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Binance Under Fire: Paying up While Kraken Faces New SEC Battle

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Binance, one of the worldโ€™s top crypto exchanges, is now facing the music and coughing up one of the largest fines in corporate history. In a surprise twist, its founder and CEO Changpeng โ€œCZโ€ Zhao has waved goodbye as part of a settlement with numerous federal agencies. Meanwhile, Kraken has found itself in the ring once again, duking it out with the U.S. Securities and Exchange Commission.

Welcome to State of Crypto, a CoinDesk newsletter delving into the collision of cryptocurrency and government. Click here to subscribe for more editions.

The Big Picture

Binance finalized a deal with multiple U.S. agencies, marking the end of a much-anticipated showdown in the crypto regulatory realm.

Whatโ€™s at Stake

Binance, known for being the worldโ€™s chief crypto exchange by volume, has now agreed to fess up to what federal authorities are calling some of the nationโ€™s heftiest penalties.

An In-Depth Look

On Tuesday, Binance and Changpeng โ€œCZโ€ Zhao reached a settlement with multiple federal agencies, coming to terms on shelling out billions of dollars. As part of the deal, Zhao could possibly face prison time, and Binance is set to make a โ€œcomplete exitโ€ from the U.S., besides agreeing to stringent oversight from monitors over the next several years.

In case you missed the rollercoaster of regulatory action on Tuesday, hereโ€™s the lowdown:

  • Binance and the Department of Justice settled charges that Binance participated in an unlicensed money transmitting business by failing to implement an anti-money laundering program. Binance will be shouldering a hefty $1.8 billion fine and $2.5 billion in forfeitures, along with appointing a monitor for three years to ensure future compliance with federal regulations.
  • Meanwhile, Zhao and the Department of Justice settled charges which accused the former exchange CEO of violating the Bank Secrecy Act and attempting to coerce a financial institution to violate the same Act. Zhao has agreed to a $50 million payout, with his sentencing scheduled in a few months.
  • Additional settlements include one with the Commodity Futures Trading Commission (CFTC), where Binance will be paying $1.35 billion in civil penalties and another $1.35 billion in disgorgement.

Moreover, FinCEN, OFAC, and other federal entities have also managed to snag a share of the pie, with figures amounting to a whopping total of $4.3 billion funneling into U.S. government coffers, as officials stated. The aftermath sees Binance embroiled in a strict imposed monitorship, with surveillance and tighter reigns on its operations for the foreseeable future.

Beyond the financial penalties is the crux of the problem โ€“ Binanceโ€™s covert operations within the U.S. Truly, the real kicker is the fact that the exchange actively courted โ€œVIP usersโ€ in the U.S. to push its early growth, as per court filings. This, paired with allegations of permitting U.S. persons to trade against customers from sanctioned nations, has added to its mounting legal woes.

However, the Securities and Exchange Commission (SEC) was conspicuously absent from Tuesdayโ€™s proceedings. This omission might be pegged to the SECโ€™s ongoing bid to regulate crypto exchanges much like traditional U.S. stock markets. In essence, the SECโ€™s absence could signify its hunt for decisive court wins to bolster its campaign, while other federal agencies revel in their colossal victories against Binance.

But hold your horses, Kraken isnโ€™t off the hook either. The exchange is now engaged in a fresh tussle with the SEC, which has leveled charges of operating an unregistered securities platform and improper handling of customer funds. Sound familiar? Thatโ€™s because it is.

The SECโ€™s allegations against Kraken strike a similar chord to those against Binance, as the regulator accuses Kraken of commingling customer and corporate funds and maintains that the exchange danced without registering with the SEC, all while taking in hefty profits and fees without considering U.S. securities laws designed to safeguard investors.

As we navigate through the nitty-gritty of this legal snarl, the courtroom drama could shed light on Krakenโ€™s aggressive promotion of various cryptocurrencies the SEC deems unregistered securities, thereby delivering a crisp blow accusing Kraken of deliberate violation of federal securities laws.

In the grand scheme of things, these high-stakes legal battles are not just about the U.S. but have potentially seismic implications on the broader global arena. What the U.S. uncovers in Binanceโ€™s past transactions could pique the interest of regulators worldwide, raising the stakes for the exchange on a global scale.

Amidst this regulatory brouhaha, the week ahead appears relatively quiet in the crypto regulatory universe, with no major events on the horizon. But given the tumultuous developments of recent days, the crypto space might just be the calm before the storm.

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