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5 highlights from America’s largest cryptocurrency crackdown in history
CNN New York –
The US government just sent a clear message to the world of cryptocurrencies, a market valued at around $1.4 trillion.
Just as cryptocurrency investors hoped to move past the historic conviction of Sam Bankman-Fried, the disgraced founder and former CEO of collapsed cryptocurrency exchange FTX, U.S. officials made another show of force against criminal activity that surrounds cryptocurrencies.
Changpeng Zhao, the billionaire founder of the world’s largest cryptocurrency exchange, Binance, found guilty on Tuesday for failing to maintain an effective anti-money laundering program, potentially allowing bad actors of all kinds to use the platform to move money.
Here are five highlights of the largest fine ever imposed on a financial services company in US history, which happens to be a cryptocurrency company:
Zhao and Bankman-Fried were widely seen as the faces of the cryptocurrency industry. Now his guilty plea, along with Bankman-Fried’s convictionit means that good players in the cryptocurrency industry will have to present a more convincing case to skeptics to prove that the two were exceptions and not the norm.
In light of Tuesday’s news, Brian Armstrong, CEO of Coinbase, took the opportunity to distinguish the cryptocurrency exchange he runs from Binance, which has admitted to engaging in anti-money laundering, unlicensed money transmission and violations of sanctions.
“Since Coinbase was founded in 2012, we have taken a long-term view. I knew we had to embrace compliance to become a generational company that would stand the test of time,” Armstrong said in an X post Tuesday afternoon.
“Today’s news reinforces that doing the hard way was the right decision. Now we have the opportunity to start a new chapter for this industry,” she added.
At the same time, government agencies that oversee cryptocurrency regulation and compliance don’t want people to forget Bankman-Fried and Zhao.
“In the last month alone, the Department of Justice has successfully prosecuted the CEOs of two of the world’s largest cryptocurrency exchanges in two separate criminal cases,” Attorney General Merrick Garland said at a news conference Tuesday. “The message here should be clear: using new technology to break the law does not make you a disruptor. It makes you a criminal.
Anthony Kwan/Bloomberg/Getty Images
Changpeng Zhao, the former CEO of Binance, has pleaded guilty to failing to maintain an effective anti-money laundering program and faces a maximum sentence of 18 months in prison.
Cryptocurrencies fell on Tuesday as investors digested the latest regulatory news from Washington DC. But by Wednesday they had made a roaring return.
Binance coin initially fell about 6% after the US Department of Justice announced it had filed charges against Zhao following a multi-year investigation into Binance. Prices were up 3.5% on Wednesday morning.
Other cryptocurrencies suffered on Tuesday due to a greater crackdown from the Fed that also affected cryptocurrency companies such as Kraken and Tether.
Bitcoin fell about $420, 1.1%, to $37,071. Ethereum, meanwhile, fell $40, or 2%, to $1,997 per coin.
On Wednesday, both Bitcoin and Ethereum were back on the rise. Bitcoin rose 2.4% and ethereum rose 5%.
So what explains the oscillations?
Reports released Tuesday suggest that Zhao’s deal with the Justice Department could allow him to retain a majority stake in Binance. This raised investors’ hopes. They were also simply anxious to finally see the long investigation concluded.
Overall, it was a good year for cryptocurrencies. Since the beginning of the year, Bitcoin has grown by approximately 120%. In the same period, Ethereum grew by almost 70%.
The agreement Binance reached with the government requires it to cease operating in the United States.
People based in the United States were greeted with a notice on the Binance.com site Tuesday evening that said it is “not available in your country or region.” But there’s a bit of fine print.
“If you are located in the United States or select US territories, Binance.US is a US-regulated platform where you can buy, trade, convert, and stake cryptocurrencies with low fees,” the notice continues.
Binance.US is a subsidiary of Binance created in 2019 to “serve US consumers and comply with US regulations,” according to a post on the site.
Binance.US is not affected by Tuesday’s announcement because it is a registered money services business, Treasury officials said. This means that people in the US could still buy and sell cryptocurrencies under Binance’s umbrella.
Tuesday’s announcement is a vivid example of the federal government’s tough stance on illicit activities involving cryptocurrencies. To put it simply, the feds – from the Securities and Exchange Commission to the Treasury Department – are not messing around.
Just this week, the SEC sued Kraken, another cryptocurrency exchange, alleging that it operates as an unregistered securities exchange. The agency’s complaint also alleges that the exchange commingled clients’ assets with the company’s holdings.
This isn’t the first time the SEC has sued Kraken. In fact, it’s one of several lawsuits the agency has filed just this year against crypto companies like Bittrex and Coinbase. The SEC’s lawsuit against Binance for allegedly violating investor protection laws remains in litigation.
Tiffany Hagler-Geard/Bloomberg/Getty Images
Binance is leaving the United States as part of the deal made between the cryptocurrency exchange and law enforcement.
Despite suffering some unfavorable rulings this year, the SEC is expected to continue to aggressively crack down on crypto firms by taking them to court.
But if Tuesday’s major announcement made anything clear, it’s not just the SEC that’s trying to keep cryptocurrency-related wrongdoing at bay: it’s the entire federal government.
This also includes the Department of Justice, the Commodity Futures Trading Commission, and the Treasury Department. There is even a National Cryptocurrency Enforcement Team within the Department of Justice that actively identifies and investigates criminal cases involving digital assets.
“While criminal and civil actions are subject to different legal standards, this collective effort represents the overall government approach we are taking to combat corporate crime,” Garland said Tuesday.
U.S. officials already have an ingenious set of regulations at their disposal to root out financial crimes, such as laws criminalizing money laundering and bank fraud.
This is exactly how the feds secured the first corporate deal with a cryptocurrency exchange.
“You have seen both in our actions today and in previous cases that we will be relentless in using every tool we currently have available against those who seek to use technologies in a way that abuses those platforms… or [that] we do not prevent the use of such platforms for illicit activities,” Deputy Attorney General Lisa Monaco said during Tuesday’s press conference.
But officials have suggested there is room for new regulation.
Calls for “regulatory clarity” are nothing new, and new cryptocurrency regulations could help both investors and law enforcement distinguish legitimate crypto products from criminal facades.
It is unclear how or when comprehensive regulation of cryptocurrencies will be implemented. One way is through agency-level regulation at the SEC or CFTC, which would still be subject to judicial review if challenged in the courts, and another is through Congress.
“I have been advocating for closing some of these gaps, particularly around commodity tokens, and I think if we are able to do that, obviously with the help of Congress, we can prevent these actions from happening and not have to be here after the fact,” CFTC Chairman Rostin Benham said Tuesday.