Binance and Zhao could soon face criminal charges and hefty fees from US DOJ – Cryptopolitan

The U.S. Department of Justice has reportedly been investigating Binance and its CEO, Zhao, which may lead to potential criminal charges and substantial fines, individuals with knowledge of the matter reported. Additionally, Binance is contending with a lawsuit from the Securities and Exchange Commission (SEC), alleging unlawful operations in the US and mishandling of customer funds by the company and Zhao.

While Binance has acknowledged previous errors, it maintains that customer funds remain secure and emphasizes its dedication to regulatory compliance, a WSJ report shows. A spokesperson stated that they have worked tirelessly to learn the lessons of the past and continue to invest in the teams and systems that ensure user protection.

Binance’s regulatory trouble has affected its performance

Binance has experienced significant turbulence in recent months, marked by a series of high-level departures and substantial layoffs as part of a cost-cutting strategy to brace for an anticipated downturn in business. The exchange’s market dominance has waned, with its share of directly traded cryptocurrency transactions dropping from around 70% at the beginning of the year to approximately 50%, according to data from Kaiko.

In the US, Binance US, has seen a sharp decline in activity, leading to the departure of its CEO, legal chief, and risk head. Its CEO Brian Shroder, in a virtual meeting before his departure, disclosed that the exchange’s revenue had plummeted by 70% year-to-date, leaving executives concerned.

Shroder emphasized that for the US platform to sustain its growth plans, Zhao would need to address his regulatory issues, place his US holdings in a blind trust, or sell his shares. These steps were seen as crucial to reestablishing banking relationships and obtaining licenses. Zhao, who holds the majority ownership of Binance US and the global exchange, has faced internal discussions within Binance regarding whether he should step down.

Zhao’s determination to remain in his leadership role has led to frustration among some executives who believe his departure could enhance the company’s chances of survival. The internal upheaval has also affected employee morale, with some staff members expressing their concerns directly to Zhao in a summer meeting, highlighting issues such as abrupt layoffs and severance terms. 

DOJ intensifies scrutiny on Binance

The recent scrutiny on Binance intensified when a Wall Street Journal report revealed the use of sanctioned Russian banks by Binance customers, further complicating matters as the Department of Justice investigates potential violations of US sanctions on Russia.

In response to the WSJ report, the US DOJ raised inquiries with the exchange regarding using sanctioned banks. Noah Perlman, Binance’s chief compliance officer, engaged with DOJ officials to address their concerns. Under the mounting pressure from the DOJ, Changpeng Zhao (CZ), Binance’s CEO, opted to initiate the gradual winding down of Binance’s operations in Russia, a once crucial market for the exchange. 

In the subsequent two weeks, the exchange implemented measures to prevent customers from accessing sanctioned banks and removed the executives overseeing its Russia operations. The exchange also indicated it was contemplating a complete withdrawal from the Russian market.

Publicly, CZ maintained a resolute stance, emphasizing unity within the crypto community and encouraging continued progress. However, behind closed doors, he has been bolstering the legal team handling the DOJ case, sources familiar with the matter revealed. Furthermore, CZ has taken up residence in the United Arab Emirates, a jurisdiction that lacks a mutual extradition treaty with the US.

The fate of Binance carries significant repercussions for the broader cryptocurrency industry due to its substantial market presence. While industry experts believe that other exchanges could step in to fill the void if it were to collapse, in the short term, there could be a rapid depletion of liquidity in the market, potentially resulting in a sharp decline in token prices. Institutional traders have even conducted contingency plans to swiftly withdraw their assets from the exchange should such a scenario unfold.