Binance, well-known as the world’s largest virtual currency exchange, has long held a dominant position in the crypto market, and is responsible for about 60% of centralized virtual currency spot trading globally. The company's vast reach and influence have made it a focal point for regulatory scrutiny, particularly concerning compliance with AML/CFT and sanctions laws.
What They're On the Hook For
The settlements, amounting to $3.4 billion with the Financial Crimes Enforcement Network (FinCEN) and $968 million with the Office of Foreign Assets Control (OFAC), are the largest ever of their kind.
Binance's many violations include failure to implement effective programs for preventing and reporting suspicious transactions, including those linked to terrorist groups and sanctioned nations. Between August 2017 and October 2022, Binance executed more than 1.67 million virtual currency trades on its Binance.com platform between U.S. persons and users in sanctioned jurisdictions and blocked persons, some of which are depicted below.
Per comment by Secretary of the Treasury Janet L. Yellen, the CEO for Binance, along with senior leadership, “turned a blind eye to its legal obligations in the pursuit of profit” and “allowed money to flow to terrorists, cybercriminals, and child abusers through its platform, knowingly and willfully conspiring to violate registration requirements under U.S. law, and violated the Bank Secrecy Act (BSA) by failing to establish, implement and maintain an effective anti-money laundering (AML) program.
This unprecedented action involved the strategic cooperation of multiple U.S. regulatory bodies, including:
• Financial Crimes Enforcement Network (FinCEN): FinCEN, a bureau of the U.S. Department of the Treasury, imposed a historic $3.4 billion penalty on Binance. This action is a result of Binance's failure to operate as a registered money services business (MSB) and its inability to implement an effective anti-money laundering program.
FinCEN's investigation revealed significant lapses in Binance's compliance measures, including failure to perform Know Your Customer (KYC) checks on numerous users and not reporting over 100,000 suspicious transactions, some involving terrorist organizations and other illicit activities.
• Office of Foreign Assets Control (OFAC): OFAC levied a penalty of $968 million against Binance for apparent violations of multiple sanctions programs. Binance's conduct included facilitating trades between U.S. users and those in sanctioned jurisdictions like Iran, North Korea, Syria, and the Crimea region of Ukraine.
OFAC's action reflects the egregious nature of Binance's conduct, the high volume of its transactions, and senior management’s involvement in undermining sanctions compliance controls.
• IRS Criminal Investigation (IRS-CI): The IRS's CI division led the criminal investigation into Binance, focusing on its failure to establish an adequate anti-money laundering program and violations of U.S. sanctions under the International Emergency Economic Powers Act. IRS-CI’s expertise in investigating financial crimes, especially in the digital realm, was pivotal in uncovering Binance's compliance failures.
• United States Department of Justice (DOJ): The DOJ played a critical role, particularly through the Criminal Division's Money Laundering and Asset Recovery Section, the National Security Division’s Counterintelligence & Export Control Section, and the U.S. Attorney's Office for the Western District of Washington. These divisions collaborated closely with the Treasury and other agencies to ensure a comprehensive legal approach to the case.
• Commodity Futures Trading Commission (CFTC): The CFTC required forfeiture of $1.35 billion of ill-gotten gains, payment of a $1.35 billion penalty for violations of the Commodity Exchange Act.
Furthermore, this monumental settlement required an abundance of patience and determination from all agencies involved, with the below timeline depicting the multi-month effort involved in bringing about Binance's regulatory reckoning.
This coordinated effort among these agencies underscores the U.S. government's commitment to enforcing compliance within the virtual currency industry. Each agency's unique jurisdiction and expertise contributed significantly to the landmark nature of this settlement.
AnChain.AI is proud to have worked closely with and supported the efforts of many of these agencies. This historic settlement marks the culmination of tireless efforts by U.S. government investigators, legal experts, and law enforcement to expand their cryptocurrency security and investigative capabilities.
What’s Next for Binance?
In addition to the multi-billion dollar settlements, Binance faces significant criminal and civil legal implications which may very well have unforeseen consequences in ongoing litigation. They will be required to adhere to stringent compliance remediation measures, undergo a five-year monitorship, and risk additional penalties, including a suspended $150 million fine, if they fail to comply.
These actions serve as a stark reminder of the consequences of neglecting AML and sanctions obligations. Aside from actual damages in the form of disgorgement, fines, compliance costs, and other pecuniary measures, Binance also will suffer from reputational damage – an often worse and longer lasting form of punishment than the monetary fines themselves, which has taken down firms of lesser stature.
Far-Reaching Regulatory Implications for VASPs, DeFi
This settlement is a watershed moment for the cryptocurrency industry, signaling the coming of a more stringent regulatory environment. Exchanges, decentralized finance (DeFi) platforms, and Virtual Asset Service Providers (VASPs) must now reconsider their compliance strategies to align with these heightened expectations.
Binance leadership had previously hired a consulting firm which both outlined an effective AML program and emphasized the non-compliance of Binance procedures, but these recommendations were ignored as Binance focused on maintaining 1/3 of the VIP trading volume which was based in the U.S.
AnChain.AI’s experts anticipate that this action taken by the U.S. government will emphasize the importance of implementing and maintaining an effective AML program for other VASPs and DeFi participants, lest they face similar consequences for non-compliance.
The Binance settlements represent a turning point in the enforcement of regulations in the crypto space. As regulators worldwide intensify their focus on this sector, it has become all too clear that the consequences of noncompliance are not just material, but potentially catastrophic.
The AnChain.AI team is expertly equipped to help businesses navigate the complexities of cryptocurrency regulatory compliance. Schedule a demo today to learn more about how we can help your business stay compliant, and protect your Web3 digital assets.
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