Binance names new CEO after taking $4.3B in penalties

Gabrielle Saulsbery
Wed, November 22, 2023 
Industry Dive

Richard Teng was named CEO at Binance on Tuesday afternoon after founder Changpeng Zhao stepped down as chief executive to plead guilty to failing to maintain an effective anti-money laundering program in violation of the Bank Secrecy Act.

Zhao, who agreed to pay $50 million in fines during Tuesday’s court hearing in Seattle, tweeted afterward that stepping down was “not easy” but was “the right thing to do.”

“I made mistakes, and I must take responsibility,” Zhao wrote. “This is best for our community, for Binance, and for myself.”

Teng joined the company as Singapore CEO in 2021 and has since climbed its ranks, serving most recently as global head of regional markets. Over the previous 30 years, he spent time as the CEO of the Financial Services Regulatory Authority at Abu Dhabi Global Market, as chief regulatory officer of the Singapore Exchange, and as director of corporate finance in the Monetary Authority of Singapore, according to his LinkedIn profile.

“Binance is no longer a baby. It is time for me to let it walk and run. I know Binance will continue to grow and excel with the deep bench it has,” Zhao tweeted. “[Teng] will navigate the company through its next period of growth. He will ensure Binance delivers on our next phase of security, transparency, compliance, and growth.”

Teng tweeted that his focus will be on regaining user confidence in the financial strength, security and safety of the company; working with regulators on rules that foster both innovation and consumer protections; and working with others to drive the adoption of Web3 — a term used to describe the next iteration of the internet, built using blockchain technology.

“The trust placed on us by our 150 [million] users and thousands of employees is a responsibility that I take seriously and hold dear,” he tweeted. “I have accepted this role so that we can continue to meet and exceed the expectations of stakeholders while achieving our core mission, the freedom of money.”
The penalty

Tuesday’s settlement, however, will ensure that Teng faces more hurdles in his job than Zhao did. Binance will pay $4.3 billion to the Justice Department, the Treasury Department, the Commodity Futures Trading Commission and the Office of Foreign Assets Control to resolve violations related to the BSA, the International Emergency Economic Powers Act and the exchange’s failure to register as a money transmitting business.

FinCEN, which will receive $3.4 billion of the penalty, has imposed a five-year monitorship of Binance in which the Treasury Department “will retain access to books, records, and systems” of the company.

If Binance fails to live up to the obligations of the settlement, it will be subject to a $150 million suspended penalty, the Treasury Department said.

“From the beginning of its existence, Binance and founder Changpeng Zhao chose growth and personal wealth over following financial regulations aimed at stopping the laundering of criminal cash,” Tessa M. Gorman, acting U.S. Attorney for the Western District of Washington, said in a statement. “Because Changpeng Zhao knowingly operated a financial platform without basic anti-money laundering safeguards, the company caused illegal transactions between U.S. users and users in sanctioned jurisdictions such as Iran, Cuba, Syria, and Russian-occupied regions of Ukraine — transactions for which Binance profited with significant fees.”

Binance failed to file suspicious activity reports with FinCEN on more than 100,000 transactions that went on to fund terrorist organizations, ransomware, child sexual exploitation material, frauds and scams, the Treasury Department said.

As part of the settlement, Binance must exit the U.S. entirely. Binance.US, however, is a registered money services business and is not affected by Binance's exit, an official clarified to CoinDesk.

For his guilty plea, Zhao faces up to 18 months in prison, though prosecutors are considering asking for a stiffer penalty, The New York Times reported. A court filing shows that he paid $175 million personal recognizance bond, and placed $15 million in a separate trust account that he will forfeit if he violates terms of his bail.

A sentencing hearing is scheduled for Feb. 23, 2024.
Outflows

Despite reassurances from Zhao and Teng, outflows from Binance surpassed $1 billion between Tuesday morning and early Wednesday, according to blockchain analysis firm Nansen.

The exchange has had multiple previous billion-dollar-loss days, including on the day former FTX CEO Sam Bankman-Fried was arrested in the Bahamas following the collapse of his own crypto exchange, and the day Binance was sued by the SEC in June.

Zhao, without mentioning his guilty plea, tweeted that he plans to “take a break” now that he’s not CEO of the world’s largest crypto exchange, and that he will probably “do some passive investing” in several types of tech startups.

“I can’t see myself being a CEO driving a startup again. I am content being an one-shot (lucky) entrepreneur. Should there be listeners, I may be open to being a coach/mentor to a small number of upcoming entrepreneurs, privately. If for nothing else, I can at least tell them what not to do,” he wrote. “On that note, I am proud to point out that in our resolutions with the U.S. agencies they: do not allege that Binance misappropriated any user funds, and do not allege that Binance engaged in any market manipulation.”

In response to a request for comment, a Binance spokesperson directed Banking Dive to a blog posted by the company Tuesday:

“While Binance is not perfect, it has strived to protect users since its early days as a small startup and has made tremendous efforts to invest in security and compliance. However, when Binance first launched, it did not have compliance controls adequate for the company that it was quickly becoming, and it should have. Binance grew at an extremely fast pace globally, in a new and evolving industry that was in the early stages of regulation, and Binance made misguided decisions along the way. Today, Binance takes responsibility for this past chapter. Over the past two years, we have worked hard to restructure our organization and personnel and upgrade our systems. We have new leadership in place with deep compliance experience and impressive backgrounds ranging from top traditional financial institutions and leading tech companies, to law enforcement and major corporate entities. It is through this process that we have become a stronger, safer, and even more secure platform for our users.”

