The Binance Settlement Was Supposed to End the Wild West of Crypto. It Made Things Stranger.

A historic legal settlement is followed by a certain kind of silence. Press releases are sent out, officials are quoted, and a few people congratulate themselves on a job well done somewhere in Washington. When the U.S. Department of Justice announced in late November 2023 that Binance, the largest cryptocurrency exchange in the world, had agreed to pay about $4.3 billion to settle charges involving money laundering, sanctions violations, and an astonishingly long list of other financial crimes, it felt something like that. Binance processes an estimated 60% of all centralized crypto spot trading worldwide.

The founder of Binance, Changpeng Zhao, resigned and entered a guilty plea after building the company into a global empire that operated from what appeared to be every jurisdiction at once and none in particular. By all accounts, it was the biggest monetary fine in the U.S. Treasury Department’s history. Nevertheless, it’s difficult to avoid feeling as though something didn’t quite land the way it was meant to when observing the days and weeks that followed.

The settlement documents contain clear allegations. The government described how Binance handled transactions related to ISIS, Al Qaeda, Palestinian Islamic Jihad, and Hamas’ Al-Qassam Brigades. At least 24 distinct malware strains had sent it ransomware proceeds. Regarding transactions connected to websites selling content about child sexual abuse, it had taken no action and had not filed a single suspicious activity report.

The former Chief Compliance Officer at Binance reportedly told employees that the CEO’s policy was to simply not report any suspicious transactions. More than 100,000 of these transactions were not reported. This wasn’t carelessness hidden in a large organization’s fine print. Federal investigators said it was deliberate. Willful is a word that keeps coming up in the documents.

Janet Yellen, the Treasury Secretary, was clear about it. She claimed that Binance allowed money to go to terrorists, cybercriminals, and child abusers by ignoring its legal responsibilities in the name of profit. A cabinet secretary using strong language.

The kind that typically denotes a real confrontation. In a technical sense, it was; the $3.4 billion FinCEN fine alone broke previous records, and Binance’s five-year monitorship provides regulators with unprecedented future access to the company’s books and systems. A $150 million suspended penalty is waiting for Binance if it doesn’t comply.

This is where things start to get weird, though. Coinbase CEO Brian Armstrong stated on CNBC a few days after the settlement that the enforcement action would enable the industry to “turn the page.” Those remarks give the impression that the Binance case was an anomaly, the bad apple that had to be removed before the orchard could resume operations.

Armstrong was correct to say that Binance had cast a shadow over the industry. Nevertheless, that framing—close the chapter, move on—seemed a bit hurried. After all, there were ransomware gangs and terrorists in the chapter.

The settlement may have clarified an unsettling fact: for years, the infrastructure of contemporary cryptocurrency was partially supported by illicit flows that no one was particularly eager to halt. Binance did not unintentionally end up handling transactions for darknet drug markets or sanctioned Iranian entities.

Part of the reason for the company’s growth was that it operated in the gaps between jurisdictions, cultivating its most significant U.S. clients while purposefully hiding those connections from American authorities. Binance’s noncompliance might have been an extreme example. Another possibility is that they were just the first and most obvious to be caught.

The settlement includes a monitorship that is truly important. For five years, Binance’s systems and records will be accessible to U.S. regulators. One of Treasury’s demands is that Binance completely withdraw from the US market, which begs the question of where those users and volume really end up. When an exchange is excluded from a market, cryptocurrency does not vanish. It locates a different door.

The terms of the settlement mainly do not apply to the larger cryptocurrency ecosystem, which includes decentralized exchanges, offshore platforms, and privacy coins. Even if Binance’s compliance issue is fully resolved, the underlying architecture that caused those issues remains unresolved.

Changpeng Zhao himself is another issue. He was sentenced, resigned, and entered a guilty plea. However, the business he founded is still running on a massive scale under new management and is currently under intense federal scrutiny.

It’s still unclear if this scrutiny will significantly alter Binance’s worldwide operations or if it will mainly alter the company’s American presence while operations continue elsewhere. The last war is usually fought by regulators. Usually, the next one has a different appearance.

According to Brian Armstrong, who spoke with CNBC, illicit activity in cryptocurrency accounts for less than 1% of transactions, while financial crime is more common in cash. That might be true. However, the settlement documents from Binance are not just statistics.

They are precise enough to identify terrorist groups, describe a compliance officer advising employees not to submit reports, and bring up a website known as Dark Scandals. One percent of the biggest cryptocurrency exchange in the world is a significant amount.

The metaphor of the wild west is so frequently used in cryptocurrency coverage that it has become stale. However, the Binance case indicates that the image was more literal than many would have liked to acknowledge. The settlement was meant to signal the arrival of law and order. It might have just shown how much land is still outside the town limits.