CRYPTO CRIMINAL CAPITALI$M

CFTC says access to US customers 'is a privilege, not a right,' in aggressive case against Binance that is only just getting started

Laila Maidan
Thu, November 23, 2023 

CFTC says case against Changpeng Zhao and Binance is the beginning of an aggressive pursuit.

Commissioner Caroline D. Pham said the CFTC has no borders when it comes to prosecuting non-US entities.

Binance and Zhao to pay $4.3 billion in fines.

The last couple of years have been tough for the crypto industry and its leading figures.

And it's not likely there will be relief for the sector anytime soon. At least, that's what policymakers are signaling.

This week, Binance chief Changpeng Zhao joined his former industry rival Sam Bankman-Fried in making headlines for charges against him and his crypto exchange, which included breaching US anti-money-laundering laws.

On Tuesday, Zhao pleaded guilty and left his role as CEO. Binance is set to pay over $4.3 billion in fines, $50 million of which will be paid by the former CEO himself. A portion of that will go to settle claims made by the Commodity Futures Trading Commission for allowing US customers to trade unregistered crypto derivatives.

A statement made by CFTC Commissioner Christy Goldsmith Romero read: "There are no pirate ships in US markets" and that "access to US customers is a privilege, not a right."

Goldsmith added that the CFTC plans to continue its aggressive pursuit of crypto exchanges that violate trade laws.

The commissioner noted that there will be no tolerance for using VPNs, or any other actions that could circumvent KYC rules, including pop-up questions that merely ask users to attest that they aren't based in the US.

In a separate statement, CFTC Commissioner Caroline D. Pham said the CFTC's reach has no border. "It should be crystal clear that the CFTC will not stop in its pursuit of non-U.S. entities," Pham said.

The swift action comes amidst a prolonged case set against FTX-founder SBF, who pleaded not guilty and was charged with seven felony counts, including conspiracy to commit money laundering. He remains at New York's Metropolitan Detention Center awaiting his sentencing. He could face up to 110 years in prison.

Binance users pull $956 mln as Zhao steps down
Reuters Videos
Thu, November 23, 2023 

ORY: Investors pulled about $956 million from crypto exchange Binance within 24 hours, according to market data.

That was after its chief, Changpeng Zhao, pleaded guilty on Tuesday to settle a years-long U.S. illicit finance probe.

He stepped down from the company and now faces prison time - although it remains unclear how much.

Binance will pay $4.3 billion to U.S. authorities, which raises questions over the future of the world's largest crypto exchange.

The development also represents another blow for an industry beset by scandals.

Authorities said Binance failed to report more than 100,000 suspicious transactions.

This included organizations the U.S. described as terrorist groups.

Market data platform Nasden said despite the amount of money pulled, over $65 billion of assets remain on Binance.

But some analysts said the deal was unlikely to end Binance's U.S. legal woes, with charges by the Securities and Exchange Commission still unresolved.

Binance did not immediately respond to a request for comment, but said this week it had worked hard to make the exchange "safer and even more secure."

Ex-Binance CEO Zhao urges judge to allow him to leave US before sentencing

Updated Fri, November 24, 2023 

By Nate Raymond

(Reuters) - Lawyers for former Binance CEO Changpeng Zhao are urging a U.S. judge to reject the Justice Department's request to bar him from returning to his home in the United Arab Emirates until he is sentenced for violating anti-money laundering requirements.

Zhao's lawyers in a Thursday filing asked U.S. District Judge Richard Jones in Seattle not to reverse bail conditions set by a magistrate judge on Tuesday that would allow him to leave the U.S. while awaiting sentencing.

Zhao, a citizen of the UAE and Canada, stepped down as CEO of Binance on Tuesday after pleading guilty to willfully causing the global cryptocurrency exchange to fail to maintain an effective anti-money laundering program.

U.S. authorities said Binance broke U.S. anti-money laundering and sanctions laws and failed to report more than 100,000 suspicious transactions with organizations the U.S. described as terrorist groups including Hamas, al Qaeda and the Islamic State of Iraq and Syria.

The company as part of a plea deal agreed to pay more than $4.3 billion. Zhao has agreed to pay a $150 million penalty to the U.S. Commodity Futures Trading Commission, and prosecutors in a Wednesday filing said he faces up to 18 months in prison.

