A look at the dispute between the US Justice Department and Binance: CZ resigned, jailed, and fined

On November 21, 2023, Golden Finance reported that the U.S. Department of Justice sought more than $4 billion from Binance to settle criminal charges, which would be one of the largest fines ever in a cryptocurrency criminal case. Just as industry insiders were speculating on the direction of the incident, news that Zhao Changpeng would resign and even face jail time dominated the screen overnight, and the crypto market took a sharp turn for the worse. The lowest price of BNB in ​​24 hours was $223.4, a drop of more than 14%.

Golden Finance sorted out this incident and clarified the recent dispute between Binance and the SEC.

As early as June 5 this year, the U.S. Securities and Exchange Commission (SEC) filed 13 charges against the Binance entity and its founder Zhao Changpeng, including operating an unregistered exchange, broker-dealer and clearing agency; misrepresenting trading control and supervision on the Binance US platform; and unregistered securities issuance and sales.

Since then, the dispute between the SEC and Binance has been staged from time to time.

1. Voice from the Judiciary

1. Binance is required to appoint an independent compliance monitor to report its compliance work to the US government

Binance was accused by the United States of violating sanctions and remittance laws and agreed to pay $4.3 billion to settle the charges, according to a court document released on Tuesday. Under the terms of its guilty plea, in addition to the fine, Binance will have to appoint an independent compliance monitor for a three-year term and report to the U.S. government on its compliance efforts. Zhao is prohibited from "participating in any operation or management of Binance now or in the future," a ban that will expire three years after the monitor is appointed.

2. The U.S. Treasury will retain access to Binance’s books, records, and systems for five years

The U.S. Treasury Department said in its announcement that the Financial Crimes Enforcement Network (FinCEN) reached a $3.4 billion settlement with Binance, the largest fine in the history of the U.S. Treasury and FinCEN, and the company's settlement with the Office of Foreign Assets Control (OFAC) was $968 million.

The Treasury Department said that to ensure Binance fulfills the terms of the settlement (including not providing services to U.S. persons) and ensures that illegal activities are resolved, the Treasury Department will retain access to Binance's books, records, and systems for five years. Failure to fulfill these obligations may subject Binance to significant additional penalties, including a $150 million suspended fine, which FinCEN will collect if Binance fails to comply with the required compliance commitments and regulatory terms.

2. What does Binance say?

1. CZ: Resigned as CEO, Richard Teng took over, and may engage in passive investment in the future

Changpeng Zhao announced his resignation as CEO of Binance on the X platform. Richard Teng, the former global regional market director, was appointed as the new CEO of Binance. Prior to joining Binance, Richard served as CEO of the Financial Services Regulatory Authority of Abu Dhabi Global Market (ADGM); Chief Regulatory Officer of Singapore Exchange (SGX); and Director of Corporate Finance of the Monetary Authority of Singapore. CZ will continue to provide necessary consulting services to the team.

Regarding the next plan, Zhao Changpeng said that he plans to take a break first. His current idea is to make some passive investments and become a minority token/shareholder of startups in the fields of blockchain/Web3/DeFi, artificial intelligence and biotechnology. If there are listeners, he may be willing to serve as a coach/mentor to a few upcoming entrepreneurs in private.

In addition, Zhao Changpeng pointed out that in the resolution with the US agency, they did not accuse Binance of misappropriating any user funds, nor did they accuse Binance of engaging in any market manipulation. The funds are still safe.

2. Binance Announcement: Reached a settlement with US regulators, the settlement agreement does not involve misappropriation of funds or market manipulation

Binance released an official announcement stating that it has reached resolutions with the U.S. Department of Justice, the Commodity Futures Trading Commission, the Office of Foreign Assets Control, and the Financial Crimes Enforcement Network on its historical registration, compliance, and sanctions investigations. These resolutions acknowledge that the company is responsible for historical, criminal compliance violations and enable the company to open a challenging but transformative chapter of learning and growth. It is worth noting that there is no misappropriation of funds or market manipulation involved in the resolution with the U.S. agencies. Binance insists on its commitment to transparency and will become a stronger company, laying the foundation for the next 50 years.

3. Binance’s new CEO: will work with partners to promote Web3 growth and adoption

Richard Teng, the new CEO of Binance, said on the X platform: I am honored and deeply humbled to serve as the new CEO of Binance. We operate the world's largest cryptocurrency exchange by trading volume. The trust of 150 million users and thousands of employees is a responsibility I take seriously and cherish.

With the support of CZ and our leadership team, I have accepted this role so that we can continue to meet and exceed stakeholder expectations while delivering on our core mission: financial freedom. Binance’s foundation is stronger today than ever before. To ensure a bright future, I intend to use everything I have learned from my three decades of financial services and regulatory experience to guide our exceptional, innovative, and committed team.

