Nov 22, 2023

Crypto exchange Binance has agreed to pay a settlement of more than $4 billion to multiple federal agencies, after CEO Changpeng 'CZ' Zhao pleaded guilty to charges and stepped down from his role.

Video transcript

Finance, they've agreed to pay a settlement of more than $4 billion to multiple federal agencies. One of the largest corporate penalties in us history, CEO CZ has also pled guilty to charges and stepped down from his role as CEO joining us now to discuss this coin desk, global policy and regulation, managing editor Nick Day, who's also the editor of coin desk state of crypto newsletter. Nick. Good morning to you. Hey, good morning. Well, Nick, we thought you'd get some rest after the Sam Bakeman free trial. But here we go again, documents unsealed yesterday against the world's largest crypto exchange NCZ. Detailed years of compliance failures. Talk to us about what we learned yesterday. Yeah. So um this was a multi pronged settlement by the US Department of Justice, the Treasury Department's financial crimes enforcement network, the Treasury Department's Office of Foreign NASA Control. So respectively their money laundering and uh sanctioned watchdogs themo futures Trading Commission. Uh All of them settled charges against the, you know, finance Exchange as the company as well as CZ. Uh basically, um the basic crime alleged at the heart of all of these actions is that for years B had a uh you know, very loose anti money laundering customer system that allowed not only us people to operate and use the platform, but also people from, you know, sanctioned nations, people from, you know, who might be part of terrorist groups. Uh Basically allowing all of these parties to trade and counter trade and interact with each other on the platform that, you know, not only did CZ you know, know about this, but that he actively encouraged it at one point. Um that, you know, the entire company was aware or at least leadership was aware that this was against the law that they did not register with the US uh with any of the authorities in the US that are supposed to oversee, you know, spot trading platforms uh as money services, businesses or derivative platforms. Um And you know, ultimately that led to, you know, as you described yesterday's massive $4.3 billion settlement CZ has pleaded guilty to a criminal charge of violating the Bank Secrecy Act by pleaded guilty to uh allegations of violating sanctions laws as well as failing to maintain an AM L program and uh operating an unlicensed money transmitter. I th this kind of an agreement was no joke. I mean, to be sure we II I guess I don't wanna say I'm surprised because that's not quite the right word here that uh there was something wrong with finance, but I, I don't think anybody is surprised with that. Um, unless they're, they're, I don't know, but the, I guess the issue here is how long was this, put, it, was this process going on for them to come up with an agreement? Which quite frankly, I mean, a number like that, that they, they might as well have been growing, you know, manufacturing cigarettes. Yeah, just definitely had to have been something that was in the works for a very long time. We've known about an investigation into finance from these various agencies. Uh, you know, for quite a while, the CFTC sued Binance in March of this year. So, you know, that lawsuit and a lot of details within it really kind of suggest just how, you know, much effort had gone into investigating the company. We've heard for years about, you know, the criminal investigations in finance. So as you say, that part, not really a surprise. Um, that being said, I, you know, the fact that finance is getting away with, you know, functionally a $4.3 billion fine and they have to appoint two monitors and grant the US government access to its books and records for the next five years. Um, you know, that is probably, I think made a more interesting part almost, but it also just kind of speaks to, you know, the amount of negotiation that must have happened. You know, they're not shutting finance down, they're not seizing the company, they're, uh, you know, letting it continue operating, the new CEO has already been appointed. CZ is, you know, potentially looking at a little bit of prison time, but it looks like the maximum amount of time he'll face is 18 months, which is obviously far less than, for example. Right, exactly. Like in contrast, far less than stan be MRE will face or is looking at, um, easy has to pay about 100 and $50 million in fines. So, um, yeah, it clearly has to have been a lot of negotiation, a lot of engagement from the attorneys on, you know, different parties here, uh, to lead to this particular outcome and a lot of pressure one would suspect, like for them to have gone after him overseas and for them to get the goods on him so, so swiftly and so so massively that he had to say, yeah, I'll go to Seattle. Yeah. And that was actually, yeah, that's, I think one of the most surprising parts of yesterday is, um, you know, I don't think anyone has seen CZ show up in the US for a while. Uh, in recent months, he even scaled back his travel to countries like France where he used to spend quite a bit of time. Uh, and, yeah, yesterday, suddenly he showed up in a Seattle courthouse so suddenly that, you know, I think a lot of us were caught pretty, you know, flatfooted on that, maybe just like Sound Garden. Nick, you, you mentioned uh some of the other agencies that have been looking into Binance. Uh A lot of them were cooperating with the DOJ here but the SEC wasn't there. And as we know, the SEC sued finance earlier this year. What does this mean for that action? Yeah, I mean, I have a, I have theories. Um I think the big thing for the SEC is I, you know, if you look at what the CFCC doj fin and a settlements, all are, the core conduct is finance operated in unregistered money transmitting business and derivative platform uh that allowed us people access to, you know, these products and services and that allowed us people to trade against people in sanctions. So that's kind of the core conduct at all four of those actions. The SEC is alleging something slightly different, right? Their uh focus is that their main goal is uh you're looking for a court, you know, ruling saying that yes, Binance and Binance us are operating an unregistered, uh you know, clearing house broker and exchange at the same time, which is the same thing that they alleged against cracking point base against bit rex. Um So my theory is that, you know, a settlement on that unless uh you know, finance admits to operating all three simultaneously, uh doesn't really move the needle much for the SEC. The, you know, potential court victory here is more significant from like a uh you know, president perspective, certainly. But also, you know, this has been kind of their focus for those last few lawsuits and if they can get a couple of wins on that, that will be, you know, it'll shape, it will dramatically shape the US crypto industry. So my theory is, yeah, that, you know, the settlement was not worth it for the sec. Um, obviously, I don't have, uh at this point, I don't have any insight to any kind of negotiations that may have been not heard or, you know, what any of that looked like, but it just kind of feels like, you know, the sec settling on, you know, the charges that were settled yesterday doesn't make a lot of sense for the agency.

Learn more about Consensus 2024, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to to register and buy your pass now.