Just a few weeks ago, Sam Bankman-Fried was found guilty by a jury on all seven counts, constituting one of the largest financial frauds in American history. We wrote about the sudden collapse of the FTX exchange, once valued at $32 billion, a year ago . This time, Binance, the largest player in the cryptocurrency exchange market, faced the heavy hand of US regulators, and the consequences of this event will resonate throughout the blockchain landscape.
Binance, accused of violating sanctions and regulations related to the provision of payment services and anti-money laundering and countering the financing of terrorism, has agreed to pay $4.3 billion in a settlement. This is one of the largest penalties ever obtained by the United States from a defendant. According to the Attorney General's Office, Binance failed to maintain an adequate anti-money laundering program and Know Your Customer procedures, operated an unlicensed money transfer business, and violated sanctions law. As Attorney General Merrick Garland points out, "Binance employees knew and discussed that the company served thousands of users in sanctioned countries and knew that facilitating transactions between U.S. users and users from sanctioned countries would violate U.S. law. But they did it anyway." It's important to note that among the sanctioned countries are very specific cases, such as North Korea, Iran, and Russia—places well known for using state-backed hacking groups, including for attacks on blockchain infrastructure . According to the indictments, Binance facilitated the use of its platform by individuals associated with Hamas, the Islamic State of Iraq and Syria, North Koreans, money launderers, and hackers. During its five years in the United States, Binance processed approximately $1 billion in transactions involving sanctioned individuals or originating in sanctioned countries.
Binance's settlement consists of $3.4 billion owed to the Financial Crimes Enforcement Network (FinCEN) and $968 million owed to the Office of Foreign Asset Control. Both institutions are part of the U.S. Treasury's anti-money laundering and sanctions enforcement agencies. Most significantly, however, as part of the settlement with FinCEN, Binance is to "completely exit" the US. Treasury Secretary Janet Yellen explicitly points out that this settlement sets a precedent for the department. Under its terms, Binance will be required to appoint an independent compliance auditor for five years, during which time the U.S. Treasury will have direct access to Binance's books and systems.
Changpeng Zhao himself also faced repercussions. The infamous CZ pleaded guilty to violating the Bank Secrecy Act and causing a financial institution (Binance) to violate the BSA. Zhao agreed to pay a $50 million fine and also stepped down as CEO due to a ban on running Binance for three years following the resignation of the auditor appointed under the settlement.
How will these events impact the market? The FTX exchange is defunct, Sam Bankman-Fried could face up to 115 years in prison (SBF was found guilty by a jury, and the sentence itself will be handed down on March 28, 2024), celebrities promoting Binance are under fire , and the company itself must make a controlled exit from the world's largest cryptocurrency market. The American side of the industry is still awaiting major systemic cryptocurrency regulations from Congress. Meanwhile, the European Union is rapidly approaching MiCa, the first such comprehensive international solution for cryptocurrencies, and Société Générale is the first bank in history to issue a stablecoin, in this case pegged 1-to-1 to the euro (EUR CoinVertible). Could regulatory certainty in the European Union, in the context of the problems plaguing the largest American corporations, encourage American investors to invest in the old continent? Can a stablecoin issued by a strictly regulated bank compete with the currently most popular USDT, issued to the tune of $92 billion by a British Virgin Islands company that has never undergone a reliable external audit ? Regardless of the outcome, the cryptocurrency market is certainly at a crucial juncture for its future.
This alert is for informational purposes only and does not constitute legal advice.
author:
