A charity headed by Malta’s President, George Vella, is suing Binance over the non-payment of over $8 million in donations, according to court filings seen by Decrypt. The funds were pledged by the cryptocurrency exchange while it was pursuing licenses on the Mediterranean island.
Today, The Malta Times reported that Binance’s Blockchain Foundation—set up on the island for charitable purposes—may now be subject to further legal action over failure to file accounts for the past three years. (After this story was published, the accounts were “found,” and the threat of legal action over failure to file was withdrawn.)
The legal proceedings come amid a barrage of criticism directed at Binance by regulators worldwide in recent weeks. The biggest exchange in the world by volume has been the focus of attention from regulators in the UK, Italy, and Japan in recent weeks.
The Maltese regulator was one of the first to warn that the exchange was not licensed to operate in its jurisdiction back in February 2020.
Blockchain Island backfires
The charitable funds were publicly pledged by Binance in 2018, the year in which Malta announced new, crypto-friendly legislation. Binance, like many other blockchain startups, arrived on the island intent on establishing a presence and acquiring Maltese licenses.
The Malta Community Chest Fund Foundation works to improve the lives of those who are passing through difficult times due to sickness, disability and economic vulnerability. Please help support their cause through @BinanceBCF‘s fundraising channel: https://t.co/kW81R2qGnL pic.twitter.com/ZW22ZskjtG
— Binance (@binance) December 20, 2018
The exchange promised $200,000 to the Malta Community Chest Fund through its Blockchain Charity Foundation. Several smaller amounts—in cryptocurrency—were later pledged. Since most cryptocurrencies have increased during the intervening period, the total pledged is now worth over $8 million and remains unpaid.
The pledges, meant for cancer patients and those with disabilities, were made at the height of the government-led campaign to promote Malta as “Blockchain Island.”
Upon further inspection, however, Malta’s so-called “trailblazing” regulations turned out to be some of the most stringent in the world and the much-publicized licenses were delayed—only a handful have been issued.
Just one year later, the Maltese government became immersed in scandal, following the murder of journalist Daphne Caruana, who was investigating governmental links to the Panama Papers. The affair attracted the scrutiny of international regulators, which led to the resignation of Prime Minister Joseph Muscat, Malta’s greylisting by the intergovernmental Financial Action Task Force (FATF), and, more recently, the decision by the UK to place Malta on the high-risk list for money laundering.
Pseudo-anonymous Maltese blogger Bug M told Decrypt that, while the Binance donations were meant to drive up the exchange’s profile on the island, ultimately, no license application was ever made.
“They were most certainly part of a PR drive including giving people (and regulators) the perception that Binance were setting up something material in Malta but in reality they never actually applied,” said Bug M.
Binance’s unpaid promises
In court documents, filed in November 2020, the Maltese Community Chest Fund claimed that numerous attempts had been made to request the transfer of the promised funds from the Binance foundation, which is headed by Helen Hai, a United Nations goodwill ambassador.
It’s Hai, as opposed to CEO Changpeng Zhao, who is behind the charitable payment delays, a source close to Binance told Decrypt.
The Maltese fund has accused the foundation of attempting to unilaterally terminate the donation agreement. The group also filed an injunction to prevent Binance from liquidating its foundation and relocating its assets to the U.S.
“[Binance’s Blockchain Charity Foundation] is trying not only to renege on the agreement and escape its obligations, but it is also attempting to relocate its assets outside of Malta, to the U.S., where the Maltese courts have no jurisdiction,” the Malta Community Chest Fund states in the court documents.
Binance did not immediately respond to a request for comment on the allegations.
However, the company’s legal representative told The Malta Times that the Blockchain Charity Foundation was being liquidated to avoid duplicating administration costs since Binance now had an identical foundation in the U.S.
The promised donations were intended for disbursement directly to cancer patients, and the Community Chest Fund’s role was solely to request their transfer, according to the representative, who added that there was no intention to renege on the agreement.
According to the latest filing in the case, settlement of the dispute is in progress. However, the affair adds to Binance’s very public troubles.
Several hedge funds announced they have curtailed their trading activities on the exchange, as a result of the regulatory crackdown. And Binance has announced limits to its leverage trading in an attempt to pacify regulators and protect consumers.
According to The Financial Times, hundreds of Binance customers from around the world are now banding together in online groups to pursue the exchange for compensation.
But Malta’s reputation is also taking a beating.
A recent promotion in the UK’s Times newspaper to attract expats to the Mediterranean island didn’t go quite as planned when residents posted a volley of criticism in the comments section.
“Sunny Place for shady people,” said one.
Update: A previous version of this story said that the Blockchain Foundation may now be subject to further legal action over failure to file accounts for the past three years. These accounts have now been “found,” and not further legal action is currently being taken.
This story was been updated after initial publication to reflect that the missing Binance accounts have been found, and the threat of legal action over failure to file was withdrawn.
