Nov 22, 2023

Binance, the world's largest crypto exchange, has agreed to pay $4.3 billion to settle allegations it broke sanctions and money-transmitting laws.

Video transcript

The state of crypto is presented by Tron connecting the world to the power of Cryptocurrency. All right, joining us for more analysis now is partner at Haines Boon Kit, Adelman Kit. Welcome to the show. Thank you for having me. Thanks for being here. Um uh A big, big story for the crypto industry broke yesterday. Uh We're excited to have you here. You've successfully defended clients in litigation by the SEC and Doj so curious to get your thoughts this morning, what do you make of both B and CZ pleading guilty? Well, this I think is a remarkable settlement in terms of the size, but also in terms of its application to the crypto industry. And so maybe I'll speak to, to that issue first. Um You know, the, the money laundering and um uh of a controls issues applicable to the crypto company B are now things that are going to have to be front and center to every crypto business. Um All of our clients that deal with cryptocurrencies and one capacity or another um are going to have to really ramp up their internal controls, their compliance processes and the like to address that Um So I, you know, I think this is not only important for finance but significantly important to the industry as a whole. So I going back to the question, I asked Nick just earlier, um, here we have a settlement that we have a basically a NON US company with a NON US CEO operating granted they operated according to the settlement, they, they operated in the US illegally. Um Nonetheless, most of its business assets, et cetera were not in the US. How and why would uh would an agreement like this, would a deal like this even happen? Why would somebody who was living in the UAE without an extradition treaty? Uh say, you know what, I'm going to board a flight, go to Seattle uh ca catch some uh Nirvana tribute tribute band and then go, go to uh or whatever it is he's doing in Seattle. Um And, and then, but like, what's the point of doing all that? Uh I if you, if he could have lived the rest of his life in the UAE, which is from what I gather, really nice place to visit. Definitely. Well, there's a number of reasons, right? The finance entity as a whole needs to survive. And uh a part of the settlement, I think thinking of the reasons for a settlement have to take into account um that Binance wants to continue as a viable business if it were to continue in litigation. And um CZ or Mr Zhao were to um fight this Binance could have trouble in various foreign nations continuing to do business. Right. So all of the sort of us allies but companies that include uh provisions, much like the uh us with respect to financial controls are going to be looking at finance and saying, well, maybe we don't want them to do business in our country either. So, entering into a settlement where um, CZ pleads and steps down where the company agrees to pay money uh to fix its controls, to have a monitor in place. All of these things allow the company to continue to do business outside the US. But it, but it also keeps CZ in control of the company in some way or at least ownership, control, correct ownership control. Absolutely. So he can't have anything to do with the operations of the business. And certainly the monitor is going to be looking out for that piece as well. I, I want to talk a little bit more about the terms of the settlement. So Binance is required to have that monitor for three years, enhance their compliance program and cooperated with the department. This requires them to go back and report any suspicious past transactions. Now, I I want to get your opinion. Are these requirements coupled with the $4 billion fine, almost crippling the business in a sense. Can they survive these compliance terms and pay this fine? Um And I guess from your experience. Is this something? Is this something that is larger than life? Have you seen something like this before? And seen a company come out on the other side? Well, Jen, that's a really good question. So the monitor issue I would separate and the compliance control separate that from the concept of the penalty number. Um doj and the various other agencies of a um and, and Treasury have used monitors a lot in connection with settlements where the company itself has to plead guilty, right? A corporation doesn't always plead guilty, can't do jail time, all those kinds of things. But when they do, the government takes that very seriously. And so monitors are put into place with a lot of public companies. I mean, if you think about things like, um you know, the, the um you know, anti bribery controls those kinds of things, we see uh monitors put in place in those instances, um health care settlements, for example, so that I don't think is particularly unusual. Um What is unusual here for a Cryptocurrency business is the size of this penalty, the size of the penalty as to CZ personally, um I, you know, don't have insight into the company's financial