, yeah. How do you think about regulatory landscape? You and I are obviously sitting in New York City, financial capital of the world, but Binance is not operating in the United States anymore. And I think all of the crypto industry is entangled in various legal actions, enforcement actions right now in the US. When I look abroad to markets like Europe, they’ve obviously made some progress on crypto frameworks with MICA, Dubai. Similarly, they’ve stood up Vara. They’re very friendly, I think has attracted a number of Binance folks to join there. It seems like Singapore is turning the corner and similarly creating a reasonable regulatory framework for legitimate businesses. Even Hong Kong has reversed their ban of the last few years recently. I guess first question is, as Americans sitting in New York, do you think the US government is just getting this badly wrong?
Noah:
Look, markets like clarity, and that’s at the end of the day, whether or not the regulation, you agree with every aspect of it or not, clarity is the key, and that’s the starting point.
Ian:
Right.
Noah:
You talk about MICA, do I or anybody agree with every single thing in there? Probably not, but it’s a great way to start. Now you can have engagement and have discussion. I think the US will get there. In a sense it’s a shame that we’re not quite there yet, but that’s okay. And look, the US is unique. One of the things I have exposure to working regulatory regimes all over the world in many jurisdictions, you’ve got one regulator and you have one dialogue.
Ian:
Yeah.
Noah:
Here, you have this sort of unique situation where you’ve got, “Is it a security? Is it a commodity?” That depends who you’re talking. And then you have the state overlay. And you can operate in 48 states, but not the other two. And it’s just, it is challenging. And I think others around the world may look at the system and be like, “That’s a sort of a funny way to do it.” But that’s where we are.
Ian:
Yeah. I think the reason I bring up the question is just it feels like there’s a push of innovation in this ecosystem out of the US market. And it’s unclear exactly who that harms most. There’s one argument being made quite strenuously on crypto Twitter that it’s bad for American dynamism to miss out on what could be a major change to global financial services. It could be an end to American hedge fund. But there’s also the case that right now the US is the biggest market for crypto in terms of dollar value traded, I think, of any country around the world. And so is access to the market important to drive the proper investment to actually achieve that grand vision of crypto? And I struggle with, “Who’s really losing here?” Maybe it’s all of us.
Noah:
Yeah, no, it’s an interesting way you frame it. So I’ll answer the second part first. I actually don’t think, I mean, while the importance of the US market can’t be understated or overstated, crypto will survive without it. And I see that in my travels all over the world. It will thrive and expand. It may be slower, but it doesn’t need the US or any single market. The other thing is crypto is tech.
Ian:
Yeah.
Noah:
You sort of fight tech at your peril and you abandon your peril. It’s like whatever, water finds a way, tech finds a way. And so I do think that the US, and certainly there are a lot of people within the US who are trying to embrace it and try and have a seat at the table, but pushing it away and saying, “We don’t even want to engage,” that seems to me to be the wrong approach for sort of US citizens and US interests in the market. Yeah.
Ian:
What are you excited about when you think about all the things that are happening in crypto right now? What are you spending time, when you’re scrolling crypto Twitter, where are you stopping you’re like, “Oh, this is interesting.”
Noah:
I wish there were more where I stopped and be like, “This is interesting,” as opposed to, “This is just trolling for clicks.”
Ian:
The ratio of trolling is off on that platform these days.
Noah:
What I’m excited about, well, a couple of things. So personally, in terms of my realm, what I’m excited about is innovating in the compliance space and using the tech. We have just incredible, not just at Binance, but throughout the industry, just incredible tech talent, folks who are so innovative. And can we do compliance that’s more effective, that really gets the signal away from the noise and is actually letting the good users, the vast majority of more good users go about their business with minimal friction and really capture the bad actors in the space? So innovating through tech, whether it’s machine learning or AI or whatever it is.
So that’s stuff that we’re thinking about, that’s one thing I’m excited about. The other excited thing about sort more broadly within the crypto space is really the killer use case. I’m a big believer in terms of, I mean, I’m not a maximalist, but I’m a big… I think Bitcoin remains compelling as sort a digital gold and as a legitimate asset class. Not financial advice, but I am a believer. But I think that there are other real opportunities for crypto to really sort of have real significant use cases. And not just for, I mean, people talk all the time about remittances-
Ian:
Sure.
Noah:
… Which are important inflationary hedges for those countries where inflation is a real problem. But I think that there are number of sort of rent-seeking behaviors that crypto can really eliminate. If you’ve ever closed a house on a house and you sort of all the sort of fees and paperwork and title insurance, I mean, I think blockchain can really… That’s one use case where, and I know some people are sort working on this. But smart contracts closing can be very simple and reduce a lot of the fees and issues. So whether it’s that or other use cases, I’m excited about the killer wrap coming.
Ian:
Well, that’s a fantastic place to end this conversation. Noah, you’ve been terrific. Thanks so much for joining us on Public Key.
Noah:
Thanks so much for having me.
Ian:
Yeah.