Standing on the Shoulders of (Fallen) Giants

June 2024

Regulatory consequences are coming to a head for the crypto world this week with news that Changpeng Zhao and Binance have pleaded guilty to criminal charges that include money laundering violations, violating the Bank Secrecy Act, and violating US Sanctions.

This dramatic announcement follows the news from earlier this month where Sam Bankman-Fried was found guilty on all instances of financial crime that had been brought against him. The regulatory crackdown that has been building over the past years seems to be culminating in the toppling of some of the biggest names in the crypto exchange industry although, unlike FTX, Binance continues to operate. In fact, the appearance of the billionaire in court and his guilty plea did little to affect the cryptocurrency markets, and even Binance itself experienced only a mild fluctuation (by cryptocurrency standards anyway), with some arguing that this event will lead to a more positive outcome for crypto.

In a tweet following his plea, Zhao took responsibility for his mistakes, though attempted to soften the blow to Binance users by noting that the exchange had not been accused of  misappropriated user funds, nor of market manipulation. Binance’s former global head of regional markets, Richard Teng, has taken over as CEO. 

Whilst the outlook for Changpeng Zhao and Binance may not be as rosy as they’d like, both the former CEO and the exchange itself look to come out of this much better than their former contemporaries in Sam Bankman-Fried and FTX. Zhao faces up to 10 years in prison as opposed to Bankman-Fried’s 115 years, and whilst the fine of more than US$ 4 billion that Binance is set to pay for violating US money-laundering protocols is one of the largest penalties ever paid, the exchange can afford to make it.

The importance of meeting regulatory standards comes at the core of this case, with the press release issued by the US Department of Justice highlighting that ‘Zhao, Binance’s founder, owner, and CEO, admitted that he understood that Binance served U.S. users and was thus required to register with FinCEN and implement an effective AML program. Zhao knew that U.S. users were essential to Binance’s growth and were a significant source of revenue and knew that an effective AML program would include KYC protocols that would mean that some customers would choose not to use Binance.’ 

In a statement, Attorney General Merrick B. Garland said “In just the past month, the Justice Department has successfully prosecuted the CEOs of two of the world’s largest cryptocurrency exchanges in two separate criminal cases. The message here should be clear: using new technology to break the law does not make you a disruptor, it makes you a criminal.”

Falling foul of such basic and easily-complied-with regulatory requirements has led to massive issues for not just FTX and Binance, but for many crypto companies over the past few years (and has negatively impacted the crypto industry on a significant number of occasions). Bitcoin anarchists may claim that there shouldn’t be regulatory oversight for crypto, but what isn’t often mentioned by such people is that Satoshi Nakamoto released bitcoin as a response to the 2008 financial crisis - a catastrophic failure that only came about because regulatory measures were not followed. Immutability and transparency may be built into the blockchain but these safety-ensuring qualities mean little if they are not backed up by appropriate standards and penalties for abusing them.  

When the penalties (both for individuals and corporations) are so severe, it is a wonder that many crypto companies don’t embrace KYC and AML as readily or as fully as they should. This is particularly true when considering Blockpass’ solutions, with instantaneous, efficient, effective and scalable methods to allow any business to onboard customers at negligible cost to themselves. Customers too, are incentivized to use Blockpass as they are handed control of their own data, and can choose which companies they wish to engage with. With solutions that take into account the latest regulatory updates and different jurisdictional standards, Blockpass is able to facilitate compliance for anyone, in any location they are legally authorized to. With KYC, AML and KYB solutions as well as Unhosted Wallet verification and On-Chain KYC®, anyone can ensure they are conducting businesses in an appropriate manner. 

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By Matthew Warner