The early tweet by Changpeng Zhao, ‘Today, I stepped down as the CEO of Binance…..’ took the internet by storm. Being one of the world’s largest crypto exchanges, Binance, and Zhao was an easy target for regulatory scrutiny, and probes in Asia, Europe, and the United States. However, this is not something new for Binance. Government agencies in the United States have thoroughly investigated the exchange for months and years to unseal charges against it. While the justice department’s probe against Binance started years back, the regulatory agencies in the US took matters into their hand, and set actions against the exchange. But, the question is, what compelled Zhao, one of the founders of Binance to step down as the CEO?
Let’s understand everything in detail…
On November 14th, 2023, the government of the United States filed a case against Zhao and Binance. The documents of the case were finally unsealed yesterday. Zhao pleaded guilty to violating the Bank Secrecy Act and anti-money laundering US laws. Thereafter, he was forced to resign from his position. But that’s not it.
To resolve the long-running investigation against the world’s largest crypto exchange, a settlement amount of $ 4.3 billion was made by the Department of Justice. The settlement amount is by far the largest in US history. The justice also charged Zhao with a personal settlement of $50 million.
According to prosecutors, Binance violated the anti-money laundering law and sanction laws of the United States. It failed to report over 100,000 suspicions that involved terrorist organizations, such as the Islamic State of Iraq and Syria, Hamas, and Al Qaeda. With the ongoing scrutiny and investigations, Zhao pleading guilty has been a huge blow to the industry.
According to the New York Times, the Department of Justice in collaboration with CFTC (Commodity Futures Trading Commission), and the Treasury Department imposed an 18-month to 10-year of imprisonment for Zhao.
Binance’s founder, Changpeng Zhao, agreed to pay a $175 million bond and come back to the US for sentencing by Feb. 23, 2024. He promised to share where he’d stay and face arrest if he didn’t show up for court. Skipping court means a $250,000 fine and up to 10 years in jail. Zhao deposited $15 million in a separate account and risks losing it if he breaks his bond conditions. Two others promised $250,000 and $100,000 each.
He pleaded guilty to violating the Bank Secrecy Act, which could mean an 18-month sentence. However, there’s talk of a possible longer punishment. The US will review Zhao’s bail order. If no review happens before Nov. 27 at 5 pm Washington time, the order stands, and Zhao might return to Dubai. But if there’s a review, he must stay in the US until a decision is made.
Moreover, Zhao is at present on the hook with $200 million in criminal and civil penalties. While it is a small piece to pay for an early crypto adopter with a worth ranging between $17 million to a billion. He has to pay for the settlement charges after a joint investigation between the Department of Justice, the Commodity Futures Trading Commission, and two enforcement agencies under the Treasury Departments, OFAC, and FinCEN.
As per the regulations, Binance publicly announced its intent to restrict customers in the United States from accessing the platform. The complaints were even after publicly announcing the restrain of its US customers, Binance was teaching its customers how to avoid the compliance controls.
The CFTC states that Binance was not only breaking the law but deliberately violating it for more profits. According to the law, US customers can buy the currency but not bet on it. Yet, Binance was offering its commodity derivatives transaction to US customers.
Whatever the scenario is, exchanges operating in the US, and other countries with proper crypto regulations need to obey and abide by. Since regulations are the future, to avoid any charges, it’s best to learn from the current Binance scenario and do better.
The guilty plea of Changpeng Zhao and the sudden resignation as the CEO of Binance marks a huge turning point in the crypto industry. With the increasing importance of compliance with financial regulations, it can pave the way for more rigid oversight in the crypto space. With the new regulatory framework, the industry is still adjusting to the new norms. The question is, will Binance be able to grow the same way with compliance with regulations?