![The U.S. government slammed Binance with a $4 billion fine after confirming serious protocol failures as it frequently violated U.S. sanctions [File]](https://th-i.thgim.com/public/incoming/vlek84/article67560828.ece/alternates/LANDSCAPE_1200/2023-11-21T215808Z_866038388_RC2WH4A0G17Y_RTRMADP_3_FINTECH-CRYPTO-BINANCE-ALLEGATIONS.JPG "The U.S. government slammed Binance with a $4 billion fine after confirming serious protocol failures as it frequently violated U.S. sanctions [File]")
The story so far: The U.S. government this week slammed Binance, the world’s largest cryptocurrency exchange, with a $4 billion fine after confirming serious protocol failures as it frequently violated U.S. sanctions. On November 22, Binance’s CEO and one of the crypto industry’s most powerful players, billionaire Changpeng Zhao, announced his resignation.
The crypto market is extremely susceptible to even minor shakeups; the latest update has shocked thousands of traders worldwide who rely on Binance (legally or illegally) to conduct their crypto trades.
Why is Binance’s CEO stepping down?
Zhao announced he was stepping down, admitting he had made “mistakes” and that he was doing what he felt was best for the company. In Seattle, Zhao pleaded guilty to violating the Bank Secrecy Act by not maintaining an effective anti-money laundering programme. He will have to pay a $50 million fine and his resignation is part of a legal deal.
“Today, I stepped down as CEO of Binance. 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,” posted Zhao on X on November 22.
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He named Richard Teng, previously Binance’s Global Head of Regional Markets, as the new CEO. Teng has over 30 years of financial services and regulatory experience spanning across Abu Dhabi and Singapore, Zhao said.
The former Binance CEO stressed that U.S. agencies did not accuse the exchange of misappropriating user funds or engaging in market manipulation. Zhao also said he would probably be a passive crypto investor focusing on decentralised finance (DeFi), and perhaps train other upcoming entrepreneurs, apart from taking a break.
However, he will continue to be a Binance shareholder who is available for company members to consult, Zhao confirmed. Legal experts have pointed out this still leaves the Canadian national with considerable influence over the company he founded in 2017.
What did Binance do to warrant the fine?
Binance was charged with not maintaining a working anti-money laundering programme, as well as running an unlicensed money transmitting business, and violating the International Emergency Economic Powers Act, per court documents dated November 14.
U.S. Treasury Secretary Janet Yellen said that the exchange did not report suspicious transactions and it told employees to keep information from law enforcement bodies. That meant millions of dollars in crypto transactions involving criminal actors like the Russia-based dark net marketplace Hydra and users based in sanctioned nations such as Iran were not reported, “allowing illicit actors to transact freely, supporting activities from child sexual abuse, to illegal narcotics, to terrorism, across more than 100,000 transactions.”
Transactions “associated with terrorist groups like Hamas’s Al-Qassam Brigades, Palestinian Islamic Jihad, Al Qaeda, and ISIS” were also unreported.
“Binance processed these transactions, but it never filed a single suspicious activity report. And it also allowed over 1.5 million virtual currency trades that violated U.S. sanctions,” said Yellen in an official statement on November 21.
The Treasury’s Financial Crimes Enforcement Network settlement agreement assessed a $3.4 billion penalty while the Office of Foreign Assets Control assessed a penalty of around $1 billion, bringing the total to above $4 billion. This marked the “largest enforcement action” in the Treasury’s history, according to Yellen.
Has Binance faced legal issues before?
Binance has faced legal and compliance issues in a number of countries, but swiftly moved past most barriers under Zhao’s audacious leadership style, with the company loudly expressing support for regulation while also pulling out of the jurisdictions which tried to regulate or probe its activities. However, the U.S. Treasury alleged that Binance had lied about exiting the U.S. years ago, and that it retained U.S. users as well as “significant” ties with the country.
In June this year, the U.S. Securities and Exchange Commission (SEC) hit Binance with a lawsuit, claiming that it was comingling and diverting customer assets to a third party linked with Zhao, and that the exchange broke federal securities laws by “illegally conducting unregistered offers and sales of securities to U.S. investors.”
How will this affect crypto investors and the sector?
While U.S.-based individuals are barred from using the Binance platform, it remains to be seen whether this policy will be strictly enforced under the company’s next CEO. Binance has been ordered to completely exit the country and will be strictly monitored from here on.
BNB, the cryptocurrency that helps facilitate trades on the Binance exchange and is native to the BNB blockchain ecosystem, fell by more than 10% to a price of around $234 as the news of Zhao’s resignation broke. However, it slowly began recovering.
As more crypto exchanges with U.S. customers come under regulatory pressure, they may decide to comply with the country’s registration requirements (even if just on paper alone), or exit the country completely. Some exchanges try to evade legal action by basing their headquarters in foreign tax havens. However, crypto investors who do not want their transactions monitored by centralised authorities or the U.S. government may explore the riskier DeFi route or transact through non-regulated decentralised exchanges (DEXs).
What did Binance’s CEO say about FTX?
On December 9 last year, Zhao fired off tweets criticising the collapsed FTX crypto exchange headed by former billionaire and CEO Sam Bankman-Fried, who was found guilty of financial fraud on multiple counts this October.
“You don’t have to be a genius to know something don’t smell right at FTX,” Zhao said and called attention to the company’s “reprehensible misuse of customer funds.”
But almost a year later, Zhao apologised for his own actions and is leaving behind his crypto exchange which was condemned by U.S. regulators in the harshest terms for criminal practices.
This is yet another case which illustrates just how quickly the illusion of stability can shatter in the crypto sector.
- Zhao announced he was stepping down, admitting he had made “mistakes” and that he was doing what he felt was best for the company.
- Binance was charged with not maintaining a working anti-money laundering programme, as well as running an unlicensed money transmitting business, and violating the International Emergency Economic Powers Act
- BNB fell by more than 10% to a price of around $234 as the news of Zhao’s resignation broke. However, it slowly began recovering.
