Regulation
Regulators and law enforcement are cracking down on bad actors in crypto. Congress has not yet made a decision
WASHINGTON (AP) — As scandals in the cryptocurrency industry seem to never stop, policymakers in Washington appear little interested in passing legislation to codify the industry’s structure.
The latest shoe to release is Binance’s multibillion-dollar settlement with the American authorities and the resignation of its CEO this week. Before that, there was the conviction of FTX founder Sam Bankman-Fried for stealing billions from clients and for the implosion of small crypto companies that cost investors large sums of money.
When cryptocurrencies collapsed and a number of companies went bankrupt last year, Congress considered several approaches on how to regulate the industry in the future. However, most of these efforts have come to nothing, especially in a chaotic year dominated by geopolitical tensions, inflation and the upcoming 2024 elections.
In fact, the appetite for new rules seems more diminished than ever.
US Treasury Secretary Janet Yellen said on Tuesday that existing regulations already apply to cryptocurrencies during a press conference announcing the $4 billion settlement with Binance: “I think the shares of today show that we are serious about enforcing strict regulations that are already in place to ensure that illegal transactions are carried out. transactions are not favored by cryptocurrency entities,” she said.
“In cases like this, where there are violations of a really egregious nature,” she said, “of course we want to make sure that our tools stay up to date and are adjusted so that we can do in the face of emerging threats. We believe we have powerful tools and we are deploying them more and more to counter this type of abuse.
And a group of more 100 mostly Democratic lawmakers in October, said the responsibility for preventing the use of crypto to finance terrorism rests with the White House, calling on the Biden administration to act.
Changpeng Zhao, the CEO of Binance, pleaded guilty on Wednesday to a crime related to his failure to prevent money laundering on the platform. Zhao resigned and Binance admitted to violations of the Bank Secrecy Act and apparent violations of sanctions programs, including its failure to implement suspicious transaction reporting programs.
As part of the settlement agreement, the US Treasury said Binance would be subject to five years of monitoring and “significant compliance commitments, including to ensure Binance’s complete exit from the United States.” Binance is a Cayman Islands limited liability company.
U.S. Attorney General Merrick Garland called the settlement one of the largest corporate sanctions in the country’s history.
Today, the biggest crypto entities in recent years – Binance, Coinbase, and FTX – are either in legal trouble, under investigation, or have collapsed altogether.
Without Congress, federal regulators like the Securities and Exchange Commission have stepped in to take their own enforcement actions against the industry, including filing lawsuits against Coinbase, Binance and Kraken, three of the largest cryptocurrency exchanges. Kraken was indicted by the SEC this week by operating its crypto trading platform as an unregistered securities exchange.
Additionally, PayPal received a subpoena from the SEC regarding its PayPal USD stablecoin, the company said in a filing with securities regulators this month. The company says it is cooperating with authorities.
Some members of Congress have opposed the SEC’s crypto actions, arguing that the SEC needs congressional approval to justify pursuing bad actors, or that crypto should be regulated more like a commodity, which would be under the jurisdiction of the Commodity Futures Trading Commission. One or both of these arguments have been made by legislatures of both political parties.
Senators Debbie Stabenow, D-Mich., and John Boozman, R-Ark., proposed last year handing regulatory authority for cryptocurrencies such as bitcoin and ether to the CFTC. Stabenow and Boozman head the Senate Agriculture Committee, which has authority over this regulator.
So while Congress has made proposals, it has yet to act. Part of the reluctance to act comes from the failure of lawmakers to unite around what crypto is in the first place, and furthermore, the opposition of some powerful members of Congress to crypto.
One of the opposing members is Sen. Sherrod Brown, D-Ohio, chairman of the Senate Banking Committee.
Brown has been highly skeptical of the concept of cryptocurrencies and has been generally reluctant to give them Congress’s blessing through legislation. He has held several committee hearings on issues related to cryptocurrencies, ranging from the negative impact on consumers to the use of the currencies to finance illicit activities, but has not proposed any legislation out of his committee.
“Americans continue to lose money every day to crypto scams and frauds,” Brown said in a statement after Bankman-Fried’s sentencing. “We must crack down on abuse and cannot let the crypto industry write its own rules.”
In the House, a bill that would put regulatory guardrails around stablecoins — cryptocurrencies meant to be backed by hard assets like the U.S. dollar — passed the House Financial Services Committee this summer. But this bill received no interest from the White House and the Senate.
Consumer advocates are skeptical about the need for new rules or the usefulness of crypto itself.
“Lawless, even criminal, crypto activity will continue and increase until all prosecutors, regulators and elected officials force the industry to act like every other law-abiding person and business in the financial industry,” said Dennis Kelleher , president of Better Markets. a nonprofit organization that works to “build a more secure financial system for all Americans,” according to its website.
While some analysts say the fraud trials, settlements, and criminal charges signal a new era for crypto development.
Yiannis Giokas, senior director of digital assets at Moody’s Analytics, said the settlement agreement between U.S. authorities and Binance “marks the end of an era.”
“As digital currencies become more mainstream and institutional players enter this space, regulations and enforcement will become stricter to ensure compliance and consumer protection. Yesterday’s development marks the same inflection point we saw earlier at the intersection of the .com and post-.com eras.