SEC exposed new attachments to exert pressure, Binance will uphold its own position

SEC Reveals Additional Attachments to Increase Pressure, Binance Remains Firm in Its Stance

Author: Weilin

There is new progress in the case between the U.S. Securities and Exchange Commission (SEC) and Binance.

On December 8th, three detailed documents outlining the settlement between Binance and the U.S. Department of Justice, Financial Crimes Enforcement Network (FinCEN), and other regulatory agencies were made public on the U.S. legal document website, CourtListerner. It is worth noting that the submitter of these documents is listed as the SEC, although the SEC is not included in the list of organizations Binance has reached a settlement with.

In June of this year, the SEC filed a civil lawsuit against Binance, accusing the exchange of operating as an unregistered exchange and illegally supplying and selling securities to U.S. investors. These three documents have now been officially included as attachments in the latest public disclosure by the SEC, which also requests the judge to adjudicate a series of “new incriminating facts” in the settlement agreement.

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The SEC’s stance is clear as they continue to refuse Binance’s request to dismiss the lawsuit. In response to this, Binance’s newly appointed CEO, Richard Teng, stated in a Q&A session with the Chinese community on December 12th that Binance will firmly uphold its position. As the case is still under investigation, he did not provide further comments.

In these three documents that were made public by the SEC, apart from the known information regarding fines and penalties, there is also detailed information about the “supervisor influence” on Binance that the public is highly concerned about.

The documents show that various departments under the U.S. Department of Justice and regulatory agencies such as FinCEN will exercise supervisory authority over Binance in the next 3-5 years through the appointment of third-party supervisors by Binance. These supervisors are not government officials but are hired by Binance and their main responsibilities include anti-money laundering (AML) compliance and sanctions compliance.

Richard explained that the core responsibility of the supervisors is anti-money laundering and does not involve specific business operations such as asset listings on Binance, nor does it violate Binance’s principles of protecting user information.

Third-party supervisors oversee anti-money laundering without involving user information

After the settlement agreement between Binance and the U.S. Department of Justice, observers were astonished by the $4.3 billion fine, but non-U.S. users are more concerned about the supervisors who will soon have supervisory authority over Binance. Will they have an impact on the listing of crypto assets on Binance and users’ transactions with crypto assets? Will user data be exposed to regulation?

On December 12th, Binance CEO Richard Teng responded in an AMA session with the Chinese community that the core responsibility of the supervisors is anti-money laundering and it will not impact the listing of crypto assets on Binance, users’ transactions with crypto assets, or Binance’s product innovation. It will also not have any impact on Binance’s principles of protecting user information and data.

Richard explained that the supervisors are not US government officials, but third-party personnel hired by Binance who meet the legal requirements. They must maintain independence. “Their main responsibility is to assess whether our anti-money laundering efforts are good, whether they comply with legal requirements, and whether every term of the agreement is executed.”

He mentioned that Binance has invested a lot of funds and resources in anti-money laundering over the years. “From an industry standard perspective, we are already very advanced. But what we say doesn’t count. After independent supervisors come in, they will objectively assess whether our efforts are as we described.”

Regarding data and privacy issues, Richard emphasized that Binance will only cooperate when regulatory agencies make legitimate law enforcement requests or under court orders. “This is the same rule that all exchanges must adhere to.”

So, is what Richard said true? The three settlement agreements between Binance and regulatory agencies such as the US Department of Justice, which were made public by the SEC on December 8th, provide a clear answer.

Three documents made public on December 8th

According to the agreement documents, Binance agrees to hire a third-party supervisor to perform the obligations stipulated in the agreement during the agreed term. Binance and the prosecuting authorities will make every effort to complete the selection process of the supervisors within 60 working days after the agreement is signed.

Based on this timeline, the supervision of Binance will not be conducted until next year. The term of the supervisor requested by the Department of Justice will be three years from the date of hire. The term requested by FinCEN will be five years, and they may be the same candidate.

The documents show that the main responsibility of the supervisor is to assess and supervise the company’s compliance with the terms of the agreement, including the company’s compliance plan, policies, procedures, code of conduct, systems, and internal controls, as well as its anti-money laundering and compliance plan for US sanctions, in order to clearly identify and reduce the risk of improper behavior by the company happening again.

In certain circumstances, the supervisor should immediately report possible improper behavior directly to the office, rather than to Binance. Possible improper behavior includes risks to US national security, public health or safety, or the environment; involvement of the company’s senior management; obstruction of justice; or other significant risks.