The Justice Department has asked Jones by Monday to reverse a decision by U.S. Magistrate Judge Brian Tsuchida to allow Zhao to return home to the UAE ahead of his Feb. 23 sentencing after he agreed to release him on a $175 million bail bond.

The government said it may be unable to secure his return if he chooses not to come back to the U.S. for sentencing, given that it has no extradition treaty with the UAE and Zhao is a multi-billionaire with significant assets.

But Zhao's lawyers argued that the former CEO had demonstrated he was not a flight risk by agreeing to a "substantial" bail package and by voluntarily coming to the U.S. to accept responsibility for his actions.

Allowing Zhao to return to the UAE would allow him to take care of his partner and three children and prepare them for his sentencing, defense lawyers argued.

The Justice Department responded in a brief on Friday that its decision at Tuesday's hearing to recommend Zhao remain free before sentencing was "exceptional" and was only because it believed the risk of flight he posed could be "managed" by restricting his travel.

"In the vast majority of cases, a multi-billionaire defendant who has pleaded guilty, faces possible prison time, and lives in a country that does not extradite its citizens to the United States would be detained," Justice Department lawyers said.

(Reporting by Nate Raymond in Boston; Editing by Alexia Garamfalvi, Marguerita Choy and Daniel Wallis)

Analysis-Binance CEO Teng braced for uphill battle in post-Zhao era

Fri, November 24, 2023 


By Tom Wilson and Elizabeth Howcroft

LONDON (Reuters) - Spiralling compliance costs, ongoing legal headaches and a shrinking share of the market: Binance's new chief Richard Teng faces daunting challenges in turning a new leaf for the world's biggest crypto exchange.

Teng was quickly appointed CEO this week after Binance's founder Changpeng Zhao pleaded guilty to breaking U.S. anti-money laundering laws, part of a $4.3 billion deal to resolve a years-long U.S. investigation.

Now Teng must deal with years of intrusive U.S. financial monitoring, an ongoing U.S. Securities and Exchange Commission (SEC) lawsuit and the potential loss of its dominance of the crypto sector, analysts, investors and former regulators said.

Teng faces an especially tough task in transforming the culture of Binance, four of the people said. U.S. Treasury Secretary Janet Yellen said on Tuesday that Binance "turned a blind eye to its legal obligations in the pursuit of profit" as it "allowed money to flow to terrorists, cybercriminals, and child abusers."

Teng, who before working for Binance was a financial regulator, said on social media that he would focus on reassuring users of Binance's "financial strength, security and safety" and collaborate with regulators "to uphold high standards globally."

"Teng is seen as steady hands," said Carol Alexander, professor of finance at the University of Sussex, who has tracked Binance for years. Still, leading a cultural shift at Binance - a firm shaped by Zhao in his own image - would be "hugely difficult," she said. Investors pulled almost $1 billion from Binance in the 24 hours after Zhao's demise, among its biggest daily outflows of the last year. The reaction is a sign of the challenges ahead for Teng, who previously ran Binance's regional markets.

While the U.S. settlement bars Zhao from future involvement in operating or managing Binance, he is still a major shareholder. Yi He, Binance's co-founder and the mother of Zhao's children, remains a top executive at the company. "New page," she posted on Tuesday.

Contacted by Reuters with a summary of this article, Binance did not make Teng available for an interview.

Binance spokesperson Simon Matthews told Reuters that Binance had lacked "compliance controls adequate for the company that it was quickly becoming" and made "misguided decisions" as it grew quickly.

"Richard was hired two years ago to help Binance mature and move past these historical issues," Matthews said, adding that Binance had "worked hard to restructure our organization and personnel and upgrade our systems." The firm has "new leadership" in place with experience in compliance, law enforcement and major corporations, he added.

Zhao's lawyers did not respond to a request for comment.

MONITORSHIP

As part of the resolution, the U.S. authorities will subject Binance to five years of "financial monitorship" overseen by the U.S. Treasury's Financial Crimes Enforcement Network (FinCEN).

FinCEN will keep access to Binance's books, records and systems, "oversee remedial undertakings" needed to address Binance's non-compliance with anti-money laundering and sanctions rules, the Treasury said on Tuesday.

Such steps are unusual, challenging and costly, even for mainstream financial companies with deep experience of dealing with regulators, said lawyers and former regulators.

