Recently, the world's largest cryptocurrency trading platform Binance's sky-high fine has attracted attention both inside and outside the industry. This is the largest fine issued to a company in the history of the United States. The reason is that Binance was criminally charged by U.S. regulatory authorities. In order to A settlement was reached, with Binance agreeing to pay a total fine of $4.3 billion.
As a cryptocurrency exchange, what exactly led to Binance being criminally charged?
1. Reasons why Binance was criminally charged
Relevant documents disclosed by the U.S. Department of Justice show that Binance has attracted a large number of global users since its establishment in 2017, with American users accounting for the largest proportion. According to relevant U.S. laws and regulations, providing services to U.S. customers requires registration with FinCEN (the department of the U.S. Department of the Treasury responsible for combating financial crimes) and compliance with relevant anti-money laundering regulations. However, Binance does not have compliance procedures such as anti-money laundering. Implement effective measures.
Although Binance announced in 2019 that it would block American users and launched binance.us, a large number of American users still used Binance to trade after that, and in order to retain some American VIP users, Binance took the initiative to help these customers circumvent Supervision. Between August 2017 and October 2022, U.S. users conducted trillions of dollars worth of transactions on Binance, generating more than $1.6 billion in profits for the platform.
In addition, Binance has not implemented effective anti-money laundering measures, which has resulted in terrorist organizations such as Hamas and Al Qaeda, as well as criminal organizations such as fraud and darknet laundering money through Binance, and countries such as Iran and North Korea that have been sanctioned by the United States. Users completed transactions with US users in the platform’s matching trading system, which violated relevant US anti-money laundering and sanctions regulations. Between January 2018 and May 2022, U.S. users completed more than $898 million in transactions through Binance with users resident in Iran. Therefore, in the plea agreement, Binance agreed to confiscate assets worth US$2.5 billion and pay a fine of US$1.8 billion, for a total of US$4.3 billion.
2. Exchanges should actively cooperate with regulatory authorities
With the increasing recognition of cryptocurrency in various countries around the world, exchanges, as an important role in the encryption market, have been sought after by more and more capital and entrepreneurs. Market competition has become increasingly fierce. However, exchanges are pursuing market share and operation. While making profits, we cannot ignore relevant legal obligations and compliance requirements. The U.S. Deputy Attorney General said that Binance’s criminal charges and fines have sent a clear warning signal to cryptocurrency companies and defi projects. If you serve U.S. users, you must abide by U.S. laws.
It can be seen that compliance in the encryption world will become the focus of future development. Only user growth obtained under the prerequisites of compliance is a correct and long-term corporate strategy.
Under the current global regulatory situation, some cryptocurrency companies are actively cooperating with regulatory authorities. Not long ago, the U.S. Department of Justice cooperated with OKX to investigate and teamed up with TEDA to freeze on-chain addresses storing approximately 225 million USDT. These addresses belonged to a Southeast Asian human trafficking criminal group and were involved in a global pig-killing plate scam.
Through on-chain data analysis, it can be seen that the frozen address had multiple deposit and withdrawal transactions with OKX Exchange. However, OKX Exchange actively cooperated with the US Department of Justice’s investigation and ultimately assisted in completing the largest USDT freeze in history.
Therefore, while expanding the market, cryptocurrency exchanges should carry out risk control and compliance review procedures such as KYC and AML, actively cooperate with regulatory agencies when seeking help, and jointly fight against illegal and criminal activities such as fraud and terrorist financing. This is also the fulfillment of corporate obligations. The embodiment of social responsibility.
Not only OKX Exchange, but Binance, which was charged by the U.S. Department of Justice this time, was also praised for cooperating with the U.S. Department of Commerce’s investigation. This also reduced Binance’s total fine this time by 20% from the lower limit of the U.S. sentencing fine range. .
In addition to centralized exchanges, some mining pools are also actively cooperating with regulatory agencies. According to Wu Shuo Blockchain, the mining pool F2pool proactively filtered four transactions related to OFAC (U.S. Department of the Treasury Office of Foreign Assets Control) sanctioned addresses. In layman’s terms, these transactions were not packaged on the chain. Regardless of the final outcome, it can be seen that many cryptocurrency companies are doing their best to cooperate with regulations.
3. Compliance suggestions for exchanges
From the above cases, it can be seen that exchanges should conduct compliance reviews and advance risk control warnings from both on-chain and off-chain aspects:
Strengthen the risk control of exchange deposits and withdrawals on the chain, and use the black and gray address tag library to establish a complete set of on-chain risk control and early warning mechanisms. Intercept high-risk transfers and actively report them to anti-money laundering organizations and regulatory authorities, cooperate with investigations and freezes, and combat terrorist financing and other forms of illegal and criminal activities.
Strengthen KYC review of exchange users off-chain. Purchasing third-party KYC review products, conducting strict KYC reviews for global registered users under the exchange chain, prohibiting registration of users from sanctioned countries and regions, and using facial recognition and other technological means to process high-risk vest accounts, improving the exchange The degree of compliance is in line with relevant laws and regulations.
