Residency has attracted the attention of crypto traders looking for a side door to access platforms banned in their countries of residence as digital assets continue to crack down in places such as the US, China and Canada.
Changpeng Zhao, the founder of crypto exchange giant Binance, was an early promoter of the program, though Binance told The Wall Street Journal it abandoned further partnerships after conducting due diligence. Americans are not allowed to use Binance as the exchange does not have a US license to operate.
The Palau government’s digital residency technology platform, RNS, launched in January 2022 and provides a digital and physical identity card. Before receiving approval, residency applicants must undergo an anti-money laundering check, share contact information and provide a form of ID. According to the program’s website, approval usually takes up to 10 days. Residencies are for one, five or 10 years, with the latter costing $2,039. They do not include citizenship or passport.
The Palau Digital Residency website says the card can be used for identity verification at various businesses around the world, from bars to crypto exchanges, online banking, Costco and T-Mobile.
But most of the posts on Twitter are focused on crypto.
On the social platform, RNS suggests that traders can use a Palau identity to circumvent the country’s restrictions on crypto services that prevent Americans and others from accessing certain unregistered exchanges and risky investment products. With IDs outside their home country, merchants may attempt to obscure where they are resident.
“Don’t lose access to crypto. In 2023, crypto was banned by Canada, Argentina and the US to obtain a second ID. From the Republic of Palau. Access any major exchange,” RNS said in one of several tweets promoting the side door to crypto exchanges.
Crypto exchanges often require traders to provide government-issued photo identification in order to access their platforms.
Traders on Twitter said they were able to access digital asset exchanges banned in their countries with their Palau identities. One trader urged the Journal not to report on the program to avoid shutting it down.
Jay Anson, director of the digital residency program at Palau’s Ministry of Finance, said that like any ID card, the government cannot control how someone uses or attempts to use the document. “We are not encouraging people to falsify their physical residence or to circumvent the laws,” Anson said.
Anson said the government has an operating agreement with Cryptic Labs, a Palo Alto, California, blockchain research institute, which maintains and operates the RNS.
The allegation that the platform encourages the use of a secondary ID to avoid crypto restrictions is “a serious and irresponsible distortion,” RNS said, stressing the importance of following the law. It said it is in the process of narrowing down the applications “for dealing”. This could be seen as circumventing existing laws in restrictive countries such as the United States.”
Ninety percent of crypto exchanges allow the use of Palau ID on their platforms for identity verification, according to the program’s website, citing the world’s largest crypto exchange, Binance, as well as platforms such as Kraken, Crypto.com, and Huobi. Has been given.
Huobi said in a November 2022 tweet that it had accepted Palau’s identity. A spokesperson said the exchange only accepts Palau IDs if the customer is currently residing in Palau.
Kraken chief compliance officer CJ Rinaldi said the exchange has measures in place to uncover and prevent identity documents being used in an attempt to circumvent its verification processes.
A spokesperson for Crypto.com said it does not have any users from Palau and does not accept Palau-issued IDs. “Any advertisement or claim that indicates otherwise is false,” he added.
RNS removed the names of all the exchanges after the Journal inquired.
Zhao tweeted, Binance founder Zhao went to Palau last June for the launch of the identity card as a non-fungible token. He shared his dive with the country’s president on Instagram, he met with local officials to discuss the residency program and other investments, and he praised the residency in a taped press conference.
“I believe the Digital ID/Digital Residency program is a very innovative, very symbolic and meaningful,” Zhao said at the press conference.
A Binance spokesperson said after Zhao’s June 2022 visit to Palau that Binance “conducted thorough due diligence and after our initial evaluation decided not to invest in this program or officially partner with them.”
Following the Journal’s inquiry, RNS also removed tweets that referenced the exchange and its founder.
“RNS is not supported by Binance. RNS said, we have removed the old tweets and replies.
The Securities and Exchange Commission and the Commodity Futures Trading Commission sued Binance and Zhao this year, alleging they illegally serviced US customers for years. Officials say Binance intentionally retained a flaw that allowed US users to bypass identity checks. The SEC and CFTC declined to comment.
The company has acknowledged compliance lapses in the past, but has said it is a reformed company committed to compliance.
A US-based trader said he was able to join Binance with a Palau residency card, even though the exchange said it does not accept US customers. The trader said that given Zhao’s visit to Palau and the reference to Binance on the RNS website, he believed that Binance supported the event. In addition to using a Palau identity, the trader said he used a VPN—a program that hides a user’s location—to sign up to the platform.
The Journal also spoke to traders who used their acquired Palau IDs but were denied access to Binance.
A Binance spokesperson said that the exchange has controls in place to prevent people from restricted countries from gaining access through Palau ID cards.
“Anyone caught circumventing these controls is in violation of our Terms of Use and has been removed,” Binance said.
The spokesperson added that Binance has about 2,000 users registered with Palau identities, which is less than 0.002% of its total users. Ever since the Journal began questioning the ID, users on Twitter noted that Binance had stopped accepting Palau IDs. “We took this opportunity to manually review each user in Palau to once again verify our systems,” said a Binance spokesperson.
As of the 2020 census, Palau has a total population of less than 18,000. The Palau program website states that digital residency is not a pathway to Palau citizenship or passport, but digital residents can extend their tourist visa for up to 180 days after their visa expires.
According to the government, Palau had 7,336 digital residents as of mid-June, which is equivalent to more than a third of the country’s 2020 population. It states that revenue from the program was a little over $1 million.
For certain types of services, including futures trading, some exchanges require proof of address.
When a Twitter user asked RNS whether he could use a Palau ID card to sign up for Binance Futures or whether Binance would “be on it”, RNS replied that once the program provides users with a Palau address and It will be possible to sign up after starting the phone offer. numbers. For now, RNS said, the ID can be used to create a simple trading account. RNS removed the tweet after the Journal asked about it.
Anson, director of programs at Palau’s Ministry of Finance, said the RNS tweet “does not represent the views or position of the Palauan government.” The one address service envisaged under the program would only support the mailing service, he said.
“Users should accurately report where they live and always follow the rules in their home countries,” RNS said.
The program’s technology runs on a blockchain network that Binance helped set up. RNS had advertised on Twitter months ago that Zhao was a Palau digital resident. When asked about this by the Journal, Zhao said on Monday that he does not have a Palau residence and the RNS deleted the tweet.
A Twitter account that tracks the activity of major crypto players on the platform said that Zhao unfollowed RNS on Twitter on Monday.