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As 2023 draws to an end, Binance has become the latest casualty of a continued crackdown on crypto firms by US regulators. Following a record-breaking settlement, Binance has said it will fight on, but are such hopes realistic given the seriousness of the charges?
On Tuesday (November 21), the US Department of Justice (DOJ) announced that Binance had pleaded guilty to a wide range of financial crimes and has entered a $4.3bn settlement.
As covered by Vixio, the settlement puts to rest months of speculation that the DOJ could be building a criminal case against Binance and CEO Changpeng Zhao, who has since resigned.
As per the DOJ, the list of charges against Binance include money laundering offences, unregistered money service offences and violations of the Bank Secrecy Act (BSA).
The $4.3bn settlement was split between the Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC).
FinCEN imposed a $3.4bn penalty for evading US regulation and wilful failures to impose know your customer (KYC) requirements, while OFAC imposed a $968m penalty for sanctions violations.
As had long been suspected, OFAC presented evidence that Binance had allowed users in multiple sanctioned jurisdictions to transact via the exchange.
Between 2017 and 2022, OFAC found that Binance had facilitated more than 1.67m of such transactions, including almost $900m of transactions between US customers and users in Iran.
On the day the settlement was announced, Binance was optimistic, telling Vixio that it will “emerge stronger” and will continue to lay the foundations for its “next 50 years” in business.
“We strongly believe that the crypto industry and Binance have a bright future,” a spokesperson said.
“We are committed to ensuring that the transformative power of blockchain technology is experienced by more people worldwide.”
Mixed industry reaction
Among digital asset professionals that spoke with Vixio, opinion was divided as to how realistic Binance’s ambitions are.
As per the settlement, Binance will be permanently banned from the US, but it plans to continue doing business in the rest of the world.
Patrick Tan, general counsel at blockchain analytics firm ChainArgos, said it is too early to determine whether Binance can recover at this stage.
“Whether new management can recast Binance as a compliant and reformed crypto exchange is hard to say, but the list of companies that have reinvented themselves after serious crime or fraud is short,” he said.
“It's not clear at all how large a proportion of Binance's customer base used the exchange, due to its lax (or non-existent) AML/KYC policies.
“So, whether Binance will survive the next chapter is as much a function of its unique value proposition as of its past missteps.”
One factor that Binance does have in its favour, Tan added, is that there is no indication, at least for now, that user funds are missing.
In contrast, Binance’s former rival FTX is still sorting through $9bn of customer losses in bankruptcy proceedings, while also eyeing a relaunch under new management.
Max Solomons, associate at international law firm Cassels Brock & Blackwell, said it is “certainly possible” that Binance can absorb the financial penalties and continue, but there is no guarantee.
Like Tan, Solomons said what happens next will depend on the real size of Binance’s legitimate business, and that is to be determined.
“At present, Binance is one of the biggest international crypto trading platforms based on numerous quantitative metrics, so they have the customer base to keep the business running,” he said.
“However, it’s unclear to what extent their regulatory arbitrage played a role in Binance’s success, and it’s unclear how new leadership will be able to win back the trust of users.”
US law enforcement bares its teeth
To the rest of the industry, Binance’s conviction signals that US law enforcement is taking a proactive approach towards crypto financial crime, and that no platform is “too big to fail”.
In the months leading up to the settlement, Tan noted that the DOJ had come under heavy criticism for its “seeming reluctance” to prosecute large crypto entities such as Binance.
In particular, and as documented by ChainArgos, Binance was seen to be openly flouting anti-money laundering and sanctions laws, resulting in increasing calls from lawmakers for the DOJ to act.
All sources told Vixio that the DOJ will gain credibility following the settlement, and that compliant firms may now benefit from Binance’s exit from the US market.
Gene Grant, CEO of LevelField Financial, a state-chartered bank and digital asset platform, said the “entire industry is strengthened because the firms doing things the right way will obtain additional customers, and hopefully become more profitable".
“That will hopefully create a virtuous circle where the compliant firms continue to grow."
Other bad actors still to fall
All sources agreed that the DOJ’s crackdown is far from over, and more criminal prosecutions are to come.
Stablecoin issuer Tether is widely regarded as the next domino to fall, and is believed to have committed crimes of a similar nature to those of Binance.
As argued by Tan, if digital assets are to gain recognition and acceptance as financial services, then Tether is the “800-pound gorilla” that currently stands in their way.
Jim Preissler, chief strategy officer at digital asset exchange SOMA.finance, took the same view.
"The regulators are trying to eliminate bad actors from the ecosystem, but there are a few key chess pieces remaining,” he said.
“All eyes are now on Tether, Justin Sun and the Tron ecosystem, as well as other malicious state actors within crypto."
Having cleared these entities out of the market, Preissler said that opportunities for mainstream adoption, such as the approval of a US Bitcoin exchange-traded fund (ETF), will open for the industry.
