A limited-scale back-up audit on Binance and ongoing audits by the US Department of Justice are raising alarms

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Since Binance spurred the fall of crypto exchange FTX, Changpeng Zhao (CZ) has positioned his company as one of the cleanest shirts in the crypto space. However, a number of successive developments are now calling into question this original character that Binance has worked so hard to visualize over the past few weeks.

For starters, Reuters now reports that the US Department of Justice (DoJ) is currently divided on whether to formally file charges against Binance in a money laundering probe that began in 2018, with some investigators now pushing to move aggressively against key Binance executives, including In that co-founder and CEO, CZ. Furthermore, attorneys for the company have been meeting with Justice Department officials over the past few months to discuss a potential deal or out-of-court settlement.

Meanwhile, we previously reported that Binance released the audit results of its bitcoin reserves on November 25th. The audit is supposed to prove that Binance maintains a 101 percent reserve ratio on Bitcoin. The exchange has also impressed by releasing audit results of reserves held in other cryptocurrencies and has enabled its clients to verify the backing of their assets via Merkel tree.

However, rumors persisted that Binance used a partial reserve system for some of its coin holdings. For example, Chico Crypto identified a worrying development in a YouTube video a couple of weeks ago. Binance allows anyone to verify their proof of escrow. However, on November 10th, Binance’s holdings of Bitcoin Cash did not match the proof-of-chain, as shown in this video (starting at the 06:10 mark). This led Chico Crypto to theorize that Binance may have mistakenly listed Bitcoin Cash liabilities instead of reserves.

Now, additional details have added to the mystery around the case. To wit, Binance has tasked Mazars with conducting an “audit” of its Bitcoin reserves. However, according to the auditor’s press release, the examination was too narrow in its breadth, focusing only on assets “in scope” and the use of “agreed procedures”. Crucially, Mazar noted:

“An agreed-upon procedures engagement is not a review, audit, or other assurance engagement. An agreed-upon procedures engagement does not involve obtaining evidence for the purpose of the practitioner expressing an opinion or assertive conclusion in any form.

This statement calls into question the usefulness of Binance’s declared Proof of Reserves, given that there is no independent vetting by a third party.

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Almost all cryptocurrency exchanges that opted for “third-party audits” only opted to implement a similar agreed-upon procedure. Thus, such exchanges should immediately refrain from using the word “audit” to describe such actions.

As expected, Binance’s CZ dismissed tweets that questioned the company’s audit findings, describing the attempts as “poor FUD research or just bad research.”

Do you think Binance is in full swing here? Let us know your thoughts in the comments section below.

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