In September, as the contours of Binance Holdings Ltd.’s multibillion-dollar settlement with US authorities began to take shape, some of its prominent traders gathered in Singapore for a preview of the situation.
During a private dinner hosted by Binance in Singapore’s nightlife district, a select group of market makers, often referred to as VIPs, learned that the world’s largest cryptocurrency exchange was poised to weather its legal woes in the United States. The attendees dined on exquisite dishes while Binance executives provided insights.
Notably absent from the event was Changpeng Zhao, who would later plead guilty to a criminal charge and step down as the public face of the company. Richard Teng, Zhao’s designated successor, was present, mingling with the guests.
Legal troubles and settlement speculations
At the private dinner, attendees questioned Binance officials about the details of the impending settlement with US authorities, particularly the potential amount the company would pay in penalties. Speculations arose about a $4 billion penalty, a sum that Binance could seemingly afford. Binance, however, disputes the accuracy of this depiction of the event without specifying which aspects are incorrect.
In 2023, Changpeng Zhao adjusted his lifestyle, spending more time in the United Arab Emirates, where he resides in a luxurious apartment next to the Burj Khalifa, the world’s tallest building. Zhao, along with Yi He, Binance’s co-founder, chose not to attend the company’s November blockchain event in Istanbul. Since at least May, Zhao had been hinting on leadership calls about his impending departure, according to insiders.
Despite the absence of an extradition agreement between the UAE and the US, Zhao’s personal legal situation seemed secure. However, pressure was mounting as discussions with the Justice Department escalated. A potential deal earlier in 2023 faltered, leading to Zhao’s personal exposure to a stiffer penalty. UAE authorities, seeking to improve their financial reputation, distanced themselves from Zhao’s case. Ultimately, it was Zhao’s decision to voluntarily fly to the US and surrender to authorities.
Binance’s journey and regulatory scrutiny
Binance made its debut in the crypto world in 2017, quickly surpassing larger rivals. Originally based in China, it moved to Japan and later to Malta due to regulatory challenges. Binance has no formal headquarters, and unlike US financial institutions, it does not make significant announcements through American regulatory filings.
US regulatory probes into Binance date back to 2018 when the company was just a year old. Various US government agencies, including the Justice Department, Treasury Department, and the Commodity Futures Trading Commission, have been involved in the investigations. The Securities and Exchange Commission (SEC) also pursued a separate case against Binance and Zhao for alleged mishandling of customer funds and illegal access by US citizens.
Binance’s rapid growth and a significant number of US customers brought it under the radar of US authorities. The Internal Revenue Service (IRS) played a pivotal role in investigating Binance’s activities, particularly in tracking money on the blockchain. Over time, Binance became a recurring entity in various IRS criminal investigations, including those related to darknet markets, cybercrime, and money laundering.
In 2019-2020, investigators delved into massive amounts of data, including internal communications, chat logs, and emails. The breakthrough came in the summer of 2022 when investigators uncovered crucial evidence indicating Zhao’s direct knowledge of the company’s violation of US laws.
Multifaceted investigation
The IRS’s Western Cyber Crimes Unit in Los Angeles led the investigation in collaboration with the US attorney’s office for the Western District of Washington. Whitney Case, the associate director for enforcement and compliance at Treasury’s Financial Crimes Enforcement Network (FinCEN), highlighted Binance’s marketing practices as a key factor that drew attention to the company.
FinCEN initiated efforts to gather information from Binance in late 2020, conducting extensive data analysis to track financial flows. Officials determined that Binance’s acceptance of American users while evading US regulations led to criminal charges against both the company and Changpeng Zhao.
The penalties imposed on Binance are deemed among the most significant ever levied on a financial institution by the US Department of Justice. Changpeng Zhao faces a maximum sentence of 10 years, substantial fines, and forfeiture of profits from his alleged crimes. His sentencing is scheduled for February, and his plea agreement includes a waiver of the right to appeal, provided his sentence does not exceed 18 months. There is a possibility of his return to the company in three years.
Binance’s forward outlook
As Binance navigates through these legal challenges, the company is already planning for the future. Richard Teng, the new CEO, expressed optimism in a recent email to VIPs and institutional clients, hinting at exciting developments ahead.
Binance, the world’s largest cryptocurrency exchange, is facing a landmark settlement with US authorities, with its founder Changpeng Zhao embroiled in legal troubles. The outcome of this high-profile case will have significant implications for the cryptocurrency industry and the regulatory landscape in the United States.