My focus will be: 1) reassuring users that they can have confidence in the company’s financial strength, safety, and security; 2) working with regulators to uphold high standards around the world and foster innovation while providing important consumer protections; and 3) working with partners to drive the growth and adoption of Web3.

4. He Yi: Binance has not been accused of improper use of user funds and market manipulation, and will strengthen compliance

Binance co-founder He Yi said on the X platform that U.S. regulators have not accused Binance of misappropriating user funds or engaging in market manipulation, and Binance will be committed to further strengthening compliance measures and continuing to build and develop the platform.

5. CZ commented on the OpenAI incident two days ago: Knowing when to give up control of a startup is one of the trickiest decisions

CZ said in a tweet two days ago commenting on the OpenAI and Sam Altman incident that knowing when to give up control of the company you founded is one of the trickiest decisions.

3. How much was Binance fined?

1. Binance’s total fine exceeded $4.3 billion, of which $3.4 billion was from the U.S. Treasury Department

According to the official press release, Binance’s total fine is $4,316,126,163, which consists of $3.4 billion from the U.S. Treasury Department’s FINCEN (Financial Crimes Enforcement Network) and $968 million from OFAC (Office of Foreign Assets Control).

Binance faces three criminal charges, including operating an unlicensed money transmitter business, conspiracy charges and violating the International Emergency Economic Powers Act, court records show.

Prosecutors said Binance has agreed to forfeit $2.51 billion in assets and to pay a criminal fine of nearly $1.81 billion, which the exchange must pay within 15 months of being sentenced.

In addition, Zhao Changpeng pleaded guilty to the charges during his trial in Seattle and agreed to pay a $50 million fine. Another document showed that Zhao admitted to violating the Bank Secrecy Act and his fine will be deducted from the amount of fines he owes to the CFTC.

2. It is reported that CZ’s personal bail is 175 million US dollars.

The court ruled that CZ would be allowed to reside in the UAE while awaiting sentencing. CZ must return to the United States 14 days before sentencing.

4. Views of other industry insiders:

1. Bloomberg: Zhao Changpeng’s sentence is expected to be no more than 18 months

According to Bloomberg, Binance Holdings Ltd. and its CEO Changpeng Zhao pleaded guilty to anti-money laundering and violating U.S. sanctions and reached a comprehensive settlement with the United States that allows the cryptocurrency exchange to continue operating.

In addition, Zhao Changpeng faces up to 10 years in prison, but under the plea agreement, the sentence is expected to be no more than 18 months, which seems to exempt him from the severe punishment faced by other prominent crypto criminals. The U.S. Department of Justice has not yet made a final decision on the length of his imprisonment, and defense attorneys stated in court that sentencing will be postponed for 6 months.

2.SEC Commissioner: Litigation is not the most effective way to enforce regulation

SEC Commissioner Hester Peirce reiterated on Tuesday that litigation is not the most effective way to enforce regulation. “Enforcement actions are one tool in our toolbox, but we have other tools,” she told Bloomberg.

Peirce also said that it is inconvenient to talk about ongoing cases, but as all these cases progress, the SEC should be proactive in considering establishing a regulatory framework.

3. Coinbase Chief Legal Officer: The US law enforcement and regulatory approach will only increase consumer risks and drive customers and innovation out of the US

Coinbase Chief Legal Officer paulgrewal.eth said on the X platform, I am also following Binance news, please note: Cryptocurrency will not disappear, but in order to create a prosperous crypto economy in the United States, we need clear and reasonable regulation so that American consumers can obtain safe domestic crypto services. The United States's only enforcement-only regulatory approach will only increase consumer risks and drive customers and innovation out of the United States. Legislation is critical to protecting American consumers and cultivating responsible markets.

4. Coinbase CEO: The Binance incident will open a new chapter for the industry

Brian Armstrong, CEO of Coinbase, said in a post on the X platform that today's news (Binance's settlement with US regulators) once again proves that doing it the hard way is the right decision. We now have the opportunity to open a new chapter in this industry. Due to the lack of clear regulation, we have encountered many difficulties in operating in the United States. I hope that today's news can be a catalyst to finally achieve this goal. Americans should not go to offshore unregulated exchanges to benefit from this technology. This industry should be established in the United States in a compliant manner and in accordance with US law. We will stay in the United States because we believe in economic freedom and the American democratic system will eventually achieve this.

5. U.S. Attorney General: Binance "pretends to comply" with federal law

U.S. Attorney General Merrick B. Garland said that Binance not only failed to comply with federal law, but also pretended to comply. Garland also claimed that the Binance platform accommodated criminals from all over the world who used Binance to transfer stolen funds and other criminal proceeds, and that Binance put profits above the safety of the American people.

Deputy U.S. Attorney General Lisa Monaco said the case should teach the industry that ignoring the law "is not the path to riches, it is the path to federal prosecution."