What Is the Justice Department Binance Case?

The basics of the Justice Department Case against Binance are that they helped foreign actors evade sanctions imposed by the US. Specifically this has to do with terrorist financing by Iran, terrorist activities by Hamas, and the Russian Republic after it came under sanction for invading Ukraine. Basically, a crypto exchange is required by the USA to know its customers. The point is to avoid helping in money laundering, hiding criminal profits, and financing terrorist operations. The Justice Department blames both the Binance company and its founder, Changpeng Zhao, for carrying out criminal activities.

Lawsuit Effectively Crippled Binance.US

The criminal case against Binance hit Binance.US the hardest. However, as this drags on there is the risk of Binance collapsing similar to how FTX did a year ago. It appears that part of what is going on is an attempt to avoid more chaos in the crypto market. Should a deal be reached, Binance would pay a fine and have its operations closely monitored for an indefinite period of time. The seriousness of this case can be seen in the fact that the money laundering division of the Department of Justice as well as the national security division are involved. Meanwhile, Binance.US business is virtually nonexistent and the company has laid off a substantial portion of its employees.

Avoiding an FTX Repeat

When FTX was going under, Bankman-Fried asked Zhao for a bailout. Apparently Zhao saw how bad the situation was and refused. $8 billion was lost in the FTX mess. How much would be lost if Binance went under is uncertain. The fact that the Binance story has played out over more than a year has given their customers a heads up. Thus, Binance has to a degree resembled a sinking ship over the last year. A big difference in regard to Zhao versus Bankman-Fried is that Zhao went to a country with no extradition to the USA. Bankman-Fried holed up in the Bahamas in one of his villas from which he could be extradited.

CFTC Lawsuit on Top of Justice Department Case

In addition to the troubles that Binance has with the Justice Department, it is also being sued by the Commodity Futures Exchange Commission and the Securities and Exchange Commission. The issue is that Binance broke derivative trading rules according to CFTC and SEC. This part is what virtually all of crypto is going through. Regulators want trading venues in crypto to follow rules similar to what stock exchanges, stock brokers, banks, mutual funds, insurance companies and others already follow as they handle customer money.

Why Is the Justice Department Making a Settlement Offer?

A cynic might note that if Binance continues to go downhill, there will be no money left. Thus, accepting a fine now in return for promised compliance could generate $4 billion to pay for the prosecution of this case and more. A less cynical opinion is that the goal of the Justice Department as well as the CFTC and SEC is not to destroy Binance or crypto for that matter. The goal is to get folks in crypto and Binance in particular to play by the same rules that folks like the New York Stock Exchange have played by for more than a century. Because Mr. Zhao is safely ensconced in the United Arab Emirates, he has had more leverage than Bankman-Fried as is getting off with a $50 million fine.

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