Binance's Legal Woes: A Dinner with a Side of Information

In September 2023, while Binance's multi-billion dollar settlement with US authorities was being finalised, the company's biggest traders attending a conference in Singapore were getting a sneak peek. During a lavish, private Binance-hosted dinner held at a posh Singapore club – 1880, guests received reassurance: the world's largest crypto exchange would weather the American legal storm.

Interior of 1880. (Image Source: Tatler Asia)

Absent Leader, Pressing Questions

Changpeng Zhao, Binance's public face, was notably absent. In his place was Richard Teng, his soon-to-be replacement, mingling with guests. Amidst the American Angus beef and Australian truffles, conversations turned to legal troubles. Guests pressed Binance officials on the potential settlement amount, with US$4 billion being a hot topic. After discussions, some VIPs left convinced that this was the sum Binance would pay, a mere drop in the bucket for the company.

Dubai: A Sanctuary Under Scrutiny

Zhao had spent much of 2023 closer to his adopted home in Dubai, UAE. Yet, even with close ties to Emirati officials and a personal legal haven due to the lack of an extradition treaty with the US, pressure was mounting. A potential deal with the Justice Department earlier in the year fell through, and the department pushed for harsher penalties.

Meanwhile, the UAE desperately wanted off the FATF grey list, a blemish on its financial reputation. While people close to the situation claim UAE authorities didn't play a role in Zhao's decision to face US charges, his frequent presence in US-UAE discussions suggests otherwise. Dubai's regulatory body also delayed granting Binance a full licence, further complicating matters.

A Global Investigation: From China to Washington

Binance's meteoric rise began in 2017, quickly surpassing larger rivals. Originally in China, it moved to Japan and then Malta before claiming to have no formal headquarters. US probes into the company started in 2018, with various agencies involved. The Commodity Futures Trading Commission even sued Zhao and Binance in March 2023.

The Securities and Exchange Commission, however, wasn't part of the November settlement and continues its case against Binance and Zhao for alleged mishandling of customer funds and allowing US access. Binance claims the SEC overstepped its authority.

The IRS: Tracking the Money Trail

Binance first landed on Washington's radar due to its rapid growth and significant US customer base. Jarod Koopman, from the IRS's criminal investigation division, stated that Binance kept popping up in other investigations, including the Russia-based darknet market Hydra, North Korean hackers, and a child exploitation market.

By late 2019, investigators were sifting through mountains of data, including chat logs, emails, and internal transactions. The "big moment" came in summer 2022 when they found internal communications showing Zhao's direct knowledge of US law violations.

A Team Effort: Justice Served

The IRS's Western Cyber Crimes Unit led the agency's efforts, collaborating with the US attorney's office in Seattle. Whitney Case, from Treasury's FinCEN, added that Binance's own marketing, advertising lack of identity verification checks, caught their attention back in 2018.

Ultimately, officials concluded that Binance's improper acceptance of American users and flouting of US laws led to criminal charges against the company and Zhao. While Binance claimed to have blocked US users in 2019, court filings revealed that they continued allowing high-value traders to stay on the unregistered platform.

As previously covered by Coinlive, a parallel scenario is unfolding in China, where cryptocurrency trading has been prohibited since 2021.

The Aftermath: Penalties and a New Era

The penalties imposed were some of the most significant ever seen for a financial institution. Zhao faces a maximum sentence of 10 years, fines, and potential forfeiture of profits. His sentencing is in February, and his plea agreement includes a waiver of his right to appeal if his sentence is under 18 months. He could even return to the company in three years.

Meanwhile, Binance is looking forward, already telegraphing its next move to VIP clients. Teng, the new CEO, assures them in a recent email that the company's best days are ahead. He promises an "exciting announcement" soon, a testament to Binance's commitment to its most valuable clients.

In his recent post on X, Teng diverges from the signature “four” by Zhao. Embracing a new era, Teng outlines his vision with a concise three-point commitment and is seen posing with a handsign – “three”:

1) Being user-focused, always
2) Working with regulators to uphold standards
3) Collaborating with partners to grow Web3

Image Source: X @_RichardTeng

A Pyrrhic Victory or a Warning Shot?

Binance's multi-billion dollar settlement may seem like justice served, but it carries a sense of incompleteness. Zhao, the architect of the company's questionable practices, walks away with a slap on the wrist and a potential return in three years. Meanwhile, Binance itself, with its murky past and opaque future, continues to operate in a regulatory grey area.

The question remains: is this a genuine turning point for Binance, or just a temporary setback in its relentless pursuit of dominance? Only time will tell if the company's "best days" are truly ahead, or if this settlement is merely a warning shot before the inevitable storm.

In the meantime, Zhao can be seen actively engaging with his followers on social media about his life during this “free” time.