Binance founder Changpeng Zhao, also known as CZ, pleaded guilty to money laundering and other crimes. Zhao will pay a $50 million fine and step down as CEO of the popular cryptocurrency exchange. He is expected to face prison, but the length of the sentence has not yet been determined.
Binance will pay over $4 billion in fines, one of the largest corporate fines in US history. At a news conference announcing the indictment, major US financial players lined up to highlight the consequences of breaking US financial laws. "Binance prioritizes its profits over the safety of Americans," said Attorney General Merrick Garland.
Treasury Secretary Janet Yellen added: “Binance has turned a blind eye to its legal obligations in pursuit of profits. His willful failure has allowed money to flow through his platform to terrorists, cybercriminals and child molesters.”
What does a guilty plea mean for Binance?
The settlement resolves some of Binance's regulatory issues and marks the end of a three-year Justice Department investigation. The agreement is part of a joint agreement between the Treasury Department, the Office of Foreign Assets Control and the Commodity Futures Trading Commission.
It should be noted that the Securities and Exchange Commission (SEC) was not present at Tuesday's meeting. In June, the SEC filed a series of charges against Binance, including selling unregistered securities and defrauding investors. According to Bloomberg, the SEC lawsuit will continue, so Binance is not immune to regulatory issues.
However, the deal means that Binance will be able to continue operating, albeit with much greater oversight, new management and a $4 billion fine. Binance has agreed to five years of monitoring, key compliance obligations and a "full exit" from the United States. Treasury will monitor Binance's accounting and systems to ensure compliance.
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If you are a client of Binance.US, please note that this is a separate entity. According to CoinDesk, Binance.US will not be shut down as part of the international exchange's withdrawal from America. However, Binance.US is in trouble. Users can no longer make deposits or withdrawals in dollars, and the company has laid off more than a third of its employees.
What does the guilty plea mean for cryptocurrency investors?
Cryptocurrency prices have risen in recent months. Bitcoin (BTC) hit an 18-month high of over $37,000 on November 13. The price dropped slightly after it was announced that CZ was at fault, but remained above $35,000.
Here are the two highlights of Tuesday's deal.
1. Cryptocurrencies cannot escape anti-money laundering laws
As a cryptocurrency investor and Binance user, it is disturbing to know what goes on behind the scenes. Personally, I don't want to accidentally fund illegal activities when I buy cryptocurrency. The good news is that there are laws to prevent money laundering and the authorities will enforce them. A Department of Justice investigation shows that cryptocurrency platforms cannot operate outside the law, regardless of their location.
How can you protect yourself from money laundering? Look for reputable cryptocurrency exchanges with strict customer due diligence requirements. Check if the platform has an anti-money laundering policy, a compliance team and continuous monitoring of transactions.
Beware of decentralized anonymous exchanges and so-called private currencies that are harder to track. While there are many good reasons to use it, there is also a greater risk of the money being linked to illegal activities.
2. Binance's future looks more stable
Regulatory actions against Binance around the world have raised concerns about what could happen if the cryptocurrency giant goes under. We've seen that the failure of one crypto platform can have far-reaching effects across the industry. If Binance collapses, the waves will be more like a tsunami.
For this reason, cryptocurrency investors can be happy with the Binance deal. This was a huge blow to the company, but it continued. Additionally, the deal could set a new tone for cryptocurrency exchanges that are compliant and trusted by investors.
Galaxy Digital CEO Mike Novogratz summed it up in a post about the deal and the future direction of the industry.
How to Protect Yourself from a Cryptocurrency Exchange Failure If you hold your cryptocurrency on a centralized exchange, whether Binance, Binance.US, or another platform, those funds could be at risk if the exchange fails. Crypto platforms do not have the same protections as banks. For example, FDIC insurance does not cover crypto assets or exchanges.
Consider transferring your assets to a non-custodial crypto wallet. A major advantage of a crypto wallet is that your funds cannot be frozen or absorbed in bankruptcy if your exchange fails. However, crypto wallets are not perfect. They can be difficult to use and you are responsible for their security. Be sure to keep your passphrase in a safe place, as the wallet does not have a convenient "forgot password" button.
The main thing is
Investing in cryptocurrencies involves significant risks, both in terms of the volatility of the assets and the lack of regulation of the platforms on which they are traded. The lawsuit against Binance highlights the dangers of circumventing money laundering laws and the importance of knowing who you're trading with. Use a reputable exchange and consider using a crypto wallet to store your funds.
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