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In a shocking turn of events, a compliance employee of Binance, the world’s largest cryptocurrency exchange, allegedly made a startling statement: “We need a banner ‘is washing drug money too hard these days—come to Binance we got cake for you.” This revelation is just the tip of the iceberg in a series of allegations and legal actions that have unfolded against Binance.
Court documents reveal that Binance, launched in 2017, quickly rose to become the largest digital asset platform globally, succeeding the shuttered Bulgaria-based bitcoin exchange BTC-e. However, its ascent was marred by prioritizing growth and profits over compliance with U.S. laws. Binance failed to implement essential components of an anti-money laundering (AML) program, comprehensive know-your-customer (KYC) protocols, or systematic monitoring of transactions.
U.S. Legal Action:
The consequences of these alleged regulatory shortcomings were severe. Binance attracted high-volume U.S.-based customers, allowing them to trade trillions of dollars without submitting identifying information beyond an email address. This lax approach caught the attention of U.S. authorities, leading to legal action.
Acting U.S. Attorney Tessa M. Gorman emphasizes that “Binance became the world’s largest cryptocurrency exchange in part because of the crimes it committed.” The failure to implement an effective AML program enabled illicit actors to exploit the platform for various illegal activities.
Charges and Penalties:
Binance faced charges related to the Bank Secrecy Act, failure to register as a money transmitting business, and violations of the International Emergency Economic Powers Act (IEEPA). As a result, Binance pleaded guilty and agreed to a staggering $4.3 billion settlement. This includes forfeiting $2.5 billion and paying a criminal fine of $1.8 billion, making it one of the largest corporate penalties in U.S. history.
U.S. Secretary of the Treasury Janet L. Yellen emphasized that Binance’s willful failures allowed money to flow to terrorists, cybercriminals, and child abusers through its platform. The guilty plea sends a clear message to crypto and decentralized finance (defi) companies: compliance with U.S. law is non-negotiable.
In a significant development, Binance’s founder and CEO, Changpeng Zhao, a Canadian national, pleaded guilty to failing to maintain an effective AML program and resigned. Richard Teng, a former Abu Dhabi financial services regulator, has taken over as the new CEO.
Ongoing Legal Issues:
Despite this substantial settlement, Binance’s legal challenges are far from over. The settlement resulted in significant client fund outflows, reminiscent of a previous incident in June when the U.S. Securities and Exchange Commission charged Binance and its founder with mishandling customer funds and providing false information to regulators.
Secretary Janet L. Yellen highlighted that today’s historic penalties and monitorship mark a milestone for the virtual currency industry, reinforcing the idea that any institution benefiting from the U.S. financial system must adhere to regulations or face consequences.
Binance’s legal troubles with the SEC are still pending resolution, adding another layer of uncertainty to the exchange’s future. The cryptocurrency industry now awaits the fallout and potential ramifications on the broader regulatory landscape.