The U.S. Department of Justice may issue a hefty fine of $4 billion. Will Binance reach a settlement with regulators?

Author: Jaleel, Jack, BlockBeats

Editor: Jack, BlockBeats

This is yet another formal attack by U.S. regulators on Binance, with a staggering $4 billion fine finally arriving.

On November 21, according to Bloomberg, citing informed sources, the U.S. Department of Justice is seeking more than $4 billion in fines from Binance as part of a proposed resolution to its years-long investigation.

Binance has not responded to multiple emails and phone calls seeking comment. The U.S. Department of Justice also declined to comment. According to sources familiar with the situation, the announcement could come as early as the end of this month, although the situation remains uncertain, and these individuals requested anonymity to discuss confidential matters.

A $4 billion "staggering fine," such a huge amount can be said to be one of the largest investigations conducted by the U.S. Department of Justice against cryptocurrency companies. If Binance and the U.S. Department of Justice agree to a deferred prosecution agreement, the Department of Justice will file criminal charges against the company.

However, if Binance meets the stipulated conditions, including paying a large fine and agreeing to a detailed statement of facts regarding its misconduct, the U.S. will not proceed with prosecution and will establish a process to oversee the company's compliance. This also means that Binance will no longer face criminal investigations.

Informed sources revealed that official news could be released as early as the end of this month, but it remains unstable. The specific timing and structure of the proposed resolution, as well as the exact fees, are still unclear. The agreement aims to strike a balance that allows Binance to continue operating without risking collapse, thereby reducing the negative impact on the market and cryptocurrency holders.

The negotiations between the Department of Justice and Binance include, under one agreement, its founder CZ may face criminal charges in the U.S. to resolve investigations into alleged money laundering, bank fraud, and sanctions violations. This investigation is jointly led by the Criminal Justice Department's Money Laundering and Asset Recovery Section, the National Security Division, and the U.S. Attorney's Office in Seattle.

Sued by SEC in June, Binance Faces Multiple Fronts

In addition to the Department of Justice's fine, we all know that the SEC has also engaged in multiple "games" with Binance recently, coupled with the CFTC, regulatory pressure is mounting, Binance is truly facing enemies on three fronts.

On June 5, Binance and its CEO CZ were sued by the SEC for allegedly violating securities trading rules. This is the second lawsuit from U.S. regulators against Binance and its CEO CZ since March 28, when they were sued by the Commodity Futures Trading Commission (CFTC) for allegedly violating trading and derivatives rules, triggering severe fluctuations in the cryptocurrency market.

The SEC's charges against Binance Holdings Limited, BAM Trading Services (hereinafter referred to as "BAM Trading"), BAM Management U.S. Holdings (hereinafter referred to as "BAM Management"), and CZ claim that they violated federal securities laws and disregarded investor protection. The defendants are accused of illegally promoting crypto asset securities to U.S. investors and conducting multiple unregistered issuances and sales of crypto asset securities and other investment plans on Binance.com and Binance.US through an unregistered online trading platform. The defendants allegedly profited billions of dollars through this method while placing investors' assets at significant risk.

Related Reading: 《SEC Sues Binance Document Disclosure, Overview of Key Details》

In response, Binance stated in an official announcement: "What is most surprising is that the SEC's actions undermine the U.S.'s position as a global center for financial innovation and leadership. In most parts of the world, digital asset laws are essentially still undeveloped, and enforcement regulation is not the best way forward. An effective regulatory framework requires cooperation, transparency, and thoughtful policy engagement— the SEC has abandoned this path."

Related Reading: 《Binance Responds to SEC Charges in Full: Platform Funds Are Safe, SEC's Tough Regulation Will Complicate Matters》

In the early hours of June 14, the federal judge overseeing the SEC's case against Binance and Binance US denied a temporary restraining order to freeze the assets of the U.S. trading platform. Judge Amy Berman Jackson of the District of Columbia stated that "there is absolutely no need" to issue a restraining order. At the same time, the judge ordered Binance US to provide the court with a list of its business expenses and ordered both parties to continue negotiations.

Earlier that day, the judge hinted that she might be inclined to impose some restrictions on Binance's access to Binance US assets, but not a blanket restraining order, ordering the company to coordinate their proposed restrictions and ordering the SEC to replace the restraining order itself with what the company proposed. SEC attorney Jennifer Faull told the judge on Tuesday, "We are open to continuing to operate the business."