"It's a real millstone - everything you are doing is subject to scrutiny," said John Reed Stark, a former chief of the SEC's Office of Internet Enforcement.

While the exchange has said it has ramped up compliance spending, Zhao for years sought to shield it from regulators, Reuters reported in a series of articles in 2022.

Still, Binance should be able to cover both additional compliance costs and the U.S. fines, investors have said.

"The fundamentals of our business are VERY strong," Teng posted on social media on Wednesday. "Our capital structure is debt-free, expenses are modest, and, despite the low fees we charge our users, we have robust revenues and profits."

HIRED BY ZHAO

Hired by Zhao as Binance's Singapore chief in 2021, Teng has been CEO of Abu Dhabi Global Market from 2015 to 2021. His previous roles included chief regulatory officer at Singapore Exchange (SGX).

He was promoted to head Binance's regional markets in May and was widely seen as a potential successor to Zhao.

His rise to the top job is for Binance "an opportunity to move past mounting enforcement actions and chart a path towards stability and a fresh beginning," said Rajeev Bamra, head of digital assets strategy at Moody's Investors Service.

Complicating prospects for a clean slate, however, are outstanding legal headaches.

Binance is facing an SEC lawsuit for allegedly operating a "web of deception," including artificially inflating its trading volumes and diverting customer funds. Binance has denied the allegations.

It is also under investigation in France for alleged aggravated money-laundering.

On the business front, too, Binance is under pressure.

For years it dominated the crypto market, but this year has rapidly lost market share. Last month it controlled 32% of crypto spot and 50% of derivatives trading, according to crypto firm CCData, down from 55% and 62% respectively in January.

Fuelling the decline has been an end to Binance's zero-fees transaction promotions, as well as its regulatory problems, analysts said.

Other exchanges, such as Seychelles-registered OKX, have gained market share this year, according to CCData. OKX is the second-largest exchange after Binance by market share.

In the longer term, the exchange may lose further market share because of reduced marketing and business development budgets following the U.S. fines, said Joseph Edwards, head of research at London crypto firm Enigma Securities.

"But that's talking quite far down the line - they are a very strong incumbent overall."

(Reporting by Tom Wilson and Elizabeth Howcroft; editing by Elisa Martinuzzi and Louise Heavens)

Binance to pay $4.3 billion in fines for money laundering violations

Ryan General
Thu, November 23, 2023



[Source]

Binance is set to pay an unprecedented $4.3 billion in fines and restitution after pleading guilty to money laundering violations, federal authorities announced.

Settlement details: The settlement involves agreements with the Justice Department, the Treasury Department and the Commodity Futures Trading Commission (C.F.T.C.), which all started their investigation on Binance years ago, according to The New York Times.

As part of the deal, Binance will pay $1.81 billion within 15 months and a further $2.51 billion forfeiture. Founder Changpeng Zhao, who also pleaded guilty, has agreed to a $50 million fine and to step down as CEO.


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Evading laws: According to court documents, Zhao and senior Binance employees were involved in a wide-ranging scheme to avoid complying with regulations requiring financial institutions. This includes evading laws on identifying customers' true identities, refraining from doing business with criminals and registering U.S.-based businesses with regulators. It was revealed that customers from sanctioned countries — including Cuba, Iran and Syria — were able to access the Binance platform.

Failure to institute proper controls: Treasury officials highlighted Binance's failure to report suspicious transactions involving terrorist groups such as Hamas, Al Qaeda and ISIS, reported Reuters. The court filings also revealed that Binance conducted business with U.S.-based firms, violating anti-money laundering laws that required a separate platform, Binance.US, to handle such transactions.

Zhao’s future: Zhao's bail was set at $175 million, secured by $15 million in cash. Despite stepping down as Binance's CEO, he will retain a presence as a major stakeholder. However, his future remains uncertain, with his sentencing set for Feb. 23, 2024. While he faces up to 18 months in prison, prosecutors are moving for a stiffer penalty.

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Regulatory scrutiny: Regulatory actions against Binance began earlier this year, with the C.F.T.C. filing a civil suit in March, followed by the S.E.C. charging Binance and Zhao with mishandling customer funds and providing false information to regulators. The S.E.C. is not a party to the recent settlement.

The penalty imposed on Binance is one of the largest ever by the U.S. government against a financial firm. The plea deal appears to give Binance the opportunity to continue its operations under the oversight of a government monitor.