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The world’s largest virtual currency exchange has reached a historic settlement with US regulators, with Binance agreeing to a $4.3 billion settlement with the US Treasury Department over alleged violations of anti-money laundering (AML) and sanctions laws. In a statement, the company acknowledged that “when Binance first launched, it did not have compliance controls adequate for the company that it was quickly becoming.”
CEO Changpeng “CZ” Zhao, perhaps the biggest name in the crypto industry now that Sam Bankman-Fried is awaiting sentencing, shouldered much of the blame for Binance’s shortcomings, pleading guilty and stepping down from his role. “Admittedly, it was not easy to let go emotionally. But I know it is the right thing to do. I made mistakes, and I must take responsibility. This is best for our community, for Binance, and for myself,” he wrote in a Nov. 22 post on X.
While CZ took responsibility, he pointed out that the US investigators “do not allege that Binance misappropriated any user funds, and do not allege that Binance engaged in any market manipulation,” suggesting that customer funds are safe with the company.
Basically, he’s clarifying he and Binance aren’t like Bankman-Fried—who was convicted for fraud earlier this month—and his bungled crypto exchange FTX.
Person of interest: Richard Teng
Richard Teng, who joined Binance two years ago, has been appointed CEO.
Teng, who joined as the company’s Singapore CEO in August 2021, quickly rose through the ranks to become global head of regional markets—his most recent designation before CEO.
In his parting note, Zhao wrote that Teng, armed with over three decades of financial services and regulatory experience across Abu Dhabi and Singapore, will “ensure Binance delivers on our next phase of security, transparency, compliance, and growth.”
Meanwhile, CZ will remain available to the team as “a shareholder and former CEO with historical knowledge” of the company as he considers some passive investing in startups in the areas of blockchain, Web3, DeFi, AI and biotech. Although, how that’ll work is unclear. Zhao has been barred from any involvement in Binance until three years into the monitoring process.
Quotable: Binance CEO CZ turns mentor
“I can’t see myself being a CEO driving a startup again. I am content being an one-shot (lucky) entrepreneur. Should there be listeners, I may be open to being a coach/mentor to a small number of upcoming entrepreneurs, privately. If for nothing else, I can at least tell them what not to do.”
A quick summary of the Binance settlement
The treasury department was explicit and scathing in sharing what its probe revealed, highlighting Binance’s failure to prevent and report suspicious transactions with terrorists—including a faction of Hamas, Palestinian Islamic Jihad, Al Qaeda, and ISIS—ransomware attackers, money launderers, illegal narcotics dealers on darknet markets, sellers of counterfeit and fraud-related goods and services, and other criminals.
“Binance turned a blind eye to its legal obligations in the pursuit of profit. Its willful failures allowed money to flow to terrorists, cybercriminals, and child abusers through its platform,” Treasury secretary Janet L. Yellen said in a statement. As part of the deal, Binance will fully withdraw from the US.
Binance’s violations and penalties, by the digits
60%: The percentage of centralized virtual currency spot trading that Binance is responsible for
100,000: Suspicious transactions Binance processed “as a result of its deficient controls, including transactions involving terrorist organizations, ransomware, child sexual exploitation material, frauds, and scams,” that it failed to report, according to the US government
24: Different strains of ransomware for which Binance was transacting millions of dollars worth of proceeds
1.67 million: Virtual currency trades Binance executed on its Binance.com platform between US persons and users in sanctioned jurisdictions and blocked persons between August 2017 and October 2022. Sanctioned jurisdictions include Iran, North Korea, Cuba, Syria, and the Crimea region of Ukraine.
$3.4 billion: Civil penalty Binance has to pay to the Financial Crimes Enforcement Network (FinCEN)—the largest penalty in US Treasury and FinCEN history
$968 million: Penalty Binance has to pay to the Office of Foreign Assets Control (OFAC)—the largest fine in OFAC history
5: Years the US government will retain access to books, records, and systems of Binance through a monitor to ensure it does not offer services to US persons and that illicit activity is addressed.
$150 million: Suspended penalty, which would be collected by FinCEN if Binance fails to comply with the terms of the required compliance undertakings and monitorship
A brief roundup of US regulators’ crackdown on crypto
FTX
In December 2022, the Securities and Exchanges Commission (SEC) charged FTX founder Samuel Bankman-Fried with defrauding investors by concealing the diversion of FTX customers’ funds to his crypto trading firm Alameda Research.
Ironically, Zhao set of FTX’s implosion by tweeting about liquidating its holdings in FTX’s token, then offering to bail FTX out, and then walking away from it.
Binance
In March, the US Commodity Futures Trading Commission (CFTC) filed a civil suit against the Binance and Zhao, saying “Binance has instructed its employees and customers to circumvent compliance controls in order to maximize corporate profits.” CZ called the action “unexpected and disappointing.”
Then in Jun, the SEC brought 13 charges against Binance and Zhao, with SEC chair Gary Gensler alleging that they “engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law.” The case is ongoing.
Kraken
Just last week, SEC sued crypto exchange Kraken for operating without proper registration and commingling customer deposits with its assets.
Coinbase
In June 2023, the SEC sued Coinbase, alleging that the publicly traded American cryptocurrency trading platform was operating as a broker, an exchange, and a clearinghouse for unregistered securities. The next month, Coinbase countersued.
When the Binance settlement was announced, Coinbase CEO Brian Armstrong said in a post on X that it’s “more difficult and expensive to take a compliant approach…but it’s the right approach,” adding: “We now have an opportunity to start a new chapter for this industry.”
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