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Sanctions lawyers knew things were going to get worse before they even finished reading the first page of the indictment. Under the section heading, overviewThe government has summarized the facts and circumstances giving rise to the criminal case against cryptocurrency exchange Binance Holdings Limited, doing business as binance.com, and the accompanying case against its CEO Changpeng Chao, better known as CZ. On line 6 of the summary, line 23 of the indictment, there was an adverb that caught the attention of every sanctioning attorney and every sanctioning investigator. Deliberately.
Binance was an unregistered money transfer company
As a cryptocurrency exchange operating at least partially in the United States, Binance was a money transmitter, not to mention serving users in the United States. This is not a new law enacted to regulate the cryptocurrency industry. Nor is this a new application of existing U.S. law to cryptocurrency exchanges.
The US government has been talking about cryptocurrencies since at least 2011. In 2013, FinCEN, the Financial Crimes Enforcement Network, a bureau within the U.S. Department of the Treasury, issued guidance titled: Application of FinCEN Regulations to Virtual Currency Management, Exchange, and Users. FinCEN clarified in his 2013 guidance:
“Any administrator or exchanger that (1) receives and transmits Convertible Virtual Currency, or (2) buys or sells Convertible Virtual Currency for any reason.” teeth Remitters regulated by FinCEN. unless a limitation or exemption in the definition applies to that person. ”
To be clear, this term Man It refers not only to individuals but also to entities. The instruction continued as follows.
“FinCEN regulations define the term “remitter” as a person who provides money transfer services or any other person involved in the transfer of funds. “Money Transfer Service” means “the receipt of currency, funds, or other value in lieu of currency from one person.” and Transmit currency, funds, or other value in lieu of currency by any means to another place or person.
“The definition of money transmitter does not distinguish between real currency and convertible virtual currency. Under the regulations implementing the BSA, receiving or sending anything of value in place of currency will be the remittor.”
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According to the government, Binance, CZ and others conspired to violate US anti-money laundering laws.
As a money transmitter, Binance had to register with FinCEN. That was not the case with Binance, according to the government.
As a money transmitter, Binance had to comply with the Bank Secrecy Act. This means, among other things, filing reports of suspicious activity and implementing an effective anti-money laundering (AML) program that reasonably prevents fraudulent activity on Binance. Used for money laundering and terrorist financing. Again, according to the government, Binance was not.
Indeed, later on, according to the government, in addition to the global cryptocurrency exchange located on the Internet at binance.com, Binance established another US cryptocurrency exchange located at binance.us, apparently linked to FinCEN. It is said that it has been registered. However, the government says that, as described in the charging documents and in a joint press conference held by the Department of Justice, Treasury, and the Commodity Futures Trading Commission (commonly known by its abbreviation CFTC), ing. Even after the creation of binance.us, Binance intentionally kept some “VIP users” on its global exchange, binance.com.
Simply put, the government says Binance, CZ, and others conspired to violate U.S. anti-money laundering laws.
Anti-Money Laundering Compliance and Bank Secrecy Act
To understand why governments take anti-money laundering laws so seriously, consider that these laws prevent the proceeds of crime from entering the financial system and prevent the financial system from being used to finance terrorism. It helps to understand that they are there to protect you. . The government’s concerns are not hypothetical. Its purpose is not theoretical. According to the government, Binance’s failure to implement an effective anti-money laundering program as required by the Bank Secrecy Act actually led to binance.com being used to conduct illegal transactions and finance terrorism.
Sanctions Compliance and International Emergency Economic Powers Act
The International Emergency Economic Powers Act (IEEPA) authorizes the President of the United States to impose economic sanctions against countries, entities, entities, or individuals. IEEPA has approved North Korea sanctions, Ukraine/Russia-related sanctions, and Iran sanctions. IEEPA authorizes the blocking of transactions with terrorist organizations such as Al Qaeda, ISIS, and Hamas. IEEPA also authorizes the implementation of sanctions against specific individuals. IEEPA then authorizes enforcement of those sanctions.
The federal prosecutors, investigators, and analysts who do this work take sanctions violations heart attack-inducingly serious. The same goes for sanctions lawyers, investigators, consultants, and experts. Therefore, when an adverb is used immediately in a request document, Deliberately Explaining Binance’s IEEPA violation, sanctions lawyers knew it was going to be bad. In fact, as explained later in the billing document:
“As a result of Defendants’ decision not to implement comprehensive regulations to prevent illegal transactions between Sanctioned Users and U.S. Users, Defendants will Specifically, from January 2018 to May 2022, the defendants intentionally caused transactions in Iran that violated U.S. law. Caused at least 1.1 million transactions in violation of IEEPA with users believed to be residents, totaling at least $898,618,825.
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Binance and CZ plea deal
Binance has pleaded guilty to conspiracy to operate an unauthorized money transfer business. Conducting unauthorized remittance business. Violation of the International Emergency Economic Powers Act. Additionally, Binance has resolved litigation with the Treasury Department and the CFTC. Binance will have to pay a total of $4.3 billion in fines and forfeitures. Where necessary and appropriate, Binance has also agreed to implement new compliance programs or enhance existing compliance programs. Additionally, the plea agreement requires Binance to impose monitoring and reporting obligations.
Mr. CZ pled guilty to failing to maintain an effective anti-money laundering program. According to the plea agreement, he must pay a $50 million fine in addition to other fines. Sentence against CZ is scheduled to be handed down on February 23, 2024.
How an effective compliance program can help your company reduce risk and avoid crises
Whether you are a virtual currency exchange, money transmitter, other money services business, or a bank or financial company that needs to comply with bank secrecy laws, an effective compliance program can reduce the risk of violations in many ways. To do.
Moreover, this applies to all individuals or entities engaged in any form of international business, such as virtual currency exchanges, money transmitters, money service businesses, banks, financial institutions, etc. Sanctions are heart attack-inducing. -Severe. However, an effective sanctions compliance program and, where appropriate, self-reporting, can definitely help reduce risk and avoid legal, commercial, financial and reputational risks.
