Is the ‘big thunderstorm’ in the encryption industry resolved? Binance may pay a $4 billion fine to the US Department of Justice for settlement.

Has the Encryption Industry's 'Big Thunderstorm' Been Resolved? Binance Facing Possible $4 Billion Fine from US Department of Justice in Settlement Agreement

Author|Wu Shuo Publishing House

The criminal investigation of Binance by the US Department of Justice (SEC and others are civil investigations) has always been a hanging “big thunderbolt” for the industry and is currently the biggest challenge faced by Binance. Now, the shoe has finally dropped, which is also a positive development for the industry, as it avoids obstacles after the start of a bull market. However, more details are still to be observed, including the specific punishment for CZ, as well as whether there will be more prohibitions for Binance.

Original article reported on November 21, 2023 by Bloomberg

https://www.bloomberg.com/news/articles/2023-11-20/us-seeks-more-than-4-billion-from-binance-to-end-criminal-case#xj4y7vzkg

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The US Department of Justice is seeking over $4 billion from Binance Holdings Limited as part of a proposed settlement to resolve a long-standing investigation into the world’s largest cryptocurrency exchange.

Negotiations between the Department of Justice and Binance, according to people familiar with the discussions, include the possibility of criminal charges against its founder, Changpeng Zhao, in the United States. This is part of the investigation into alleged money laundering, bank fraud, and violation of sanctions regulations.

Changpeng Zhao currently resides in the United Arab Emirates, a country without an extradition treaty with the United States, but this does not prevent him from voluntarily traveling to the United States.

Binance did not respond to multiple emails and phone requests for comment. The US Department of Justice declined to comment. Sources familiar with the matter said that the announcement could be made as early as the end of this month, although the situation is still uncertain, and these people requested anonymity to discuss confidential matters.

“Reaching a settlement with the US Department of Justice that includes regulatory terms could be a compromise that protects investors and allows Binance to move towards a more institutionalized and compliant future,” said Matt Walsh, Founding Partner of Castle Island Ventures.

The exact timing and structure of the proposed settlement, as well as the specific charges, are unclear. However, Binance could be asked to pay over $4 billion, which would be one of the largest fines in a criminal cryptocurrency case.

The investigation is jointly led by the Money Laundering and Asset Recovery Unit of the Criminal Division, the National Security Division, and the US Attorney’s Office in Seattle.

The agreement aims to strike a balance that allows Binance to continue operating rather than risk its collapse, which could have negative implications for the market and cryptocurrency holders, according to three sources familiar with the matter.

If Binance and the US Department of Justice agree to a deferred prosecution agreement, the Department of Justice will bring criminal charges against the company. However, as long as the company meets specified conditions, including paying a significant fine and agreeing to a detailed factual statement of its misconduct, the United States will not pursue further prosecution. A program will be established to monitor the company’s compliance.

Regarding possible sanctions violations, the US Department of Justice has been investigating whether Binance has assisted in evading US sanctions against Iran and Russia. Binance is also under scrutiny for whether it has allowed transactions funding Hamas.

This is one of the largest investigations conducted by the US Department of Justice against a cryptocurrency company, following the bankruptcy of the cryptocurrency exchange FTX and the conviction of its founder, SBF, earlier this month on charges of fraud and conspiracy.

While US Department of Justice officials have been pushing for extensive leadership changes within the company, it is currently unclear whether any other Binance executives, aside from CZ, will face charges in this case.

In June of this year, the US Securities and Exchange Commission also filed a lawsuit accusing Binance and Zhao Changpeng of mishandling client funds, misleading investors and regulators, and violating securities rules.

This lawsuit has effectively put Binance’s US division in a difficult position. Brian Schroder, the CEO of Binance.US, left the company in September during a round of layoffs. The company cut about a third of its workforce, over 100 positions. Binance.US has seen a significant decrease in trading volume since losing banking support and suspending USD deposits.

In March, the US Commodity Futures Trading Commission accused Binance and Zhao Changpeng of frequently violating US derivatives rules in the process of developing the world’s largest digital asset trading platform. The agency stated that Binance should have registered with them years ago and continued to violate CFTC rules.

Binance has objected to these lawsuits and stated that it has actively cooperated with regulatory investigations and expressed disappointment with the enforcement actions. In a statement in March, CZ stated that the CFTC’s complaint “seems to contain incomplete factual statements” and that Binance does not agree with the description of many issues. The company described the SEC’s filings as the agency using “coercive enforcement and litigation tactics for regulation, rather than the thoughtful, nuanced approach required for this dynamic and complex technology.”

Full article by Reuters in December 2022:

https://www.odaily.news/post/5183800

Reuters, citing four sources familiar with the matter, reported that the ongoing lengthy criminal investigation against Binance by the US Department of Justice may still not reach a conclusion due to disagreements among prosecutors. The investigation is said to have started in 2018 and focuses on whether Binance violated US anti-money laundering laws and sanctions regulations. At least six federal prosecutors are involved, with some believing that enough evidence has been gathered to take proactive action against Binance and bring criminal charges against individual executives, including founder Zhao Changpeng. Other prosecutors believe that more time is needed to review additional evidence.

The investigation involves prosecutors from three offices of the Department of Justice: the Money Laundering and Asset Recovery Section (MLARS), the US Attorney’s Office for the Western District of Washington in Seattle, and the National Cryptocurrency Enforcement Team. The Department of Justice regulations require the approval of the head of MLARS for money laundering charges against financial institutions. Sources stated that any actions against Binance may also require the approval of the leaders of the other two offices and higher-ranking Department of Justice officials.

Insiders say that in recent months, Binance has met with officials from the US law firm Gibson Dunn and the Department of Justice. Binance’s defense includes the argument that criminal prosecution would severely impact the cryptocurrency market, which has already been in a long slump. The discussions also involve possible plea deal scenarios.

According to sources, the investigation includes allegations of unauthorized money transfers, conspiracy to launder money, and violations of criminal sanctions. Binance executives, including Changpeng Zhao, are under investigation, but prosecutors have not made a final decision on charges. The Department of Justice may potentially file charges against Binance and its executives and reach a settlement through negotiations, or they may close the case without taking action.

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