Good day everyone,

I hope you are all well and had an excellent week, welcome to CryptoGod-1’s blog on all things crypto. What can I say? I jumped the gun yesterday when I published my article "Binance to Settle with DOJ for $4 Billion??." Since then an even bigger story has broken regarding Changpeng Zhao. The CEO of Binance has decided to plead guilty to Money Laundering Charges in the United States and will be stepping down as the CEO of Binance.

Changpeng 'CZ' Zhao

The CEO of the world's largest cryptocurrency exchange Binance has made a huge move and decided to step down while also accepting U.S. criminal and civil charges against both himself and his company. Changpeng “CZ” Zhao decided to do so following news breaking the the exchange was in the process of sealing a settlement from the lawsuits against them by the Department of Justice. These would see a major $4 billion settlement between United States agencies and the cryptocurrency exchange founded by CZ and would be the largest settlement in cryptocurrency history.

The announcement from both CZ and multiple regulatory agencies on Tuesday the 21st of November 2023 resulted in the resolution of yearslong investigations by the Department of Justice and others into anti-money laundering violations and sanctions violations. In a post on 'X' CZ noted how he had made mistakes and will take responsibility for them. He also noted how this is the best option for the community, for Binance, and for himself.

CZ will remain the majority shareholder following his departure and also provide his knowledge as a resource for “consultation on historical areas of the business.” according to a statement from Binance. Richard Teng, now-former Global Head of Regional Markets, shall succeed CZ as CEO of the company. The exchange has taken responsibility for not having appropriate compliance controls, noting:

“When Binance first launched, it did not have compliance controls adequate for the company that it was quickly becoming, and it should have."

On Tuesday afternoon CZ appeared in federal court in Seattle and pleaded guilty to anti-money laundering and sanctions violations brought by the Department of Justice. On top of that, Binance settled its charges with the DOJ and Commodities Futures Trading Commission; the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) and Office of Foreign Assets Control (OFAC). This means the exchange will give the Treasury Department access to Binance’s books and records under the terms of a five-year monitorship. US Attorney General Merrick Garland noted how the decision represented the entire governments approach to combat corporate crime:

“Because of the crimes committed, Binance became the largest cryptocurrency exchange in the world. Now, Binance has paid one of the largest corporate penalties in US history.”

The settled complaint alleged that both CZ and Binance had prioritized "growth over compliance and in the process they facilitated billions of dollars of crypto transactions on behalf of customers without appropriate Know-Your-Customer (KYC) procedures. Their violations of U.S. anti-money laundering laws had failed to prevent and report suspicious transactions with terrorists which included both Al Qaeda and ISIS, according to the Treasury Department. 

Treasury Secretary Janet Yellen noted in a joint statement with the Department of Justice noted:

"Binance turned a blind eye to its legal obligations in the pursuit of profit. Its willful failures allowed money to flow to terrorists, cybercriminals, and child abusers through its platform."

The SEC had also previously charged Binance and CZ back in June 2023 for operating an unregistered exchange and misleading investors. It was claimed the exchange had made use of a Switzerland-based fund Sigma Chain, which was also owned by CZ, to inflate the trading volume on Binance’s U.S. platform. The case is still ongoing and the SEC have refused to comment on the latest going-ons at Binance, but back in June the chair of the SEC, Gary Gensler, noted :

“Through thirteen charges, we allege that Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law.”

This settlement will see Binance acknowledge their company's responsibility for historical, criminal compliance violations having also plead guilty to a criminal charge related to knowingly violating the Bank Secrecy Act. This will result in a $3.4 billion penalty to FinCEN, the financial crimes bureau within the Treasury department, as part of the settlement. This agreement comes with a 5-year monitorship and various agreements to tighten up compliance and ensure the company's complete exit from the U.S. The cryptocurrency exchange will also pay a $968 million fine to OFAC, the Office of Foreign Assets Control. This take the total amount of the settlement to more than $4.3 billion and comes as part of the largest penalty in U.S. Treasury history.

As for CZ, he has agreed to pay $50 million in fines that will be credited to the CFTC as part of his resolution to the suit. He will also be prohibited from operating or managing the business for 3 years, meaning down the line there may be a return to the top chair at Binance for CZ.

The CEO and cofounder of Binance’s US competitor Coinbase, Brian Armstrong, was delighted about the announcement and considered it “an opportunity to start a new chapter for this industry." Coinbase is also facing regulatory scrutiny from the SEC and he noted his hope that the action against Binance would serve as a catalyst for regulatory clarity.

Binance Outflows

The blockchain data analytics platform Nansen has compiled an analysis of Binance's netflows and have noted a significant outflow at the exchange since the announcement of CZ stepping down as CEO. The news is at first alarming, but immediately needs to be placed into context. The outflows are large, but relative to their total holdings are in fact quite small. Around $956 million was withdrawn from the cryptocurrency exchange over the previous day, how the data does not track bitcoin flows. Nonetheless it is clear the impact the news is having on the exchange, with their native token BNB also dropping in value thanks to the news. At the time of writing there was still over $65 billion of assets on the platform, and back in June 2023 the exchange saw around $1.43 billion withdrawn from investors when the SEC sued the exchange. The current levels are completely normal considering the levels experienced back then, as shown in the below graph.

While the withdrawals are considered above average, they are not unusally large given the weekly basis. This is based on an an analysis of net hourly flows from the on-chain data tool CryptoQuant and the high levels of red in this period are still below those experienced earlier in the year. When considering data from Dune Analytics dashboard, it is clear to see that over $2.37 billion in various tokens left the exchange but at the same time some $1.78 billion in tokens were deposited. Binance's BNB tokens were the most deposited and withdrawn tokens according to the data.

An address known to be associated with the institutional trading desk FalconX withdrew $83 million, considered the most withdrawn from the exchange since the news broke. Another address associated with market maker Wintermute Trading deposited $190 million into the exchange. CLearly the news is having different reactions to both retail and institutional investors on all levels.

With such levels of withdrawals and deposits happening on the exchange, it is easier to soften any concern over the exchange’s solvency. This will lead to, hopefully anyway, less market interruption such as what happened last year with FTX and Sam Bankman-Fried when his exchange was forced to file for Chapter 11 Bankruptcy. At the time they were forced to halt customer withdrawals after the company had commingled customer assets with those of its trading arm, Alameda Research. Binance is clearly nowhere near those levels of issues and therefore they will be able to push ahead and continue operations as normal. While the impact of this settlement on Binance is yet to be fully seen, they company hopes to turn the page on a challenging yet transformative chapter of learning and growth. They noted in a statement:

"We are confident that Binance will emerge as a stronger company as we lay the foundation for the next 50 years."

A shocking couple of days for Binance and a big move which will have consequences for all U.S. users. For now Binance remains strong and is showing they are willing to accept their mistakes and pay the consequences. The future for Binance is far from clear, but they are still standing and will keep going as CZ shows SBF how it is done by accepting a fine and stepping down before things hit a level he could not come back from. SBF will be wondering from his prison cell what could have been if he had taken a similar route.

Have a great day,

Peace. CryptoGod-1.

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