For the past five years, the US Department of Justice has reportedly been investigating the world’s largest crypto exchange, Binance, for suspected money laundering, unlicensed money transmission and criminal sanctions violations. But now, according to a report in Bloomberg, the DoJ is willing to settle. For $4 billion.
Citing anonymous sources, Bloomberg says that the DoJ has entered into negotiations with Binance over the structure of the deal, which may take the form of a deferred prosecution agreement, under which the agency would file criminal charges against Binance, but decline to follow through provided the exchange meets certain criteria and pays the proposed financial penalty. The agreement would not necessarily prevent the DoJ from pursuing criminal charges against Changpeng Zhao, Binance CEO, but—crucially—would allow the exchange to remain operational. Neither the DoJ nor Binance returned a request for comment.
Binance would have been an enormous scalp for the DoJ, which has signaled a desire—along with US regulatory agencies—to tame the wild west of the crypto industry. But the choice to pursue a settlement rather than a trial may come down to a concern for the exchange’s users and the extent of its entrenchment in the crypto industry. Hundreds of thousands of regular people would be caught in the fallout if the company were to collapse under the weight of a conviction.
A deferred prosecution agreement, says Paul Tuchmann, a former US prosecutor and partner at law firm Wiggin and Dana, is typically deployed in cases where the DoJ determines “the collateral consequences of a criminal prosecution of a corporation are not worth it.” Taken into consideration will be the scope of potential “damages to innocent parties,” says Tuchmann, which might include “shareholders, employees, or consumers of the company’s services.” In short: Binance has become too big to fail.
It is “generally not the DoJ’s policy to want to put somebody out of business,” says Tuchmann.
At the height of its popularity in February 2023, shortly after the failure of rival firm FTX, Binance was responsible for as much as 66 percent of crypto trading activity taking place over centralized exchanges (as opposed to peer-to-peer platforms) worldwide. By October, its market share had fallen below 40 percent, but Binance remains by far the largest exchange in the world by transaction volume.
The exchange has attracted the attention of regulators looking to impose some control over the crypto sector. Earlier this year, the Commodities and Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC), two US regulatory bodies, filed civil lawsuits accusing Binance of a laundry list of improprieties, including commingling customer assets, anti-money laundering violations, and artificially inflating trading volumes.
Staff at Binance have been braced for criminal charges against the firm, according to one former employee, who asked to remain anonymous for fear of retaliation. The apparent confirmation that the DoJ is preparing criminal charges will do nothing to dampen the “concern and anxiety” inside the company, which began in the summer when it started to conduct large-scale layoffs and eliminate various perks and benefits,
the former employee, who departed the company earlier this year, says. Even though there are no signs that the company is in any immediate financial danger, there is a “general sense of doom” at Binance, the ex-employee says.
If the US were to impose criminal sanctions on Binance, says Jacob Silverman, author of Easy Money: Cryptocurrency, Casino Capitalism, and the Golden Age of Fraud, it would “cause banks to retreat,” effectively choking the exchange by impeding its ability to accept regular currency from customers. “For all crypto companies, banking access and access to dollars is a perpetual challenge—and an imperative.”
Even offshore banks would have to fall in line, says Stephen Diehl, a crypto skeptic commentator. “The US dollar is the world’s reserve currency…Banks are highly reliant on [dollar] flows from the US,” he says. “If it comes down to jettisoning Binance as a client or continuing to do business with the US, it won’t be a difficult decision to make. Even the Bank of China is reliant on foreign dollar reserves.”
If Binance were to fall as a result of criminal proceedings brought against it, it would deal extensive damage, says Silverman, particularly to appetite among regular people to deal in cryptocurrencies. “If FTX wasn’t the end of consumer crypto as we know it, the collapse of Binance definitely would be,” he says. “It’s one of several pillars holding up the consumer crypto market—and certainly the most important one.”
The vacuum left behind by Binance, given its centrality to services provided across all quarters of the crypto industry, could be of an even greater magnitude than that created by FTX, whose failure sent the price of crypto tokens into a tailspin, led to the collapse of other crypto firms, triggered a regulatory crackdown in the US and, in a roundabout way, led to the fall of two crypto-friendly banks. “Like FTX, Binance has a lot of investments and works with a lot of its peers, and a lot of crypto hedge funds trade on Binance. [A collapse] would be catastrophic and a lot of regular people would lose their money,” says Silverman.
Not everyone subscribes to the idea that trouble at Binance would bring down the industry. The company isn’t too big to fail, says Cory Klippsten, CEO of bitcoin financial services company Swan Bitcoin, nor is it a given that the DoJ would lose sleep over potential damage to investors—particularly those based outside of its own jurisdiction. Fewer than a million people used Binance’s US-facing service, before it suspended dollar deposits in June in the wake of the SEC lawsuit, though the firm has been accused by regulators of allowing US citizens to access its international exchange, which offers riskier debt-based trading that requires special licensing in the US. However, it would take multiple years for the crypto industry to recover from the “shuttering or crippling of Binance,” says Klippsten, and for new players to “fill the void.”
Neither the specifics of the potential criminal charges to be brought against Binance, nor the requirements the firm would have to meet under an agreement with the DoJ have yet been confirmed.
Multiple Binance insiders say the firm could comfortably absorb a $4 billion hit, but whether the exchange would be capable of bringing itself in line with whatever requirements the DoJ intends to impose under a deferred prosecution agreement is another question. Neither is it clear the company would sign any such agreement, which may run, Diehl says, against “the libertarian, anti-statist principles at the heart of crypto.”