Yesterday the Department of Justice announced a settlement with the world’s largest crypto exchange Binance Holdings in turn for a payment of $4.3 billion. Binance CEO Changpeng Zhao (CZ) has stepped down and pled guilty to anti-money laundering (AML) and Bank Secrecy Act violations.
While Zhao has a plea agreement for a $50 million fine, it is up to a federal judge to decide whether to accept that. Hence he’s been released on bond until sentencing in February. The charge carries a sentence of up to ten years. The $50 million will be set off against the $150 million CZ has to pay to the CFTC as part of its settlement.
“Binance became the world’s largest cryptocurrency exchange in part because of the crimes it committed – now it is paying one of the largest corporate penalties in U.S. history,” said Attorney General Merrick B. Garland.
The Binance settlement covered several issues including exchange’s:
- serving US customers without appropriate licenses as a money transmitting business
- failure to maintain an effective anti money laundering program
- sanctions violations.
The regulators stated that Binance didn’t just fail to do these things, but they did so knowingly and concealed their activities.
Binance enabled almost $900 million in transactions between the U.S. and Iran. There were also transactions with Cuba, Syria and Russian-occupied regions of Ukraine.
Binance penalties and forfeiture
The $4.3 billion comprises a criminal fine of $1.8 billion and forfeiture of $2.5 billion. The forfeiture relates to $1.6 billion collected in fees involving U.S. users (including $1.35bn in derivatives) and $900 million relating to the sanctions violations.
The money to be received will be divided up amongst the various departments, with $2.7 billion going to the CFTC to settle its case brought in March. FinCEN and OFAC share $850 million of the fine.
Additionally, Binance agreed to have an independent compliance monitor for three years.
CFTC – SEC turf war over digital assets
There was a notable absentee at the press conference: the SEC. The securities regulator brought an action against Binance in June, three months after the CFTC’s lawsuit. Before that, the NYDFS ordered Paxos to stop issuing the Binance USD stablecoin.
The CFTC only has oversight over digital asset derivatives. It wants to be the regulator for cash commodity digital assets. Currently, that includes Bitcoin and probably Ethereum. CFTC Chairman Rostin Behnam was keen to use the Binance case to support its position.
“The resolution of the action against Binance and Zhao within just eight months of its filing solidifies the CFTC’s reputation as the proven leader in the civil enforcement space when it comes to digital assets,” said Behnam during the press conference. “I believe our actions here underscore what we could accomplish in CFTC markets with broader authority.”
One other key point is to what extent Binance can afford such a hefty payment. The first $900 million is due in 30 days, with the rest of the forfeiture within six months. Binance must pay the $1.8 billion criminal fines within 15 months.