Binance judgement cements US crypto approach

The US Department of Justice (DoJ) handed down a record fine of $4.3bn (£3.2bn) to the Binance crypto exchange yesterday, 21st November, for “consistent and egregious” violations of US laws and financial regulations. Founder Changpeng Zhao (CZ) stepped down with immediate effect to be replaced as CEO by Richard Teng, former Head of Regional Markets at Binance. The exchange is to be monitored for five years via US Treasury’s Financial Crimes Enforcement Network (FinCEN) and has stringent reporting and compliance requirements to fulfil in order to remain active in the United States.

The violations detailed in the judgement, available from the DoJ, included transactions dealt with by the exchange that originated from criminal activity or violated US sanctions and a lack of compliance with US anti-money laundering and suspicious activity regulations.

Legislation and compliance

What is significant about this judgement is the manner in which it was delivered, with representatives of virtually every agency involved. Attorney General Merrick Garland and Deputy Attorney General Lisa Monaco were joined by Treasury Secretary Janet Yellen and the Chairman of the Commodity Futures Trading Commission (CFTC), Rostin Benham. It demonstrates a united approach focused on corporate responsibility and compliance. The group also called upon Congress to introduce long-awaited legislation fill gaps in guidance, to improve and expand tools that will help compliance. This was expected in 2022, and the delays have resulted in regulation by enforcement by the Securities and Exchange Commission (SEC) in the absence of crypto-specific federal laws.

Decentralised businesses vs centralised regulators

The rapid growth of Binance from its early days as a regulated business in Malta made the business a headache for global regulators. In 2021, the UK’s Financial Conduct Authority (FCA) warned that Binance was not capable of being supervised properly and has never granted any part of Binance registration under the UK’s regulatory regime. The US system is more complex and more costly, a heavy burden for any business seeking to operate compliantly, but this judgement confirms that Binance chose a dangerous path of pretending to comply in the US and ignoring laws and regulations that should have been followed.

There is plenty still to unpack from this judgement, but the unity of the US agencies and the clear message they are sending cannot be ignored.