Binance Changpeng Zhao confessed the apocalypse

Research Series on Blockchain Involving Criminal Offenses (60):

Binance Changpeng Zhao confessed the apocalypse

Author:

Mr. Yang Tianyi holds a full-time LL.M. degree from Jinan University, focusing on criminal defense and compliance in the fields of blockchain, finance and new economy. Secretary-General of the Economic Crime Defense and Research Center of Guangdong Guangqiang Law Firm, and the contracted author of Peking University Legal Information Network. (See the top of the homepage for legal advice)

On November 22, local time, Changpeng Zhao and a representative of Binance reached a plea agreement with federal prosecutors in the federal court in Seattle, and Changpeng Zhao pleaded guilty to money laundering and agreed to pay a fine of $50 million. At the same time, Binance also pleaded guilty and agreed to pay $4.3 billion in fines and restitution to the government. Under the agreement, Binance will also reach a settlement with the U.S. Department of Justice, the Treasury Department, and the Commodity Futures Trading Commission, which have been investigating the company.

The investigation of Binance and Changpeng Zhao by US authorities began in 2018 and has been going on for four years. On June 5 this year, the U.S. Securities and Exchange Commission (SEC) formally filed 13 charges against Binance and its founder, Changpeng Zhao, including operating unregistered exchanges, broker-dealers and clearing institutions, providing false trading control and oversight statements on Binance.US platforms, and offering and selling securities without registration. With these charges still unconfirmed, the news that Changpeng Zhao and Binance have admitted to money laundering is a huge shock, and this incident will undoubtedly have a profound impact on the global cryptocurrency industry.

Lawyer Yang Tianyi believes that from this incident, it can be seen that a new round of strong supervision of cryptocurrencies will be formed outside and within the region.

First, the strengthening of anti-money laundering and anti-fraud supervision of cryptocurrency exchanges outside the territory will become a long-term trend, and the supervision of cryptocurrency securitization may become a trend.

At the end of 2022, the FTX exchange, a well-known cryptocurrency trading platform, suddenly exploded, and founder Sam Bankman-Fried was convicted of all seven charges of fraud and embezzlement. This incident sounded the alarm bell for the regulation of cryptocurrency trading platforms in the United States, exposing that there are undoubtedly huge loopholes in the supervision of cryptocurrencies in the United States. This year's Binance incident has further exposed a series of illegal or criminal behaviors such as helping illegal funds laundering and illegally operating unregistered securities businesses on cryptocurrency trading platforms. It is foreseeable that in the future, the United States will strengthen the supervision of suspected fraud and money laundering activities of cryptocurrencies in accordance with existing laws, or will carry out special legislation to patch the existing regulatory loopholes.

In contrast, Hong Kong realized in 2017 that there were huge risks behind the crypto boom. The Hong Kong government has always regarded anti-money laundering and anti-fraud against cryptocurrencies as an important regulatory policy, and after several years of brewing, it officially implemented the licensing regulatory policy in June this year. Therefore, the regulation of cryptocurrency securitization will be the future regulatory trend in Hong Kong.

In addition, Singapore, South Korea, and EU countries have also been legislating in recent years to gradually strengthen the regulation of cryptocurrencies.

Looking at the policies and legislation of foreign countries on cryptocurrencies, "anti-money laundering" is undoubtedly the top priority of supervision, and on this basis, the inclusion of cryptocurrencies in the regulatory scope of securities is also a gradually clear regulatory idea of various countries.

Second, the mainland's strict supervision of cryptocurrencies will continue, and the laundering of cryptocurrencies and the exchange of cryptocurrencies with foreign currencies will become important areas of supervision.

The mainland has always pursued a strict regulatory policy for cryptocurrencies. ICOs, cryptocurrency exchanges, and other businesses ceased to be legitimate after the "924 Announcement" was issued in 2017. However, the mainland has not legally denied the virtual asset nature of cryptocurrencies, and has maintained an attitude of discouragement and prohibition of individual citizens holding or circulating cryptocurrencies, while maintaining a high-pressure regulatory posture on the laundering of cryptocurrencies.

The Binance incident will undoubtedly strengthen the mainland's judicial policy on combating cryptocurrency money laundering activities, and further strengthen the supervision of cryptocurrency exchange with other countries' fiat currencies such as the US dollar. As a result, "exchange-based" cryptocurrency money laundering will be a key area of focus for future regulation.

Lawyer Yang Tianyi believes that the confession of Binance and Changpeng Zhao can give us the following enlightenment:

First, exchanges are not "big enough to be safe enough", and "large" exchanges are also exposed to "large" risk vulnerabilities.

In the high-risk field of cryptocurrency, large exchanges can give people a rare and valuable "sense of security" in the midst of risk. But from the FTX incident to the current Binance incident, the disappearance of the "sense of security" of large exchanges seems to be an instant thing. While large exchanges are large enough in size and scale, they also contain the same amount of legal risks. Therefore, it is very necessary to establish a legal risk control system for both the operators of the exchanges, the participants and investors of trading activities.

Second, individual citizens who hold and trade cryptocurrencies should have legal awareness and compliance awareness of anti-money laundering.

The mainland does not prohibit the flow of cryptocurrencies in the private sector, but for individual citizens who hold and trade cryptocurrencies in the mainland, these activities may have potential fraud and money laundering risks, and a slight carelessness may passively become a tool for others to launder money, or inadvertently violate the criminal law. For example, Zhang San used the money obtained from the fundraising fraud to exchange for USDT, and then sold USDT to Li Si, demanding that Li Si pay him cash. In this process, Li Si helped Zhang San realize the transformation of the nature of the funds obtained by the crime through the cryptocurrency he held, and if he knew that Li Si's funds were from an illegal source, it would have constituted the crime of money laundering, and even if he did not know it, he had inadvertently become Zhang San's money laundering tool.

Therefore, individual citizens who hold and trade cryptocurrencies should consult professionals to understand the relevant legal knowledge of cryptocurrency anti-money laundering, and do a good job in personal risk prevention and control in accordance with the law in the process of cryptocurrency transactions.

The above content was originally written by lawyer Yang Tianyi and may not be reproduced without permission, thank you for your appreciation and support.

Lawyer Yang Tianyi's areas of expertise:

1. Blockchain business field: focus on criminal defense and compliance review of virtual currency issuance, mining and trading, virtual currency contracts, option trading, NFT digital assets, blockchain games, metaverse games and other crimes involving fraud, pyramid schemes, illegal operations, aiding credit, covering up and concealing criminal proceeds, money laundering, and opening casinos.

2. Financial business field: focus on criminal defense and business compliance of private equity funds, payment and settlement, foreign exchange futures, "underground banks", "routine loans" and other illegal fundraising crimes suspected of illegally absorbing public deposits, fundraising fraud, illegal operation, fraud, pyramid schemes, money laundering and other crimes.

3. Online MLM business field: good at defense and compliance of "new retail" e-commerce platforms such as cosmetics and health care products, and cases of suspected MLM crimes and administrative penalties for MLM on online part-time platforms.

4. Tax-related business field: Focus on criminal defense and tax-related compliance business of smuggling crimes, false issuance of special VAT invoices, fraudulent export tax rebates and other tax-related cases.