Analysts say a $50-million fine for Binance chief Changpeng Zhao, and his move to step down as head of the world’s largest crypto exchange is probably a ‘good outcome’ for the crypto billionaire.
Given the seriousness of the violations and actors involved, Zhao appears to have “come out of this looking pretty good”, Robert Frenchman of Mukasey Frenchman LLP said. The US government likely had to entice him to come to the country, he added.
Prosecutors said Binance broke US anti-money laundering and sanctions laws and failed to report more than 100,000 suspicious transactions with terror groups including Hamas, al Qaeda and the Islamic State of Iraq and Syria.
The US Justice Department is now seeking an 18-month prison sentence for Zhao, the maximum suggested under federal guidelines, according to a New York Times report.
Zhao “still has enormous wealth,” Frenchman said.
“He isn’t likely to spend too much time in a US jail.”
After he pleaded guilty, CZ was released on a personal recognisance bond of $175 million, secured by $15 million in cash, CNBC reported. His sentencing hearing has been set for February 23.
Zhao retaining Binance stake
Analysts also noted the deal, which also led to a $4.3-billion fine that Binance must pay, allowed Zhao to retain his stake in the exchange he founded in 2017.
Vanderbilt University law professor Yesha Yadav said while the fine was extremely large it appeared manageable for Binance.
“This deal… looks designed to give Binance the chance to live another day, while removing CZ, a figurehead who has been so intrinsically linked to the growth of a business model,” she said.
Since Zhao appears to be retaining his stake in Binance, however, it’s possible he may still be able to exert influence on the company, Yadav added.
Prosecutors likely weighed those benefits for Zhao against the possibility that he may not have otherwise surrendered and the desire to convince Binance to agree to pay a hefty sum, said Jeffrey Cohen, an assistant professor at Boston College Law School and former federal prosecutor.
“If you can get a good number for a corporate fine and the cost is that the individual defendants take a slightly lesser penalty, the government makes that calculation.”
Crypto markets cheer resolution
Even so, the deal raises questions over the future of Binance, which Zhao has tightly controlled.
It also comes as another blow to the crypto industry following the high-profile conviction of FTX founder Sam Bankman-Fried.
But in the hours prior to the deal’s announcement, crypto investors were largely upbeat about the prospect of a resolution to the Binance investigation and the effective removal of a nagging risk to the wider market.
“We see this news as a positive development,” Anatoly Crachilov, chief executive of London-based Nickel Digital Asset Management, a client of Binance said.
The $4.3 billion fine — which US prosecutors have touted as one of the largest corporate penalties in US history — would also be manageable for Binance, Crachilov said. He cited publicly available information on Binance’s trading volumes and commissions as evidence that the exchange had been “generating billions.”
Binance will pay $1.81 billion within 15 months, and a further $2.51 billion forfeiture as part of the deal, US prosecutors have said.
Investor sentiment, meanwhile, reflected in the broader crypto market with major tokens unmoved by the news of CZ stepping down.
Bitcoin, the top crypto and a barometer for wider sentiment, dropped close to 4% in the hours after CZ stepped down. Investors, however, were seen quickly buying the dips, allowing the digital currency to remain well above its lows for the month. BTC was up more than 2% as of 12:30 pm GMT on Wednesday.
Binance’s in-house token BNB, the fourth-biggest digital coin, saw a sharper fall of 6.3% following Zhao’s announcement. The token had rallied more than 6% between Monday and Tuesday. BNB was up more than 3% as of 12:30 pm GMT on Wednesday.
‘I made mistakes’
Zhao, popularly known in the crypto world as CZ, pleaded guilty in a Seattle court on Tuesday afternoon to breaking US anti-money laundering laws.
US prosecutors say that apart from the transactions with terror groups, Binance also never reported transactions with websites devoted to selling child sexual abuse materials.
It was also one of the largest recipients of ransomware proceeds, they said.
“Binance made it easy for criminals to move their stolen funds and illicit proceeds on its exchanges,” US Attorney General Merrick Garland said on Tuesday. “Binance also did more than just fail to comply with federal law. It pretended to comply.”
Following the settlement, CZ posted a statement on X (formerly known as Twitter), and announced he was stepping down as the chief of Binance.
“I made mistakes, and I must take responsibility,” CZ wrote.
Today, I stepped down as CEO of Binance. Admittedly, it was not easy to let go emotionally. But I know it is the right thing to do. I made mistakes, and I must take responsibility. This is best for our community, for Binance, and for myself.
Binance is no longer a baby. It is…
— CZ 🔶 Binance (@cz_binance) November 21, 2023
Richard Teng named new Binance chief
While authorities have probed Zhao and Binance for years, Zhao’s exit marks a dramatic development for one of the most powerful figures in the crypto industry, and for Binance.
Richard Teng, a longtime Binance executive, will take over at Binance.
“These resolutions acknowledge our company’s responsibility for historical, criminal compliance violations, and allow our company to turn the page,” Binance said in a statement.
In a separate statement, Teng said that his focus would be on “reassuring users that they can remain confident in the financial strength, security and safety of the company.”
It is an honour and with the deepest humility that I step into the role of Binance’s new CEO.
We operate the world’s largest cryptocurrency exchange by volume. The trust placed on us by our 150m users and thousands of employees is a responsibility that I take seriously and hold…
— Richard Teng (@_RichardTeng) November 21, 2023
Teng has previously served in various regulatory positions including as the CEO of the Financial Services Regulatory Authority at Abu Dhabi Global Market, the Chief Regulatory Officer of the Singapore Exchange (SGX), and the Director of Corporate Finance in the Monetary Authority of Singapore, according to a Binance statement.
- Reuters, with additional inputs from Vishakha Saxena
NOTE: The headline and text of this report was updated on November 22, 2023.