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A top US financial regulator has said the $4.3bn penalty levied on Binance by authorities last month was set at a high level to act as a deterrent to other groups, after the world’s largest cryptocurrency exchange “simply failed to comply with regulation”.
Kristin Johnson, commissioner at the US Commodity Futures Trading Commission, said on Tuesday that the heavy penalty was part of the “guardrails” for the crypto industry, and hoped it would bring “order and structure”.
Binance’s fine, which includes the largest penalty ever levied by the US Treasury, came in November after it pleaded guilty to criminal charges related to money laundering and breaching international financial sanctions.
As part of the settlement its chief executive Changpeng Zhao, known as CZ, also stepped down, pleaded guilty to a US criminal charge of failure to prevent money laundering and took a $50mn penalty.
“Take the hint, you could save yourself a lot in any number of different ways,” Johnson told the Financial Times’ Crypto and Digital Assets Summit.
“In this context the penalties were heightened largely because . . . [if you] come to US markets and . . . invite US customers to participate, you have to comply,” Johnson said, adding: “It is really important, for a business to be successful, to take note of what has happened here.
“It’s pretty clearly laid out: there is a single path to walk, and it’s a straight line, and there’s no equivocation about it.”
Her comments come after a year of enforcement actions and charges from US authorities against some of the biggest names in the crypto market. Last month FTX founder Sam Bankman-Fried was found guilty in a criminal court of multiple charges including securities and commodities fraud.
Binance is also fighting 13 charges from the Securities and Exchange Commission, including accusations of market manipulation. Several other crypto exchanges are battling lawsuits from US regulators, with trading venue Kraken charged last month with operating as an unregistered securities exchange.
On a separate panel, Adrienne Harris, head of the New York State Department of Financial Services, said that the focus on potential criminal activity was likely to continue into 2024.
“The attention [on illicit crypto activity] is going to be heightened as a result of Binance and some of the other cases that have been brought by the [US Department of Justice] and other agencies,” she said.
Harris said crypto companies overseen by her agency often fall short of compliance standards seen in other industries.
“They’re not like the banks we regulate, or the insurance companies we regulate, or the mortgage lenders we regulate, who are used to having regulators,” she said, adding that crypto groups’ businesses often grow “much faster than the compliance apparatus”.
“When your child gets ransomed for cash somebody still has to show up to the drop site, whereas with digital currency that’s not the case . . . it really is an environment that lends itself to illicit finance, to bad actors.”
This year the New York regulator had reached a $100mn settlement with Coinbase over anti-money laundering failures, including a backlog of more than 100,000 unreviewed transactions.
It also ordered Paxos, the stablecoin operator, to stop issuing Binance-branded tokens because it had “several unresolved issues” related to Paxos’s oversight of its relationship with Binance for the token.
