Regulation
5 takeaways from the biggest US crypto crackdown in history
CNN New York —
The American government has just sent a clear message to the world of cryptocurrencies, a market valued at around $1.4 trillion.
Just as crypto investors hoped to move on from the historic conviction of Sam Bankman-Fried, the disgraced founder and former CEO of collapsed crypto exchange FTX, US officials made another show of force against criminal activity surrounding crypto .
Changpeng Zhao, the billionaire founder of the world’s largest cryptocurrency exchange, Binance, to plead guilty Tuesday for failing to maintain an effective anti-money laundering program, potentially allowing bad actors of all kinds to use the platform to move money.
Here are five takeaways from the largest penalty ever imposed on a money services company in U.S. history, which happens to be a crypto company:
Zhao and Bankman-Fried were widely considered the faces of the crypto industry. Now his guilty plea, as well as Bankman-Fried convictionmeans that good players in the crypto industry will have to make a more convincing case to skeptics to prove that both were exceptions and not the norm.
In light of Tuesday’s news, Coinbase CEO Brian Armstrong took the opportunity to single out the crypto exchange he runs from Binance, which admitted to engaging in anti-money laundering. money, unlicensed money transmission and sanctions violations.
“Since Coinbase was founded in 2012, we have taken a long-term view. I knew we had to embrace compliance to become a generational company that has stood the test of time,” Armstrong said in an article on X Tuesday afternoon.
“Today’s news reinforces that doing things the hard way was the right decision. We now have the opportunity to open a new chapter for this industry,” he added.
At the same time, government agencies responsible for overseeing cryptocurrency regulation and compliance don’t want people to forget about Bankman-Fried and Zhao.
“Over the past month, the Department of Justice has successfully prosecuted the CEOs of two of the world’s largest cryptocurrency exchanges in two separate criminal cases,” Attorney General Merrick Garland said at a conference in press Tuesday. “The message here should be clear: using new technologies to break the law does not make you a disruptor. This makes you a criminal.
Anthony Kwan/Bloomberg/Getty Images
Changpeng Zhao, the former CEO of Binance, pleaded guilty to failing to maintain an effective anti-money laundering program and faces a maximum sentence of 18 months in prison.
Cryptocurrencies fell on Tuesday as investors digested the latest regulatory news coming out of Washington DC. But on Wednesday, they made a comeback.
Binance coin initially fell about 6% after the US Department of Justice announced it had filed charges against Zhao following a years-long investigation into Binance. As of Wednesday morning, prices had increased by 3.5%.
Other cryptocurrencies suffered Tuesday as a larger crackdown from the federal government also hit crypto companies like Kraken and Tether.
Bitcoin fell about $420, or 1.1%, to $37,071. Meanwhile, Ethereum fell $40, or 2%, to $1,997 per coin.
On Wednesday, Bitcoin and Ethereum were back. Bitcoin rose 2.4% and Ethereum 5%.
So what explains these fluctuations?
Some reports published Tuesday suggest that Zhao’s agreement with the Justice Department could allow him to retain the majority of Binance shares. This has revived investors’ hopes. They were also simply eager to see the long investigation end.
Overall, it was a good year for crypto. Bitcoin is up about 120% year to date. Ethereum is up almost 70% over the same period.
Binance’s deal with the government requires it to cease operations in the United States.
On Tuesday evening, those based in the United States were greeted with a notice on the Binance.com site stating that “is not available in your country or region.” But there is some fine print.
“If you are in the United States or certain US territories, Binance.US is a US-regulated platform where you can buy, trade, convert and stake cryptocurrencies with low fees,” continues the opinion.
Binance.US is a subsidiary of Binance that was created in 2019 to “serve U.S. consumers and comply with U.S. regulations,” according to an article published on the site.
Binance.US is not affected by Tuesday’s announcement, since it is a registered money services business, Treasury officials said. This means that Americans can still buy and sell cryptocurrencies under the Binance roof.
Tuesday’s announcement is a stark example of the federal government’s tough stance on illicit activities involving crypto. To put it simply, the feds – from the Securities and Exchange Commission to the Treasury Department – aren’t playing.
Just this week, the SEC sued Kraken, another cryptocurrency exchange, alleging that it was operating as an unregistered securities exchange. The agency’s suit also alleges that the exchange commingled client assets with the company’s own holdings.
This is not the first time the SEC has sued Kraken. In fact, this is one of several lawsuits the agency has filed this year against crypto companies like Bittrex and Coinbase. The SEC’s lawsuit against Binance for alleged violations of investor protection laws remains pending.
Tiffany Hagler-Geard/Bloomberg/Getty Images
Binance is leaving the United States as part of the crypto exchange’s deal with law enforcement.
Despite some adverse rulings this year, the SEC is expected to continue to aggressively crack down on crypto companies by taking them to court.
But if Tuesday’s major announcement made anything clear, it’s not just the SEC trying to keep crypto malfeasance at bay: It’s the entire federal government.
This also includes the Department of Justice, the Commodity Futures Trading Commission and the Treasury Department. There is even a National Cryptocurrency Enforcement Team within the Department of Justice that actively identifies and investigates criminal cases involving digital assets.
“While criminal and civil enforcement are subject to different legal standards, this collective effort represents the whole-of-government approach we are taking to combating corporate crime,” Garland said Tuesday.
U.S. authorities already have a nifty toolbox of regulations to stamp out financial crimes, such as laws criminalizing money laundering and bank fraud.
This is precisely how the federal government obtained the first-ever corporate settlement with a crypto exchange.
“You have seen both in our actions today and in previous cases that we will relentlessly use every tool we currently must deploy against those who seek to use technologies in a way that abuses these platforms… or [that] do not prevent the use of these platforms for illicit activities,” Assistant Attorney General Lisa Monaco said during Tuesday’s press conference.
But officials suggested there was room for new regulations.
Calls for “regulatory clarity” are not new, and new crypto regulations could help both investors and law enforcement officials distinguish legitimate crypto products from criminal fronts.
It is unclear how or when comprehensive crypto regulation will be implemented. One solution is to establish rules at the agency level, either at the SEC or the CFTC, which would still be subject to judicial review if challenged in court, and another solution is to go through Congress.
“I have advocated for closing some of these loopholes, particularly around commodity tokens, and I think if we can do that, obviously with the help of Congress, we can prevent these actions from happening and not having to be there afterwards.” does,” CFTC Chairman Rostin Benham said Tuesday.