The supervisor is also responsible for assessing and supervising the fulfillment of the agreement, including Binance’s senior management commitment and implementation of the anti-money laundering (AML) and compliance plan, assessing and supervising Binance’s compliance with the settlement agreement with the Office of Foreign Assets Control (OFAC), the settlement agreement with the Commodity Futures Trading Commission (CFTC), and the settlement agreement signed by Binance with the Department of Justice.

In the agreement, Binance’s compliance commitments include policies, procedures, and internal controls; customer and third-party relationships; anti-evasion controls; periodic reviews; appropriate supervision and independence; training and guidance; comprehensive reporting and investigation; enforcement and discipline; and monitoring, testing, and auditing.

According to the agreement, Binance should make every effort to provide access to information to the monitor upon reasonable request, including “former employees, agents, intermediaries, consultants, representatives, distributors, license holders, contractors, suppliers, and partners” of the company.

From this point, it can be seen that the monitor’s review authority does not involve the information of ordinary users. It is also mentioned in the document that when the US Department of Justice and FinCEN investigated Binance, the evidence provided by Binance to the investigative agencies was based on the premise of “not violating foreign data privacy.”

These three attachments added to the SEC’s lawsuit against Binance are more detailed than the previously disclosed information by agencies such as the US Department of Justice and FinCEN, and the content of the monitor’s section confirms what Binance CEO Richard said. Strict supervision objectively leads to the possibility that Binance’s anti-money laundering and compliance will reach higher levels in the industry for at least 3-5 years.

Richard also shared the attitude of some partners of Binance two weeks after the incident, “They think this is good news. Some partners used to be conservative but now they are willing to cooperate with Binance. The benefits of compliance are showing, it is not only long-lasting, but also brings wider adoption of cryptocurrencies.”

SEC’s Response: Binance to “Maintain Its Position”

In addition to the three documents themselves, in the third publicly released document, the SEC requested the judge to legally determine a series of “new factual allegations” in the settlement agreement.

Obviously, the SEC wants to increase its persuasiveness in the case and hopes that the judge will declare the relevant facts as true without the formal submission of evidence. However, the outcome depends on the court’s judgment of this civil lawsuit.

On June 5th of this year, the SEC filed 13 charges against Binance, including Binance’s issuance of unregistered BNB and BUSD tokens, Simple Earn, BNB Vault products, and their staking plans. The SEC also stated that Binance did not register its Binance.com platform as an exchange or broker-dealer settlement agency.

From the content of the charges, the key question is whether Binance has violated US securities laws.

In the Binance community AMA on December 12th, Richard refrained from commenting further on the case because “the case is still under investigation,” but he expressed his stance, saying, “Binance will definitely maintain its position.”

Previously, Binance and its former CEO, Changpeng Zhao, filed a motion with a US district court in September seeking to dismiss the lawsuit, arguing that the SEC’s lawsuit exceeded its powers, mainly because the SEC did not provide clear guidance on the cryptocurrency industry before making the accusations and distorted the provisions of securities laws while attempting to claim regulatory authority over the cryptocurrency industry.

On November 7th, the SEC launched a counterattack against Binance’s motion to dismiss the lawsuit, claiming that no court has accepted Binance’s “misinterpretation of the law.” The SEC accused Binance of “never complying” with federal securities laws and requested the court to reject Binance’s motion to maintain the securities law system.

The ongoing “battle” between the SEC and Binance is still ongoing. In fact, besides Binance, several companies in the cryptocurrency industry have been sued by the SEC for “securities” issues, including Ethereum (which was ultimately not classified as a security), Ripple, TRON, and even Coinbase, the US-based cryptocurrency exchange. The case involving Coinbase, similar to the SEC v. Binance case, is still being resolved.

Looking at settled cases, most of the SEC’s lawsuits are civil cases that usually end in settlements and fines. It is worth noting that the SEC is not included in the sequence of settlement agreements between Binance and US regulatory authorities.

In response to this, Binance co-founder He Yi, who participated in the AMA, stated that Binance has a dedicated legal department and lawyers to handle investigations and lawsuits from both the Department of Justice and the SEC. When assessing regulatory impacts, “lawyers also generally believe that the Department of Justice has greater influence because it has the power to impose criminal penalties, while the SEC’s lawsuit is a civil responsibility.”

Both Richard and He Yi, the new partners of Binance, seem to be optimistic about the SEC’s lawsuit, but the outcome of the case will ultimately depend on the judgment of the US District Court.

However, Binance, which has already reached settlements with US regulators, has made further progress in terms of data.

The total assets in Binance’s on-chain wallets have recovered to the level before the incident.

According to DefiLlama data, the total assets in Binance’s on-chain wallets are $73.471 billion, a 15% increase from the $63.504 billion disclosed on the day of the “settlement case” and has returned to the pre-incident level.

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