Key takeaways
- Events leading up to the arrest of Binance's CEO Changpeng Zhao (CZ), show the exchange couldn't escape US regulators.
- Following the departure of CZ, the company will continue under the leadership of Richard Teng, Binance’s former global head of regional markets.
- While the company has a hefty $4.3 billion fine to pay, it doesn't rule out the possibility that US authorities believe it is too big to fail.
Like many crypto companies, Binance is no stranger to regulatory problems. The exchange, which is available in about 100 countries, has faced regulatory pushback many times from different governments.
The UK government said in 2021 that it was operating without approval. Japan also accused it of the same thing that same year. The exchange kept facing pushback in countries like Malaysia, South Korea, Germany, and even Nigeria.
However, the US has been the biggest torn in Binance's flesh.
From paying a hefty fine of $4.3 billion to ousting its CEO, CZ, Binance's troubles in the US have dealt the company a major blow, one that will see CEO Zhao do jail time.
But how did it all happen, and what does the future hold for Binance? This article will provide you with a timeline of events leading up to the arrest of CZ.
Events leading up to the arrest of Binance CEO
While the sentencing of CZ came in November 2023, Binance's problem with the US goes back a few years.
Suspicions since 2018
An investigation was launched into Binance in 2018 when the US Department of Justice (DOJ) suspected that the company was not in compliance with the U.S. Anti-Money Laundering (AML) laws and sanctions.
It also investigated the company for unlicensed money transmission, money laundering conspiracy and criminal sanctions violations.
However, there wasn't enough evidence at the time to press criminal charges against the company.
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March 2021, CFTC launches investigation in Binance
While the DOJ didn't charge Binance after its investigation in 2018, the Commodity Futures Trading Commission (CFTC) launched another investigation into the company on suspicion that it allowed crypto derivatives trading for US-based customers.
CZ, however, denied the claims saying Binance, "does not trade for profit or manipulate the market under any circumstances.”
The matter died down for a bit, but by 2023, authorities had turned up the heat.
March 2023, CFTC files lawsuit against Binance and CZ
By now, it was clear that these events could be leading up to the arrest of the Binance CEO and even a fall of the crypto exchange.
The CFTC filed a lawsuit against Binance, its CEO, Changpeng Zhao (CZ), and its Chief Compliance Officer from 2018 to 2022, Samuel Lim.
The charges include violation of the Commodities Exchange Act and CFTC regulations and failure to register as a “futures commission merchant"—an entity that solicits to buy and sell a futures contract.
Although CZ said the allegations were “an incomplete recitation of facts,” evidence was stacked up against the CEO and his company.
There were chats between Lim and Binance employees that
revealed the company is prioritising its competitive edge over know-your-customer (KYC) protocols.
Some of the chats read:
"[Because you attended a telephone conference on which Zhao participated] then you will also know that as a company, we are probably not going to remove no kyc (email registration) because its too painful . . . i think cz understands that
there is risk in doing so, but I believe this is something which concerns our firm
and its survivability. If Binance forces mandatory KYC, then [competing digital
asset exchanges] will be VERY VERY happy."
The most interesting part of the chat was when Lim admitted to an employee that Binance was being used by criminal organisations.
"Like come on. They are here for crime.' Binance’s MLRO agreed that “we see the bad, but we close 2 eyes.”
May 2023, more US authorities filed lawsuits
From the damming evidence to multiple charges, the CFTC opened the floodgates for other regulatory agencies in the US to come for Binance.
The DOJ was the first to come for Binance and it wanted to know if it helped Russia avoid US sanctions. SEC followed on June 5, 2023, with 13 charges while the US Internal Revenue Service (IRS) also moved in for its pound of flesh.
Between this time and CZ's indictment on November 21, 2023, Binance fought desperately to have all the lawsuits dismissed to no avail. The CEO saw his net worth drop from $96 billion to $17billion.
November 2023, end of the road
On November 21, 2023, CZ and Binance pleaded guilty to charges filed by US authorities and agreed to pay a hefty fine of $4.3 billion — defined by the DOJ as one of the largest corporate resolutions in history.
CZ made a plea deal that saw him step down as Binance CEO, pay a $200 million fine and face up to 10 years in federal prison.
Called "historic penalties" by US Attorney General Merrick Garland, he said Binance turned a blind eye to its legal obligations in the pursuit of profit," allowing organisations, including Hamas’ al-Qassam Brigades, the Islamic State, and al Qaeda to use the platform.
What happens now?
Amid the court battle between Binance and US authorities, there were fears of a bank run that could bring the exchange to its knees.
Within 24 hours of CZ pleading guilty, $1.25 billion was withdrawn from Binance.
However, outflows from the exchange have normalised, dropping down to $400 million at the time of this publication.
Outflows aren't the only thing that has normalised, the exchange's native token —BNB —which took an 8% hit, has also regained some of its value.
The future looks bright for Binance despite CZ's departure; however, there is still an obstacle standing in the way of its survival — the $4.3 billion fine.
Interestingly, Binance seems to have been well prepared for the worst outcome of the court case. The company's proof of assets shows it holds $69 billion in crypto assets alone. It is also over-collateralised, meaning that it would still have money if all its customers made withdrawals at the same time.
Binance needs more than money to survive
However, the lack of money is not the only thing that could bring the world's largest crypto exchange to its knees. In fact, the DOJ could bring the company down without demanding a dollar from it.
Binance needs banks.
“For all crypto companies, banking access and access to dollars is a perpetual challenge—and an imperative.” Jacob Silverman, author of Easy Money: Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud, told Wired.
He added that if the DOJ were to impose criminal sanctions on Binance and not accept the $4.3 billion plea deal, it would cause "banks to retreat,” making it impossible for Binance to receive fiat from its customers.
While former US prosecutor Paul Tuchmann says the DOJ isn't out to put "somebody out of business," even the US may believe that an exchange that facilitated $12 billion worth of trades in 24 hours is too big to fail.
