When Changpeng “CZ” Zhao launched Binance in 2017, he envisioned creating the largest cryptocurrency exchange on the planet. He succeeded – but through illegal means. By flouting anti-money laundering laws and sanctions requirements, Binance attracted a massive customer base and became a crypto juggernaut. This week, Zhao’s kingdom came crumbling down in a reckoning with U.S. authorities.
Turning a Blind Eye
According to federal prosecutors, Binance intentionally failed to implement even basic compliance measures like Know-Your-Customer protocols or monitoring transactions for suspicious activity. The reason was simple: criminals and dictators make good customers.
Internal messages showed Binance employees joking about the exchange being a laundromat for dirty money. “We need a banner ‘is washing drug money too hard these days – come to Binance; we got cake for you,” one compliance officer allegedly wrote.
Meanwhile, the intentional lack of oversight allowed funds to flow freely between sanctioned states like Iran, Russia, and North Korea. Binance raked in high trading fees while giving rogue regimes and criminals access to the global financial system.
U.S. authorities estimate over $890 million flowed between Iranian users and Americans alone thanks to Binance’s refusal to geoblock prohibited countries. North Korea also relied on Binance to secure hard currency despite crippling international sanctions.
Day of Reckoning
For years, U.S. regulators hoped Binance would reform itself before needing to bring the hammer down. But with brazen disregard for global banking rules and norms, Binance forced the government’s hand.
This week, Zhao pled guilty to violating the Bank Secrecy Act amid mounting Justice Department pressure. Prosecutors made clear they had ample evidence to convict both him and Binance on criminal charges.
In public statements announcing the guilty plea, U.S. officials pulled no punches regarding Binance’s conduct. “From the beginning, Binance and Zhao prioritized growth and profits over compliance,” acting U.S. Attorney Tessa Gorman declared.
Attorney General Merrick Garland announced Zhao could face over ten years in prison. Binance itself admitted to willfully failing to report over 100,000 suspicious transactions potentially linked to terrorism, human trafficking, sanctions busting or other crimes.
Binance’s $4.3 Billion Reckoning
As part of its guilty plea deal, Binance must pay $4.3 billion in fines and forfeitures to the U.S. Treasury – one of the largest corporate penalties ever imposed.
On top of nine-figure fines, Binance agreed to an onerous 5-year monitorship program allowing U.S. officials to comb through its data and transactions for wrongdoing.
This unprecedented level of access will cover not just Americans, but Binance’s top 35 revenue-generating clients worldwide. Few criminals or money launderers will be eager to subject themselves to such financial colonoscopies.
The monitorship and accompanying public shaming seem intentionally designed to put Binance out of business – or at least cripple its profitability long-term.
Crypto Outlook and Impact
With regulators finally cracking down hard on crypto’s old guard, both investors and developers feel emboldened.
Bitcoin and Ether prices rallied this week on news of Binance’s plea deal – a remarkable vote of confidence in stricter rules benefiting the industry.
If crypto prices can surge when authorities deliver accountability for bad actors, imagine the positive momentum actual guardrails could generate.
For lawful crypto startups, seeing regulators enforce rules against the sector’s biggest whale creates space for ethical competition. Lawbreaking no longer conveys an edge if the CFTC, FinCEN and DOJ monitor the field closely.
Of course, thorny legal issues around digital assets won’t disappear overnight even with Binance dethroned. But investors can take heart that blatant regulatory arbitrage seems less viable under refreshed U.S. scrutiny.
Left unanswered is what becomes of Binance itself. The company is reportedly considering options like relocating to Dubai or focusing on Asian markets with looser oversight.
But the damage to Binance’s brand seems irreversible as shocking details emerge of its facilitation of global crime under CZ’s leadership. Eliminating bad incentives that rewarded lawlessness over ethics remains crypto’s biggest challenge headed into 2023. With Zhao’s reckoning, the tide may finally turn towards sustainable growth grounded in transparency and fair play.
