Binance CEO Resigns, Part of $4.3 Billion Settlement With US

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Introduction 🔌🔧

👋 Welcome back!

Never a dull week in crypto, right?

This time last year, on the 11th of November 2022, one of the leading crypto exchanges in the world FTX filed for bankruptcy.

This year, on the 21st of November 2023, the world’s largest crypto exchange Binance, announced their CEO Changpeng Zhao (known as CZ), would be leaving the company as part of a $4bn settlement with the US.

The headline of the year in crypto happens in November, once again.

Before you read the newsletter…

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Binance CEO Resigns, Part of $4 Billion Settlement With US

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This time last year — Binance selling off $2bn worth of FTX’s token FTT, began a cascade of events that unravelled one of the most fraudulent crypto set up the industry has ever seen.

So it’s ironic that just over a year on, the cryptocurrency giant themselves are hit with a record breaking fine, and their CEO and proclaimed ‘crypto king’ is forced to step down.

Binance are synonymous with crypto, with an estimated 40-45% of market share in crypto.

And at this point, the crypto giant are used to allegations as well as formal suits against them.

In Summer 2023, they were sued by the SEC, alongside Coinbase. I penned a piece at the time where one of my concluding thoughts was:

And it’s come true, to some extent.

In September 2023, the Binance US CEO stepped down and the entity cut 1/3rd of their staff. This is 4 years after Binance had created the US offshoot in order to serve American customers for regulatory reasons, while keeping its original platform for the rest of the world.

And now, Binance US’ parent company Binance, have settled to the tune of $4.3bn with the US.

Discussed in this Newsletter:

❓ What happened to Binance?⚽ Binance in Sport🧠 Analysis

❓ What happened to Binance?

Last week, Binance, the largest cryptocurrency exchange in the world pled guilty to violations of the Bank Secrecy Act (an anti-money laundering law), operating an unlicensed money-transmitting business and violating sanctions law.

Their CEO, CZ, has stepped down as a result — and the company will pay a $4.3bn settlement fee, the largest penalty in the history of the US Treasury Department, and CZ will also pay a $50m fine himself.

The DOJ said in a statement:

On the other hand, here’s a quote from a Binance employee seen in the filings:

Looking at those two quotes side by side… it’s clear that Binance not only had criminal or dubious customers using their services, they had knowledge of it too.

Indeed, the US Treasury said that Binance guilty of “consistent and egregious violations of U.S. anti-money laundering and sanctions laws.”

They also said that Binance “willfully failed to report” more than 100,000 suspicious transactions from a host of sanctioned groups, including Hamas’ military arm, Qassam Brigades, Al Qaeda, the Islamic State terrorist group, a litany of criminal ransomware hackers and users in countries facing U.S. sanctions, including North Korea and Iran.

Binance were also found guilty of failing to report transactions involving websites devoted to selling materials relating to the sexual abuse of children.

As mentioned in the introduction of this newsletter, in 2019 in response to U.S. regulations, Binance created an offshoot company to serve American customers, Binance US. However, the original platform, Binance, kept operating in order to serve the rest of their customers, was reportedly still accessed by a ‘substantial number of US customers’.

Following the settlement, CZ will be succeeded by Richard Teng, a former Abu Dhabi Regulator, who is currently Binance’s regional markets lead — as CEO.

Along with the fines, and CZ stepping down, Binance will have to appoint an independent compliance monitor for three years and report its compliance efforts to the U.S. government, alongside the fines. CZ himself is prohibited from "any present or future involvement in operating or managing" Binance.

To summarise:

• Binance will Pay $4.3bn to Settle U.S. Criminal Case, and CZ resigns as CZ after himself pleading guilty, and agreeing to pay a $50m fine.

• Binance pled guilty to violations of the Bank Secrecy Act (an anti-money laundering law), failing to maintain a proper anti-money laundering program, operating an unlicensed money-transmitting business and violating sanctions law,

• US Treasury Secretary say that Binance's settlement is the largest in Treasury history.

• Under the terms of its plea, Binance will have to appoint an independent compliance monitor for three years and report its compliance efforts to the U.S. government, alongside the fines.

• CZ is banned from "any present or future involvement in operating or managing" Binance.

⚽ Binance in Sport

Binance have been incredibly active over the years when it comes to sports partnerships and investments.

Here’s a list of their former and current partnerships, investments and relevant announcements:

• Africa Cup Of Nations (AFCON) 2021 official partner

• Lazio Football Club front of shirt sponsor

• Porto football club and Argentina national team’s fan token provider, rivalling Socios with these partnerships. The latter of these was terminated in controversial fashion.

