On February 23, a US federal court approved the guilty plea of cryptocurrency exchange Binance and a giant fine of $4.3 billion. This amount was the largest financial penalty ever imposed on a money services company.
Changpeng Zhao, the former CEO of the exchange, is awaiting sentencing scheduled for April 30. He faces up to 10 years in prison.
Let’s talk more about this situation.
Accusations against Binance
Binance’s guilty plea in November concluded a multi-year investigation against the exchange. The allegations against Binance concerned the failure to implement effective anti-money laundering (AML) protocols.
The investigation revealed that the exchange failed to report more than 100,000 suspicious transactions involving criminal organizations, including Hamas, al-Qaeda, and ISIS. In addition, the prosecutor’s office said that the platform also supported the sale of materials portraying child sexual abuse and conducted transactions related to the drug sale.
Of course, these are not the only accusations that have been made against Binance over the past year. There was a leak of user data that was freely available on the GitHub platform for several months. At the time, company representatives claimed that this data did not match the data in their database. However, this raises questions about the security of the crypto exchange.
Especially after the situation that happened a little later, when Binance user data was put up for sale on the Dark Web. It is still unknown whether these two situations are related. Nor is it known whether it was an accidental leak or whether someone from the company was behind it. However, similar situations have already occurred with the exchange, which further emphasizes the security issues of Binance.
While some crypto exchanges, such as Coinbase, WhiteBIT, and Bithumb, have cut ties with Russians and blocked their crypto wallets since the first days of the full-scale invasion, Binance has not left the Russian market for a long time. However looking at how quickly they transferred their rights to the unknown CommEx exchange, it makes us wonder if they left.
There are numerous cases when the exchange operated illegally despite the ban. France, the Netherlands, Belgium, and many other countries have sued Binance for providing illegal services. These situations once again emphasize the company’s unwillingness to act under the law.
Interestingly, while Binance continues to be banned, its competitor OKX continues to outpace the exchange in integrating into international markets. A few days ago, OKX announced the launch of its new platform for Turkish users.
If you recall the CoinGecko Annual Report for 2023, you can see that Binance is slowly losing its dominant position. This is only part of what happened, but that’s not what we’re talking about. Prosecutors argue that such a negligent approach by the exchange shows that Binance preferred rapid popularization over compliance with the law.
Despite the record fine, questions remain about the implications of this situation for crypto regulation. The absence of a comprehensive regulatory framework and standards in the industry contributes to uncertainty about the consequences of Binance’s punishment.
Binance’s sentence and numerous cases where the exchange operated illegally despite the ban create preconditions for strengthening compliance measures. These situations once again emphasize the need for crypto regulation and the implementation of relevant laws.
Binance faces crackdown in Nigeria
Recently, Binance has been facing a regulatory crackdown in Nigeria. Known to be one of the top countries with cryptocurrency users, Nigeria has been a major market for the crypto exchange particularly with its p2p services.
Binance has been accused of money laundering by Nigerian regulators, pointing out that in 2023 alone, over $28 billion of unidentifiable funds passed through the crypto exchange. Also, the exchange was accused of artificially inflating the Nigerian Naira causing a massive crash against the United States dollar.
However, in a bid to liaise with the regulators, Binance sent two representatives to the country who were immediately detained by the office of the NSA (National Security Adviser). Following this, Binance announced on March 5 that it would discontinue its service in the country amid the clampdown. The exchange advised its users to withdraw their remaining balance in Naira before March 8.
This series of scrutiny by governments from different countries raises questions about the credibility of the platform.
The importance of crypto regulation
As cryptocurrencies are increasingly being used as a tool for illegal activities, there is a need for regulatory oversight. Back in 2022, the Council of the European Union approved the Markets in Crypto Assets Regulation (MiCA). To maintain market integrity, MiCA introduces methods to prevent market manipulation and trading. Providers of crypto asset-related services are also required to provide information to competent authorities in the event of a money laundering or terrorist financing investigation.
Regulation of crypto asset markets (MiCA) is important for several reasons:
- The lack of clear rules creates risks for crypto asset owners
- The lack of regulation allows criminals to use cryptocurrencies for money crimes.
- Regulation will help increase the level of trust in cryptocurrencies among new users
- Market regulation will provide legal support and facilitate the expansion of the crypto business.
In addition, the EU Council and representatives of the European Parliament have recently reached another agreement on the crypto sector. It concerns the creation of a new European body that will fight money laundering and terrorist financing.
The body, known as AMLA (Anti-Money Laundering Authority), will be located in the German city of Frankfurt. The creation of AMLA emphasizes the EU’s readiness to combat the ongoing threats to the crypto industry, as well as the creation of a coherent regulatory framework.
What Do CEOs Say About Cryptocurrency Regulation?
In a recent interview on Bloomberg TV, Ripple CEO Brad Garlinghouse called for more clarity in cryptocurrency regulation, saying that it needs to be more explicit to ensure stability and security in the industry.
Garlinhouse stressed that the industry has long been demanding regulatory clarity. He criticized the approach of the US Securities and Exchange Commission (SEC), which has focused on enforcement rather than providing specific guidance.
Garlinhouse highlighted the importance of restoring US leadership in cryptocurrency regulation, noting that the US is lagging behind other major economies. Emphasizing Ripple’s bipartisan approach to advocacy, he mentioned the creation of a super-coalition election headquarters that supports pro-cryptocurrency and pro-innovation candidates.
WhiteBIT CEO Volodymyr Nosov believes that the government should introduce tax rates that can meet the interests of the state and be acceptable to cryptocurrency users. In addition, it should provide businesses with affordable authorization for their activities and create favorable opportunities for the use of crypto assets as a means of payment.
He also noted: “Crypto regulation is not the only condition for the rapid development of blockchain and the digital asset industry. We also need crypto education and a transparent judicial system.”
Coinbase CEO Brian Armstrong has recently reiterated the importance of cryptocurrencies in the future of society. Armstrong noted that Coinbase is trying to achieve greater regulation in the US, and sometimes even criticizing its competitors.
“Coinbase has always taken a long-term approach, focussing on building in a compliant manner, even when it wasn’t the popular choice. Many of our competitors cut corners and broke laws to get big fast, and we’ve seen how that strategy played out,” Armstrong said.
Summary
The situation with Binance confirms the need for a law on cryptocurrency regulations. Regulating cryptocurrencies will help not only with budget revenues but also with tracking money laundering and terrorist financing through cryptocurrencies. In addition, it will ensure the safety, stability, and liquidity of the market, making it more attractive to investors.
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