Headline:  What is happening with Binance, C.Z. and the $4 Billion fine?

Body:  OK, I have to admit here, I have no concept of $1 Billion.   (My bank account usually maxes out in the 4th column.)  But, just recently, C.Z., the well-known CEO of Binance agreed to pay fines of $4.3 Billion.  Being a mere mortal, I have a lot of questions.  Is this unusual?  Does the DOJ really have a good chance of seeing any of this money?  Many others besides, too.  So, let’s get a cup of  tea (or whatever you like) and take a look at what happened.

So, what DID happen?

Binance, apparently, failed to take required steps to minimize money laundering opportunities, and many of the KYC protocols were not followed.. For years, Binance allowed users to open accounts and trade without submitting any identifying information beyond an email address.  When they did require identifying information for new customers, for about a year, they grandfathered in many of the pre-existing customer base.  . Between August 2017 and October 2022, U.S. users, including VIPs, conducted trillions of dollars in transactions on the platform, generating over $1.6 billion in profit for Binance.  In a quest to collect fees, Binance facilitated almost $900 Million in trades between U.S. persons and persons resident in Iran.

The DoJ was prepared to bring charges against both C.Z. and Binance, money laundering, amongst them.  C.Z. agreed to a settlement where he would step aside from the CEO position, he would personally pay a $50 Million fine, and Binance itself would pay a penalty of $4.3 Billion.  So, yeah, it would seem that the DOJ is becoming active within the cryptocurrency space.    “In just the past month, the Justice Department has successfully prosecuted the CEOs of two of the world’s largest cryptocurrency exchanges in two separate criminal cases,” the attorney general said. “The message here should be clear: using new technology to break the law does not make you a disruptor, it makes you a criminal.”  Despite these unprecedented penalties, Binance could face still more from the SEC.  Most of these  problems seem to stem from Binance not separating the transactions within the U.S. from the rest of the international transactions.  (Isn’t that interesting?  The U.S. requires the building of a Chinese wall to keep its own transactions separate?) 

The Treasury Department echoed these aggressive sentiments.  “If virtual currency exchanges and financial technology firms wish to realize the tremendous benefits of being part of the U.S. financial system and serving U.S. customers, they must play by the rules,” Yellen said. “And if they do not, the U.S. government will take action.”  As a part of this, there are several different investigations being undertaken by the Criminal Division of the IRS.

In a separate action, the CFTC has also won a $1.35 Billion settlement against Binance.  The CFTC claimed that Binance engaged in the selling of unregistered cryptocurrency derrivatives.  “The resolution of the action against Binance and Zhao – within just 8 months of its filing – solidifies the CFTC’s reputation as the proven leader in the civil enforcement space when it comes to digital assets,” the chairman said. “We are stalwart in ensuring CFTC registrants comply with our statute and regulations, which serve to protect broader financial health and that directly impacts millions of American investors.”

So, what will happen to Binance within the U.S?

The regional head, Mr. Richard Teng  will take over as CEO, and a compliance monitor will need to be appointed (if I read the piece correctly, appointed by Binance.)  C.Z. will continue to own a majority share of Binance, but be prohibited from making  management decisions.

The Verdict

Well, it would seem that different agencies within the Federal Government are going after Binance because they are righteously upset that Binance would thumb their noses so much at U.S. Law.   And, there is a logic to this, and a lot of proof to suggest that they are doing their jobs as required.   But, there also seems to be a degree of competition that indicates to me that each agency is playing for a higher degree of responsibility within the cryptocurrency space.  Along with this greater degree of responsibility would come a greater amount of budgetary authority, and I can’t help but see this as an  important impetus to action also.  It will be most interesting to me to see what happens to the other remaining exchanges, like Coinbase.






Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.


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