Representatives from Binance US stated that they mainly hope to obtain normal operating expenses and are "unwilling to accept a death sentence represented by asset freezing." SEC attorneys said that Binance US also informed the SEC that it might stop operating in the U.S., prompting the need for an emergency freeze order. Binance US lawyers stated that the exchange needs to be able to pay ordinary business expenses, such as rent, salaries, vendors, and software licenses. "What astonishes us is the asset freeze, which would be misunderstood by banks." The judge agreed. "Completely shutting it down would have a significant impact not only on the company but also on the entire digital asset market," she said at the hearing.

Judge Jackson stated that ultimately the differences between the two parties are not significant. If they can reach an agreement, it would give both sides time to properly organize the details of the case. She referred them to a magistrate judge to reach a compromise agreement. The judge indicated that if an agreement is reached, she would no longer need to rule on the SEC's request for a temporary restraining order.

In response to the SEC's request to freeze assets, Binance proposed a compromise plan that includes transferring U.S. customers' crypto assets to new wallets with new private keys, which will be controlled separately by Binance US's U.S. staff. The SEC, in a compromise proposal submitted to the court, requested that Binance repatriate customer assets to the U.S., where these assets would be under the control of entities that CZ cannot control and could handle redemption matters for customers.

Related Reading: 《Binance Hearing: Judge Rejects Asset Freeze, Will Discuss Agreement with SEC Regarding Securities Definition》

In the previous back-and-forth between the SEC and Binance, although a D.C. district judge encouraged Binance to cooperate with the SEC and push for more information on how Binance US handles customer assets, BAM, the holding company of Binance US, stated that the SEC's document requests were "too broad and burdensome," implying difficulty in cooperation.

According to a court document dated September 18, the SEC launched an attack on the "unstable" issue of Binance US asset custody, urging the D.C. court to approve an inspection of Binance US and reiterating that Binance US is not cooperating with the SEC's investigation, claiming that the company's staking, settlement, and brokerage services violate federal securities regulations.

For years, Binance has suffered from regulatory targeting and seems to be contemplating how to circumvent compliance.

Forbes previously reported last year on how Binance internally utilized a "Tai Chi" plan to carefully strategize to evade local compliance and regulatory policies in the U.S. This document included targets, proposed company structures, participation in regulatory programs, and long-term licensing plans, orchestrated by former Binance employee Harry Zhou, to minimize the impact of U.S. regulatory agencies such as the SEC, CFTC, and NYDFS. It even proposed that Binance join the U.S. Department of Homeland Security (DHS) cornerstone program to identify regulatory weaknesses.

However, Binance denied the allegations in this document and stated that Harry Zhou had never worked at Binance. In this year's SEC lawsuit against Binance, the "Tai Chi" plan was mentioned again, becoming evidence of Binance's evasion of U.S. regulation.

Are Regulatory Fines Getting More Expensive?

In contrast, Coinbase's previous $100 million fine seems trivial.

According to BlockBeats, on January 4, the cryptocurrency trading platform Coinbase announced a settlement agreement with the New York State Department of Financial Services, agreeing to pay a $50 million fine and committing to invest $50 million to strengthen its compliance program, which aims to prevent potential violators from opening accounts in New York State.

Previously, the New York State Department of Financial Services found that Coinbase allowed customers to open accounts without conducting adequate background checks, claiming that this violated anti-money laundering laws. According to the financial services department, as of the end of 2021, Coinbase had over 100,000 alerts regarding potentially suspicious customer transactions that had not been properly examined. Regulators also found that Coinbase only conducted the most basic "KYC" checks before allowing people to open accounts and accused the trading platform of treating customer background checks as a "simple checkbox exercise."

The $4 billion fine that Binance faces is only comparable to the settlement amount of the now-bankrupt cryptocurrency lending platform Celsius Network.

According to BlockBeats, on July 13, the now-bankrupt cryptocurrency lending platform Celsius Network was banned from trading and fined $4.7 billion by the Federal Trade Commission (FTC), and Celsius and its affiliates agreed to the judgment. Celsius stated that its $4.7 billion settlement agreement with the FTC would not affect its restructuring and the restoration of assets for customers.

Related Reading: 《Will Binance Settle with the SEC? Look at the Well-Known Projects That Have Been Fined by the SEC in History》

Although the $4 billion staggering fine that Binance faces has finally arrived, optimistically speaking, this also represents a path to settlement provided by regulators, which means that Binance may no longer face criminal investigations.

According to most informed sources, the agreement between regulators and Binance aims to strike a balance that allows Binance to continue operating without risking collapse, which could negatively impact the market and cryptocurrency holders. The founding partner of Castle Island Ventures also stated, "Reaching a settlement with the U.S. Department of Justice that includes regulatory terms may be a compromise that protects investors while allowing Binance to move towards a more institutionalized and compliant future."