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Crypto in Focus After Binance-DOJ Settlement

Stavros Tousios | Wednesday 22 November 2023

The CEO of major cryptocurrency exchange Binance, Changpeng Zhao (“CZ”), has stepped down as part of a settlement with the US Department of Justice (DOJ) on Tuesday, November 22. The settlement followed investigations by the DOJ and others into anti-money laundering (AML) and sanctions violations committed by Binance. 

Following the news on Tuesday, the price of Binance's token, BNB, plunged around 8%. Bitcoin and Ethereum (ETHUSD) also dipped but to a lesser extent. Bitcoin (BTCUSD) fell as much as 4.5% the same day, with crypto stocks Coinbase (COIN) and Marathon Digital Holding (MARA) also affected.

Despite stepping down, Zhao will remain the majority shareholder of Binance and provide consultation. The cryptocurrency exchange has grown exponentially under Zhao's leadership since 2017, carving out a significant name in the cryptocurrency market. Even though he won't be leading the exchange, his less prominent involvement might serve as a catalyst for further regulatory oversight.

Volatility was seen rising following the event amidst mixed feelings around the settlement, which proved costly for leverage traders. Over $200 million in short and long positions were liquidated as a result. 

Crypto Fraud

Several Allegations to Deal With

Binance has been accused of failing to prevent and report suspicious transactions connected to terrorist groups like Al Qaeda and ISIS. This came as the DOJ has been investigating Binance for possible money laundering and tax law violations. Notably, Binance still faces two lawsuits from the CFTC and SEC over anti-money laundering violations and inflating trading volumes artificially. 

On further allegations, the US Treasury Department said that Binance prioritised "growth over compliance", with billions of dollars in crypto transactions done without proper Know-Your-Customer (KYC) procedures. US Treasury Secretary Janet Yellen stated that "its willful failures allowed money to flow to terrorists, cybercriminals, and child abusers through its platform".

The case against Binance showed three criminal charges were brought against the exchange, including "conducting an unlicensed money-transmitting business, violating the International Emergency Economic Powers Act, and conspiracy." The US government also accused Binance of allowing over $890 million in transactions involving sanctioned countries like Iran.

Settlement, But No Fall

In a bid to allow the exchange to continue its operations, Zhao agreed to step down from his role as Binance's CEO and pleaded guilty to the charges.

In his settlement agreement with the DOJ, Zhao also agreed to pay $3.4 billion to FinCEN and $968 million to OFAC, the biggest penalty in US Treasury history, and face monitoring for five years. CZ even settled to pay $50 million in fines to CFTC. Needless to say, he is prohibited from operating or managing Binance, but only for the next three years.  

Despite facing a potential 10-year prison term, the former CEO is expected to do no more than 18 months under the settlement.

The Ripple Effect

The news sent ripples across the market and may affect how governments and regulatory bodies regulate crypto exchanges. In fact, the implications could be far-reaching for Binance, potentially impacting its operations, reputation, and future growth as it follows FTX Sam Bankman-Fried's trial.

Notably, the settlement allows Binance to continue operating in the US and avoid a potential shutdown. However, it has been ordered to exit the country entirely for now. Binance may join cryptocurrency exchanges Coinbase and Kraken's efforts to push back against "heavy-handed regulation by enforcement”.

On the plus side, Zhao himself said he "must take responsibility" but also noted that US agencies did not allege Binance for misappropriating client funds or manipulating the market. Some traders believe CZ's downfall may boost the chances of the SEC approving a spot bitcoin ETF in the coming months.

The Road to Recovery

The DOJ will keep a close eye on Binance for the next 2-3 years to ensure compliance, which may lead some users to leave the exchange, searching for safer alternatives. While it is unclear how Binance will navigate this change, the appointment of Richard Teng as the new CEO, a veteran in regulatory circles, suggests a strategic move towards more robust compliance.

Teng has over three decades of experience, and Zhao described him as a "highly qualified leader". He said his focus as the new CEO will be on reassuring users, collaborating with regulators, and working with partners to drive growth.

However, he still faces rebuilding trust in Binance, addressing regulatory concerns, and managing ongoing investigations globally, including an SEC lawsuit. (Source: BNN Bloomberg)

Conclusion

CZ's departure may signal market maturity, paving the way for Binance to rebuild in the US when it's allowed back in. The change of guard at Binance could also have broader implications for the crypto industry, potentially pushing things into a new era of regulatory compliance and institutional participation.


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