• Exclusive partnerships with Cristiano Ronaldo, helping create a three-part NFT collection on Binance NFT, with Ronaldo becoming an ambassador of Binance.

• Partnership with the Brazil Football Confederation

• Partnership with Romanian football team FC Rapid București

• Provider or F1 team Alpine’s fan token, and official partner

• An investment in Unagi, creators of the Web3 Fantasy sports game Ultimate Champions

• Binance fully integrated Chiliz mainnet onto its platform. Chiliz being the chain operated by fan token provider Socios.

• Oval3, the fantasy NFT Rugby Collection launched on Binance Marketplace

• TopGoal, partnered with Binance to increase the utility of Binance’s fan tokens and build out a football metaverse experience.

• Former footballers Del Piero, Vieri, and Batistuta all launched NFT Collections on Binance Marketplace

• EX Sports dropped Urbanball ‘Brazil Edition’ Mystery Boxes exclusively On Binance’s NFT Marketplace

• Binance used NBA star Jimmy Butler in an advert ahead of the Super Bowl, to tell prospective crypto users not to listen to celebrities. 

There have likely been more that I’ve missed, but it’s clear that Binance have viewed Sports as a huge vertical for them up until this point, both from a partnership and investment perspective.

🧠 Analysis

Binance’s main product, their exchange, has printed cash since its inception.

This, many would say, has been the byproduct of being able to move quickly with little compliance. An example of this is Binance not having a global headquarters, albeit the global holding company is based in the Cayman Islands.

Compare that to the likes of Coinbase, who are a publicly listed company in the United States.

As per filings by from the US, CZ "prioritized Binance's growth, market share and profits over compliance with" U.S. banking regulations”. He reportedly told his employees that it is "Better to ask for forgiveness than permission."

The quotes do not paint the company, and their now former Chief, in good light.

Two things can be true:

1. Regulation by enforcement is not fit for modern-day tech advancements that move at this pace

2. Crypto has to, and has had to, clean up its act — and hopefully this is the second big domino to fall following the trial of FTX’s SBF.

CZ reportedly ensured that Binance did not collect Know-Your-Customer (KYC) information on its users as there was belief it would slow growth and deter globalisation of the product.

That is clearly a recipe for disaster, and as regulation has caught up with them — Binance have not cleaned up their act in time.

It’s strange because to many in the industry 5 years ago, Binance were very much seen as the grey operation in crypto. They moved fast and broke things, but the things they broke were mainly the rules.

Crypto right now is 95% speculative and 5% substance.

But what’s also true is a lot of that 95% is operating in the grey. It’s the party in the basement that you shouldn’t go to.

The 5% is mostly compliant. The likes of Nike, Reddit, Adidas, Manchester United and co do not operate in the grey, as the repercussions are costly. That 5% is the organised party at an event space that has a liquor license, and the organisers have insurance.

For crypto to grow up and go mainstream, it needs more substance, of course (what nascent technology doesn’t) but it also needs fewer lawless parties in the basement.

Just like in real life, those underground parties still happen — but they are in the minority. And if too many people find out about them, they get shut down.

Crypto is a contradiction of this — the basement party is open to all and has no rules — until it gets too big and garners the attention of the rulemakers.

The most interesting thing about this settlement I guess is the fact that CZ himself could have stayed in the UAE where he lives, where there is no extradition treaty. He has likely chosen to pay the fine and potentially do time, in order to allow Binance (where he is still the majority owner of of) can clean up its image.

That responsibility now lies with new CEO Richard Teng, who outlined his focus on LinkedIn and X:

“My focus will be on: 

1. Reassuring users that they can remain confident in the financial strength, security and safety of the company

2. Collaborating with regulators to uphold high standards globally that foster innovation while providing important consumer protections

3. Working with partners to drive growth and adoption of Web3”

He also said that Binance still has around 150 million users and thousands of employees.

After the news was announced, Coinbase CEO Brian Armstrong came out with this post on X:

Many in the industry will know that Coinbase grew frustrated with the likes of Binance and FTX taking market share from them, mostly using tactics that do not respect regulation.

Whilst many have left the US due to tightening regulatory environments, Coinbase have stayed, gone public and are trying to ‘fight the good fight’.

Within 12 months we’ve seen two of the three biggest crypto exchanges in turmoil, one of whom are a defunct company in FTX. Here’s hoping we see fewer of these headlines in 2024, as most of the murky activities in crypto have been wiped out by this bear market.

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• Privy, the crypto startup powering buzzy consumer tools, raises $18 million (Read more here)

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