Binance Announcement: Reaching Resolution With U.S. Regulators

New Binance CEO Teng’s First Job Is to Avert Customer Exodus

Suvashree Ghosh, Anna Irrera and Ben Bartenstein
Wed, November 22, 2023 


(Bloomberg) -- Mollify 150 million potentially jittery users, placate belligerent US regulators and keep high-profile founder Changpeng Zhao onside. These are just some of the tasks for crypto exchange Binance’s new head Richard Teng.

Teng, 53, succeeded Zhao as the chief executive of the world’s largest crypto exchange after the company and Zhao pleaded guilty to US anti-money laundering and sanctions violations. Zhao, Binance’s founder, stepped down as CEO as part of a sweeping deal to resolve the Department of Justice probe.

Binance will pay $4.3 billion in penalties — one of the largest such agreements in US history — while Zhao will pay a $50 million fine. He faces up to 10 years in prison but is expected to get no more than 18 months under a plea deal.

Taken together, the events are a breathtaking rebuke of crypto’s linchpin exchange and land Teng with arguably the hardest job in the digital-asset sector. He has to rebuild trust in Binance, stem a slide in market share and field ongoing regulatory investigations around the world, including a Securities & Exchange Commission lawsuit that wasn’t part of Tuesday’s settlement.

Work to Do

“There’s a lot of work to be done in radically re-imagining the operating and governance model for Binance, to ensure it can operate in a way that is — and is also seen to be — aggressively pro-compliance, as well as open to incorporating highest standards of good governance and risk management,” said Yesha Yadav, a law professor at Vanderbilt University who specializes in financial regulation.

In the past 24 hours, customers pulled a net $1.3 billion from the Binance platform, according to data from DefiLlama. That’s lower than past daily outflows of as much as $4 billion during times of stress. Binance has $67 billion worth of exchange assets, according to DefiLlama.

BNB, the native token of Binance, dropped about 3% to $231 as of 12:17 p.m. in New York on Wednesday, extending a near 6% slump from Tuesday. BNB is the fourth-largest crypto coin with a market value of $36 billion, according to CoinGecko, and is often viewed as an arbiter of sentiment toward Binance.

Under the plea agreement, an independent compliance monitor will scrutinize Binance for three years and the company must submit reports to the US government. That’s a perilous backdrop if Teng fails to eradicate the kind of violations for which Binance was just faulted, such as allowing transactions by militant groups like Hamas.

Reassuring Customers

In a post on X, Teng said that he’ll focus on reassuring Binance’s 150 million users about its “strength, security and safety” and collaborate with regulators “to uphold high standards globally.” He added that he would work with partners to drive growth and adoption of web3 — a catch-all term referring to a vision of the internet built around crypto and its underlying blockchain technology.

Teng, a civil servant-turned-crypto executive, was the frontrunner to take over as CEO as regulatory scrutiny of Binance and Zhao intensified across key jurisdictions. Zhao in late May appointed him head of non-US regional markets.

In Teng’s favor is decades-long experience as a senior regulator, including at the Monetary Authority of Singapore as well as the city-state’s SGX stock exchange. He was also chief executive of the regulator at Abu Dhabi’s international financial free zone. Teng joined Binance in August 2021 as Singapore CEO.

Teng “has a respected regulatory background,” said Hirander Misra, chairman and chief executive officer of market infrastructure company GMEX Group. “That said, he is swimming against the tide. A culture of regulatory compliance is very hard to instill in an organization that has evolved in an industry with a lack of regulations. It’s a bit like the poacher trying to turn gamekeeper.”

Recent Exits

Among the issues for Teng is a string of exits by senior Binance staffers in recent months, some of whom had been helping to navigate the regulatory crisis surrounding the company. The departures included counter-terrorism executive Jennifer Hicks, head of product Mayur Kamat, senior vice president of compliance Steven Christie, APAC head Leon Foong and chief strategy officer Patrick Hillman.

“To ensure a bright future, I intend to use everything I’ve learned over the past three decades of financial services and regulatory experience to guide our remarkable, innovative, and committed team,” Teng said in the post on X.

Zhao, who is often referred to by his initials CZ, is prohibited from involvement in managing or operating Binance under his plea agreement. But in a post on X, he indicated he is still willing to offer guidance to Teng.

“As a shareholder and former CEO with historical knowledge of our company, I will remain available to the team to consult as needed, consistent with the framework set out in our US agency resolutions,” Zhao said. He added that he planned to take some time off before looking for startup investment opportunities and exploring crypto’s decentralized-finance sector.

‘Herculean’ Task

Another Binance founder with major clout at the company is Yi He, Zhao’s partner in business and life. The two have children together.

“The question still remains in terms of who is pulling the strings,” said GMEX’s Misra. “I hope for his sake he is given the autonomy to effect serious change to address the Herculean task in front of him,” he added, referring to Teng.

Teng takes on the challenge of retaining customer confidence in Binance amid a partial recovery in digital-asset markets from a damaging 2022 rout that contributed to the blowup of rivals such Sam Bankman-Fried’s FTX. While Binance remains the key platform for crypto spot and derivatives trading, its dominance has declined amid regulatory clampdowns that sapped confidence.

Binance exploded onto the crypto scene in 2017 and saw its market share surge to more than 60% worldwide after the fall of FTX in November 2022. Since then, its combined market share for spot crypto and derivatives has declined to less than 44% this month, according to researcher CCData.

“This criminal and civil resolution allows Binance to potentially start a new chapter,” said Alex Zerden, a former US Treasury official whose firm Capitol Peak Strategies advises crypto businesses. “However, the company will be under rigorous monitorships for the next several years and must show genuine and material changes in behavior to avoid further enforcement actions by the US government.”

--With assistance from Yueqi Yang and Sidhartha Shukla.

 Bloomberg Businessweek