condition, but my understanding is that the penalty is one that the company can pay um in every doj settlement uh with other government agencies as well. The company's ability to pay is always a component uh that is considered right. The, you don't want to be the government that bankrupts a company or puts them completely out of business, uh just through the size of the penalty. So, my suspicion is, yes, the company can survive this. Although in the case of Binance, I mean, was it necessarily uh something that they would have uh opposed iii I, in other words, they, they've never been too thrilled with Binance existing as an entity. It seems uh just based on, you know, comments and, and, and some of the charges, et cetera, it, it's almost like they look at it as like, yeah, we don't care if finance goes out of business. So, so is that necessarily a consideration for, for, for the doj and, and everybody else when they came up with the settlement or was it more of like, well, let's see how much we can get out of them. Well, uh gosh, there's so many things at play there, Lawrence. I, I think one is we have to remember that government agencies don't like Cryptocurrency and don't like the crypto business. They think everybody who's involved in it is somehow a criminal. Um So there is that component at play. There is the, let's see how much we can get out of them. I mean, it needed to be from the government's viewpoint as a former regulator, I can say, you know, it needed to be a penalty that the government said sent a message. So they're definitely looking for just where that line is. Um, but the government itself tends not to want to be the reason and a company goes out of business, the penalty may be too big that at the end of the day, finance loses business because of this or something else falls out. But people don't want to say that the government is in the business of uh closing down companies. And so they're looking for the right balance. They're sending a message, got to be a big penalty but not so big that the company can't continue. Kit Nick brought this up in our last segment cz faces up to 18 months in prison under federal sentencing guidelines. But the New York Times reported that prosecutors are keeping up the possibility of a stiffer penalty. How long do you think he'll go to prison for? Mm uh gosh, I didn't check the sentencing guidelines here. There are some specific guidelines that federal judges uh look to um to, to see how long someone will go to jail for. Um And there are what the government refers to as upward departures and so the prosecutors could be looking for some upward departures to make that sentence a little bit longer to make it more meaningful. Uh Again, the messaging that the government is sending out here really is a warning to other critic companies. And so I think they're going to be sending as big a message as they can. So I wouldn't be surprised if it went far beyond uh 18 months. So, speaking of other crypto companies and sending a message to them, do you think, uh is it possible that as part of the deal that CZ may have uh sung if you will about other uh crypto companies, uh crypto entities? Uh And is this the last we're hearing of finance related uh um uh uh uh malfeasance or might it, might it be other things coming up uh regarding other companies that would, that would have come from this deal? I have not seen the provisions that require CZ to engage in co-operation um and provide information continuing to the government with respect to other uh Cryptocurrency companies. Um That being said, I don't think the government needs his help in terms of figuring out who are the other major crypto players. Um We have seen a lot of uh crypto companies under investigation, other cases brought, I mean cracking just earlier this week. Um uh I expect that there'll be many more um by the SECCFTC, even Department of Justice. Um More of them I think are gonna come out of that SEC and CFTC space Kate. Quickly before we wrap here, I asked Nick in the last segment, if this will have any bearing on the sec action against B from your legal perspective, what do you think? Um I, I think it has very little impact. I think that the summary of the different actions that the DOJ uh Treasury Departments, those kinds of things. Um If you look at that, it very carefully carved out the issues related to the SEC. That is whether it should have been, whether Binance should have been registered as a broker dealer, a clearing agency or otherwise. Um And whether the currencies, the cryptocurrencies themselves constitute securities. So the DOJ and of a uh, allegations are all about the Bank Secrecy Act, right? Uh Processing transactions for people who uh may have been on sanctions list and prohibited persons list and it doesn't touch the issue that the SEC has raised earlier. Um So I think it leaves room for the SEC case to continue uh a pace. Um Certainly finance will be motivated to resolve that uh and get out of the business of fighting with the government.

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